My Project.docx

SR NO.

1.

TOPIC NAME

PAGE NO.

DESIGN OF THE STUDY

1-3

OBJECTIVES

1

LIMITATIONS

2

SCOPE

3

GLOBAL PERSPECTIVE

6-11

1.1 INTRODUCTION 1.2 HISTORY 1.3 STANDARD BANKING ACTIVITIES 1.4 BANKS IN THE ECONOMY 1.5 SIZE OF THE GLOBAL BANKING INDUSTRY 1.6 GLOBALIZIATION IN THE BANKING INDUSTRY

2.

INDINA PERSPECTIVE

12-21

2.1 HISTORY OF INDIAN BANKING 2.2 CLASSIFICATION OF BANKING INDUSTRY INDIA 2.3 ADOPTION OF BANKING TECHNOLOGY 2.4 REGULATIONS FOR INDIAN BANKS 2.5 NATIONALIZATION 2.6 LIBERLIZATION

3.

OVERVIEW OF HDFC & SBI BANK 3.1 INTRODUCTION

22-30

3.2 HISTORY 3.3 SOURCES OF INCOME 3.4 SWOT ANALYSIS

4.

COMPARATIVE STUDY OF FINANCIAL ASPECTS

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4.1 STATEMENT OF PROFIT AND LOSS ACCOUNT  HDFC BANK  SBI BANK 4.2 BALANCESHEET STATEMENT  HDFC BANK  SBI BANK 4.3 RATIO ANALYSIS

5.

CASE STUDY

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5.1 CASE STUDY ON HDFC BANK 5.2 CASE STUDY ON SBI BANK 6.

DETAILS OF THE STUDY

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6.1 FINDINGS OF THE STUDY 6.2 RESEARCH AND METHDOLOGY 6.3 REVIEW OF LITERATURE 6.4 SUGGESTIONS 6.5 CONCLUSIONS

ANNEXURE

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WEBLIOGRAPHY & BIBLIOGRAPHY

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DESIGN OF THE STUDY OBJECTIVES 1. To Compute and compare the financial performance of HDFC and SBI 2. 3. 4.

5.

6. 7.

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

LIMITATIONS  The researcher has tried to study about the profitability of HDFC Bank and SBI Bank in depth, however faced some difficulties in collecting information and also faced limitations.  Time constraint was the main limitation faced while making the project.  One of the major limitations of this study is all the banks in Hyderabad were not considered as the network of operation of all the banks is quite distinguishable.  The banks considered are only single banks i.e. HDFC from private sector bank and SBI from public sector Bank sector bank as they are the leading banks.  Co-operative banks and foreign banks are kept out of the study as they follow different set of guidelines given by RBI.

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

CHAPTER 1. GLOBAL PERSPECTIVE 1.1 INTROIDUCTION 1.2 HISTORY 1.3 STANDARD BANKING ACTIVITIES 1.4 BANKS IN THE ECONOMY 1.5 SIZE OF THE GLOBAL BANKING INDUSTRY 1.6 GLOBALIZATION IN THE BANKING INDUSTRY

1.1 INTRODUCTION A Bank is a financial intermediary that creates credit by lending money to a borrower, thereby creating a corresponding deposit on the bank’s balance sheet. Lending activities can be performed either directly or indirectly through capital markets. Due to their importance is the financial system and influences on national economics, banks are highly regulated in most countries. Most nations have institutionalized a system known as fractional reserve banking under which banks hold liquid assets equal to only a portion of their current liabilities. In addition to other regulations intended to ensure liquidity, banks are generally subject to minimum capital requirements based on an international set of capital standards, known as the Basel Accords. Banking in its modern sense evolved in the 14th century in the rich cities of Renaissance Italy but in many ways was a continuation of ideas and concepts of credit and lending that had their roots in the ancient world. In the history of banking, a number of banking dynasties—notably, the medicis, the Fuggers, the welsers, the Berenbergs and the Rothschilds--- have played a central role over many centuries, The oldest existing retail bank is Monte dePaschi di Siena, while the oldest existing merchant bank is Berenberg Bank.

1.2 HISTORY Banking begins with the first prototype banks of merchants of the ancient world, which made grain loans to farmers and traders who carried goods between cities. This began around 2000 BC in Assyria and Babylonia. Later, in ancient Greece and during the Roman Empire, lenders based in temples, made loans and added two important innovations: they accepted deposits and changed money, Archaeology from this period in ancient China and India also shows evidence of money lending activity. The origins of modern banking can be traced to medieval and early Renaissance Italy, to the rich cities in the north like Florence, Lucca, Siena, Venice, and Genoa. The Bardic and Peruzzi dominated banking in 14th Century Florence, establishing branches in many other parts of Europe. One of the most famous Italian banks was the Medici bank, set up by Giovanni di Bicci de’ in 1937. The earliest known state deposit bank, Banco di san Giorgio (Bank of St. George), was founded in 1407 at Genoa, Italy. Modern banking practices, including fractional reserve banking and the issue of banknotes, emerged in the 17th and 18th centuries. Merchants started to store their gold with the goldsmiths of London, who possessed private vaults, and charged a fee for that service. In exchange for each deposit of precious metal, the goldsmiths issued receipts certifying the quantity and purity of the metal they held as a Bailee; these receipts could not be assigned, only the original depositor could collect the stored goods.

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

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

1.3 BANKING ACTIVITIES STANDARD ACTIVITIES Banks at as payment agents by conducting checking or current accounts for customers. Paying cheques drawn by customers on the bank, and collecting cheques deposited to customers’ current accounts. Banks also enables customer payments via other payment methods such as Automated Clearing House (ACH), wire transfer or telegraphic transfer, EFTOPS and Automated Teller machine (ATM). Banks borrow money by accepting deposited on current accounts, by accepting term deposits, and by issuing debt securities such as banknotes and bonds. Banks lend money by making advances to customers on current accounts, by making instalment loans, and by investing in marketable debt securities and other forms of money lending. Banks provide different payment services, and a bank account is considered indispensable by most businesses and individuals. Non-banks that provide payment services such as remittance companies are normally not considered as an adequate substitute for a bank account. Banks can create new money when they make a loan. New loans throughout the banking system generate new deposits elsewhere in the system. The money supply is usually increased by the act of lending, and reduced when loans are repaid faster than new ones are generated. In the United Kingdom between 1997 and 2007, there was an increase in the money supply, largely cause by much more bank lending, which served to push up property prices and increase private debt. The account of money in the economy as measured by M4 in the UK went from €750 billion to £1700 billion between 1997 and 2007, much of the increase caused by bank lending. If all the banks increase their lending together, then they can expect new deposits to return to them and the amount of money in the economy will increase. Excessive or risky lending can cause borrowers to default, the banks then become more cautions, so there is less lending and therefore less money so that the economy can go from boom to bust as happened in the UK and many other Western economies after 2007.

RANGE OF ACTIVITY Activities undertaken by bank include  Personal banking  Corporate banking  Investment banking  Private banking  Insurance  Consumer finance  Foreign exchange trading  Commodity trading  Trading in equities  Futures and options trading and money market trading

CHANNELS Bank offer many different channel to access their banking and other services:  Automated Teller Machine.  A branch is a retail location.  Call center  Mail: most bank accept cheque deposits via mail and use mail to communicate to their customer, e.g. by sending out statements.  Mobile banking is a method of using one's mobile phone to conduct banking transactions.  Online banking is a term used for performing multiple transactions, payments etc. over the internet.  Relationship manger, mostly for private banking or business banking, often visiting customers at their homes or business  Telephone banking is a service which allows its customers to conduct transactions over the telephone with automated attendant or when requested with telephone operator.  Video banking is a term used for performing banking transactions or professional banking consultations via a remote video and audio connection. video banking can be performed via purpose built banking transaction machines (similar to an Automated Teller Machine), or via a video conference enabled bank branch clarification  DSA is a Direct Selling Agent, who works for the bank based on a contract. its main job is to increase the customer base for the bank.

1.4 BANKS In THE ECONOMY ECONOMIC FUNCTIONS The economic functions of banks include: 1. Issue of money, in the form of banknotes and current account subject to check or payment at the customer’s order. These claims on banks can act as money because they are negotiable or repayable on demand, and hence valued at par. They are effectively transferable by mere delivery, in the case of banknotes, or by drawing a check that the payee may bank or cash. 2. Netting and settlement of payment -banks act as both collection and paying agent for customers, participating in interbank clearing and settlement systems to collect, present, be presented with, and pay payment instruments. This enables the offsetting of payment flows between geographical areas, reducing the cost of settlement between them. 3. Credit intermediation -bank borrow and lend back-to -back on their own account as middle men. 4. Credit quality improvement - banks lend money to ordinary commercial and personal borrower (ordinary credit quality), but are high quality borrowers. The improvement comes from diversification of the bank's assets and capital which provides a buffer to absorb losses without defaulting on its obligations. 5. However, banknotes and deposits are generally unsecured; if the bank gets into difficulty and pledges assets as security, to raise the funding it need to continue to operate , This Put holders and depositor’s in an economically subordinated position. 6. Asset liability mismatch/maturity transformation banks borrow more one demand debt and short term debit, but more long term loans.in other word, they borrow short and led log. With a stronger credit quality than most other borrower, banks can do this by aggregating issue (e.g. Accepting deposits and issuing banknotes) and redemption (e.g. Withdrawals and redemption of banknotes), maintaining reserves of cash, investing in marketable securities that can be really converted to cash if needed, and raising replacement funding as needed from various Sources (e.g. wholesale cash markets and securities Market). 7. Money creation -whenever a bank gives out a loan in a fractional-reserve

banking system, a new sum of virtual money is created.

1.5 SIZE OF GLOBAL BANKING INDUSTRY Assets of the largest 1,000 bank in the world grew by 6.8% in the 2008/2009 financial year to a record US$96.4 trillion while profit declined by 85% to US$115 billion. Growth in assets in adverse market conditions was largely a result of recapitalization. EU bank held the largest share of the total, 56% in 2008/2009, don form 61% in the previous year. Asian banks share increased from 12% to 14% during the year, while the share of us banks increased from 11% to 13%. Fee revenue generated by global investment banking totaled US$66.3 billion in 2009, up 12% on the previous year The United States has the most banks in the world in term of institutions (7,085 at the end of 2008) and possibly branches (82,000).This is an institutions of the geography and regulatory structure of the USA , resulting in a large number of small to medium-sized institution in its banking system. As of November 2009, china's top 4 banks have in excess of 67,000 branches (ICBC: 18000+BOC: 12000+, CCB: 1300+, ABC: 24000+) with an additional 140 smaller banks with an undetermined number of branches. Japan had 129 banks and 12,000 branches. In 2004, Germany, France, and Italy each had more than 30,000 branches---more than double the 15,000 branches in the UK.

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

CHAPTER 2. INDIAN PERSPECTIVE

2.1 HISTORY OF INDIAN BANKING 2.2 CLASSIFICATION OF BANKING INDUSTRIN INDIA 2.3 ADOPTION OF BANKING TECHNOLOGY 2.4 REGULATIONS FOR INDIAN BANKING 2.5 NATIONALIZATION 2.6 LIBERALIZATION

2.1 HISTORY OF INDIAN BANKING Banking in India In the modern sense originated in the last decades of the 18 th century. Among the first bank of Hindustan, which was established in 1770 and liquidated in 1829-32; and the General Bank of India, established 1786 but failed in 1791. The largest bank, and the oldest still in existence, in the state Bank of India. It originated as the Bank of Calcutta in June 1806. In 1809, it was renamed as the bank of Bengal. This was one of the three banks funded by a presidency government, the other two were the Bank of Bombay and the Bank of Madras. The three banks were merged in 1921 to form the imperial Bank of India in 1955. For many years the presidency banks had acted as quasi-central banks, as did their successors, until the Reserve Bank of India was established in 1935, under the reserve Bank of India Act, 1934. In 1960, the State Banks of India was given control of eight state-associated banks under the state Bank of India (Subsidiary Banks) Act, 1959. These are now called its associate banks. In 1969 the India government nationalized 14 major private banks. In 1980, 6 more private banks were nationalized. These nationalized banks are the majority of lenders in the Indian economy. They dominate the banking sector because of their large size and widespread networks. The Indian banking sector is broadly classified into scheduled banks and nonscheduled banks. The scheduled banks are those which are included under the 2nd Scheduled of the Reserve Bank of India Act, 1934. The scheduled banks ae further classified into; nationalized banks; state bank of India and its associates; regional rural banks (RRBs); foreign banks; and other Indian private sector banks. the team commercial banks refers to both scheduled and non scheduled commercial banks which are regulated under the banking regulation Act, 1949. generally banking in India was fairly mature in terms of sully , product range and reach-even though reach in rural India and to poor still remains a challenge. the government has developed initiatives to address this though the state bank of India expanding its branch network and though the national bank for agriculture and rural development with things like microfinance

2.2 CLASSIFICATION OF BANKING INDUSRY IN

INDIA The organized banking system in India can be classified as given below:

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

COMMERCIAL BANK: Commercial banks mobilize savings of general public and make them available to large and small industrial and trading units mainly for working capital requirements. Commercial bank in India are largely Indian-public sector and private sector with a few foreign banks. The public sector banks account for more than 92 percent of the entire banking business in India-occupying a dominant position in the commercial banking. The State bank of India and its 7 associate banks along with another 19 banks are the public sector banks.

SCHEDULED AND NON-SCHEDULED BANKS: The scheduled banks are those which are enshrined i the second schedule of the RBI Act, 1934. These banks have a paid-up capital and reserves of an aggregate value of not less than Rs.5 lakhs. They have to satisfy the RBI that their affairs carried out in the interest of their depositors. All commercial banks (Indian and foreign), regional rural banks, and state Cooperative banks are scheduled banks. Non-scheduled banks are those which are not included in the second schedule of the RBI Act, 1934.At present these are only three such banks in the country.

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

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

OTHER SPECIAL FEATURES OF THESE BANKS ARE: (1) Their area of operation is limited to a specified region, comprising one or more districts in any state; (2) Their lending rates cannot be higher than the prevailing lending rates of Cooperative credit societies in any particular state; (3) The paid-up capital of each rural bank is Rs.25 lakh, 50 percent of which has been contributed by the Central GVT, 1 percent by commercial bank which are also responsible for actual setting up of the RRBs. These banks are helped by higher-level agencies: the sponsoring banks lend them finds and advise and train their senior staff, the NABARD (National Bank for Agriculture and Rural Development) gives them short-term and medium term loans: the RBI has kept CRR (Cash Reserve Requirements) of hem at 2% and SLR (Statutory Liquidity Requirement) at 25% of their total net liabilities, whereas for other commercial banks the required minimum ratios have been varied over time.

CO-OPERATIVE BANKS: Co-operative banks are so-called because they are organized under the provision of the Co-operative Credit Societies Act of the states. The major beneficiary of the Co-operative Banking is the agricultural sector in particular and the rural sector in general. The co-operative credit institutions operating in the country are mainly of two kind: agricultural (dominant) and non-agricultural. There are two separate Cooperative agencies for the provision of agricultural credit: one for short and medium-term credit, and the other for long-term credit. The former has three tier and federal structure. At the apex is the State Co-operative bank (SCD) (cooperation being a state subject in India), at the intermediate (district) level are the Central Co-operative Bank (CCBs) and at the village level are primary Agricultural Credit Societies

(PACs).

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

2.3 ADOPTION OF BANKING TECHNOLOGY The IT revolution has had a great impact on the Indian banking system. The use of computers has led to the introduction of online banking in India. The use of computers in the banking sector in India has increased many fold after the economic liberalization of 1991 as the country’s banking sector has been exposed to the world’s market. Indian banks were finding it difficult to compete with the international banks in terms of customer service, without the use of information technology. The RBI set up a number of committees to define and co-ordinate banking technology. These have included:  In 1984 was formed the Committee on Mechanisation in the Banking Industry (1984) whose chairman was Dr. C Rangarajan, Deputy Governor, Reserve Bank of India. The major recommendations of this committee were introducing MICR technology in all the banks in the metropolises in India. This provided for the use of standardized cheques forms and encoders.  In 1988, the RBI set up the committee on computerisation in Banks (1988) headed by Dr. C Rangarajan. It emphasized that settlement operation must be computerized in the clearing houses of RBI in Bhubaneswar, Guwahati, Jaipur, Patna and Thiruvananthapuram. It further stated that there should be National Clearing of of inter-city cheques at Kolkata, Mumbai, Delhi, Chennai and MICR should be made operational. It also focused on computerisation of branches and increasing connectivity among branches through computers. It also suggested modalities for implanting on-line banking. The committee submitted its reports in 1989 and Computerisation began from 1993 with the settlement between IBA and bank employee’s associations.  In 1994, the committee on Technology Issues relating to Payment systems, Cheque Clearing and Securities in the Banking Industry (1994) was set up under Chairman W S Saraf. It emphasized Electronic Funds Transfer (EFT) system, with the BANKNET communications network as its carrier. It also said that MICR clearing should be set up in all branches of all those banks with more than 100 branches.  In 1995, the committee for proposing Legislation on Electronic Funds Transfer and other Electronic Payment (1995) again emphasized EFT system. 

 2.4 REGULATIONS FOR INDIAN BANKS  The banking system in India is regulated by the Reserve Bank of India (RBI), through the provisions of the Banking Regulations Act, 1949. Some important aspects of the regulations which govern banking in this country, as well as RBI circulates that relate to banking in India, will be dealt with in this article:  EXPOSURE LIMITS  Lending to a single borrower is limited to 15% of the bank’s capital funds (tier I and tier 2 capital), which may be extended to 20% in case of infrastructure projects. For group borrowers, lending is limited to 30% of the bank’s capital funds, with an option to extend it to 40 % for infrastructure projects. The lending limit can be extended by a further 5% with the approval of the bank’s board of directors. Lending includes both fund based and non-fund based exposure.

 CASH RESERVE RATIO (CRR) AND STATUTORY LIQUIDITY RATIO (SLR)  Banks in India are required to keep minimum of 4% of their net demand and time liabilities (NDTL) in the form of cash with the RBI. These currently earn no interest. The CRR needs to be maintained on a fortnightly basis, while the daily maintenance need to be at least 95% of the required reserves. In case of default on daily maintenance, the penalty is 3% above the bank rate applied on the number of days of default multiplied by the amount by which the amount falls short of the prescribed level.  Over and above the CRR, a minimum of 22% and maximum of 40% of NDTL, which is known as the SLR, needs to be maintained in the form of gold, cash or certain approved securities. The excess SLR holdings can be used to borrow under the Marginal Standing Facility (MSF) on an overnight basis from the RBI. The interest charged under MSF is higher than the repo rate by 100 bps, and te amount that can be borrowed is limited to 2% of NDTL.

 PROVISIONING  assets are those assets with NPA status for less than 12 months, at the end of which they are categorized as doubtful assets. A loss is Non-performing assets ( NPA) are classified under 3 categories: Substandard, Doubtful and Loss. An

asset becomes non-performing if there have been no interest or principal payments for more than 90 days in the case of a term loan. Substandard one for which the bank or auditor expects no repayment or recovery and is generally written off the books.  For substandard asset, it is required that a provision of 15% of the outstanding loan amount for secured loans and 25% of the outstanding loan amount for unsecured loans to be made. For doubtful assets, provisioning for the secured part of the loan varies from 25% of the outstanding loan for NPA’s which have been in existence for less than one year to 40% for NPA’s in existence between one and three years to 100% for NPA’s with a duration of more than three years, while for the unsecured part it is 100%.  Provisioning is also required on standard assets. Provisioning for agriculture and small and medium enterprises is 0.25% and for commercial real estate it is 1% (0.75% for housing), while it is 0.4% for the remaining sectors.  Provisioning for standard asset cannot be deducted from gross NPA’s to arrive at net NPA’s. Additional provisioning over and above the standard provisioning is required for loans given to companies that have unhedged foreign exchange exposure.

 PRIORITY SECTOR LENDING  The priority sector broadly consists of micro and small enterprises, and initiatives related to agriculture, education, housing, and lending to lowearning or less privileged groups (classified aa ‘’Weaker sections”). The lending target of 40% of adjusted net bank credit (ANBC) (outstanding bank credit minus certain bills and non-SLR bonds) – or the credit equivalent amount of off balance sheet exposure ( sum of current credit exposure + potential future credit exposures that is calculated using a credit conversion factor), whichever is higher – has been set for domestic commercial banks and foreign banks with greater than 20 branches, while a target of 32% exists for foreign .banks with less than 20 branches.  The amount that is disbursed as loans to the agriculture sector should either be the credit equivalent of off balance sheet exposures, or 18% of ANBC – whichever of the two figures is higher. Of the amount that is loaned to micro enterprises and small businesses, 40% should be advanced to those enterprises with equipment that has a maximum value of 200,000 rupees, and plant and machinery valued at a maximum of half a million rupees, while 20% of the total amount lent is to be advanced to

micro-enterprises with plant and machinery ranging in value from just above 500,000 rupees to a maximum of a million rupees and equipment with a value above 200,000 rupees but not more than 250,000 rupees.  The total value of loans given to weaker sections should be either be 10% of ANBC or the credit equivalent amount of off balance sheet exposure, whichever is higher. Weaker sections include specific castes and tribes that have been assigned that categorization, as well as small farmers etc. There are no specific targets for foreign banks with less than 20n branches.

 NEW BANK LICENSE NORMS  The new guidelines state that the groups applying for a license should have a successful track record of at least 10 years and the bank should be operated through a non-operative financial holding company(NOFHC) wholly owned by the promoters. The minimum paid-up voting equity capital has to be five billion rupees, with the NOFHC holding at least 40% of it and gradually bringing it down 15% over 12 years. The shares have to be listed within 3 years of the start of the bank’s operations.   The foreign shareholding is limited to 49% for the first 5 years of its operations, after which RBI approval would be needed to increase the stake to maximum of 74%. The board of the bank should have a majority of independent directors and it would have to comply with the priority sector lending targets discussed earlier.  The NOFHC and the bank are prohibited from holding any securities issued by the promoter group and the bank is prohibited from holding any financial securities held by the NOFHC. The new regulations also stipulates that 25% of the branches should be opened in previously rural areas.

 WILFUL DEFAULTERS  A wilful defaults takes place when a loan isn’t repaid even through resources are available, or if the money lent is used for purposes other than the designated purpose, or if a property secured for a loan is sold off without the bank’s knowledge or approval. In case a company within a group defaults and the other group companies that have given guarantees fail to honour their guarantees, the entire group can be termed as a wilful defaulter. Wilful defaulters (including the directors) have no access to

funding, and criminal proceedings may be initiated against them. The RBI recently changed the regulations to include non-group companies under the wilful defaulter tag as well if they fail to honour a guarantee given to another company outside the group.

 THE BOTTOM LINE  The way a country regulates its financial and banking sectors is in some senses a snapshot of its priorities, its goals, and the type of financial landscape and society it would like to engineer. In the case of India, the regulations passed by its reserve bank give us a glimpse into its approaches to financial governance and shows the degree to which it prioritizes stability within its banking sector, as well as economic inclusiveness.  Though the regulatory structure of India’s banking system seems a hit conservative, this has to be seen in the context in the context of the relatively under-banked nature of the country.   The excessive capital requirements that have been set are required to build up trust in the banking sector while the priority lending targets are needed to provide financial inclusion to those to whom the banking sector would not generally lend given the high level of NPA’s and small transaction sizes. Since the private banks have been left with that burden. A case could also be made for adjusting how the priority sector is defined, in light of the high priority given to agriculture, even though its share of GDP has been going down.

2.5 NATIONALIZATION Despite the provisions, control and regulations of the Reserve Bank of India, banks in India except the State Bank of India (SBI), continued to be owned and operated by private persons. By the 1960s, the Indian banking industry had become an important tool to facilitate the development of the Indian economy. At the same time, it had emerged as a large employer, and a debate had ensued about the nationalization of the banking industry. Indira Gandhi, the then Prime Minister of India, expressed the intention of the Government of India in the annual conference of the All India Congress Meeting in a paper entitled “Stray thoughts on bank Nationalization”. The meeting received the paper with enthusiasm. Thereafter, her move was swift and sudden. The Government of India issued an ordinance [‘Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969’] and nationalised the 14th largest commercial banks with effect from the midnight of 19th July 1969. These banks contained 85 percent of bank deposits in the country. Shri Jayaprakash Narayan, a national leader of India, described the step as a “masterstroke of political sagacity”. Within two weeks of the issue of the ordinance, the Parliament passed the Banking Companies (Acquisition and Transfer of Undertakings) Bill, and it received the presidential approval on 9th August 1969. A second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason for the nationalization was to give the government more control of credit delivery. With the second dose of nationalisation, the Government of India controlled around 91% of the banking business of India. Later on, in the year 1993, the government merged New Bank of India with Punjab National Bank. It was the only merger between nationalised banks and resulted in the reduction of the number of nationalised banks 20 to 19. After this, until the 1990s, the nationalised banks grew at a pace of around 4%, closer to the average growth rate of the Indian economy.

2.6 LIBERLIZATION In the early 1990s, the then government embarked on a policy of liberalization licensing a small number of private banks. These came to known as New Generation tech-savvy banks, and included Global trust Bank (the first of such new generation banks to be set up), which later amalgamated with Oriental Bank of Commerce, UTI Bank (Since renamed Axis bank), ICICI Bank and HDFC Bank. This move, along with the rapid growth in the economy of India, revitalised the banking sector in India, which has seen rapid growth with strong contribution from all the three sectors of banks, namely, government banks, private banks and foreign banks. The next stage for the Indian banking has been set up with the proposed relaxation in the norms for foreign direct investment, where all foreign investors in banks may be given voting rights which could exceed the present cap of 10% at present. It has gone up to 74% with some restrictions. The new policy shook the Banking sector in India completely. Banker’s, till this time, were used to the 4-6-4 method (borrow at 4%; lend at 6%; go home at 4%) of functioning. The new wave ushered in a modern outlook and tech-savvy methods of working for traditional banks. All this led to the retail boom in India. People demanded more from their banks and received more.

CHAPTER 3. OVERVIEW OF HDFC AND SBI BANK 3.1 INTRODUCTION 3.2 HISTORY 3.3 SOURCES OF INCOME 3.4 SWOT ANALYSIS

3.1 INTRODUCTION Banking is the backbone of the modern economy. Health of banking industry is one of the most important pre-conditions for sustained economic progress of any country. The world of banking has assumed a new dimension at the dawn of the 21st century with the advent of tech banking, thereby lending the industry a stamp of universality. In general, banking may be classified as retail and corporate banking. Retail banking, which is designed to meet the requirements of individual customers and encourage their savings, includes payment utility bills, consumer loans, credit cards, checking account balances. ATMs, transferring funds between accounts and the like. Corporate banking, on the other hand, caters to the needs of corporate customers like bills discounting, opening letters of credit and managing cash. HDFC Bank was incorporated in August 1994 and promoted by Housing Development Finance Corporation Limited (HDFC) India’s premier housing finance company, which also enjoys an impeccable track record in India as well as in international markets. The State Bank of India, the country’s oldest bank and a premier in terms of balance sheet size, number of branches, market capitalisation and profits is today going through a momentous phase of change and transformation? The two hundred year old public sector behemoth is today stirring out of its public sector legacy and moving with an ability to give the private and foreign banks run for their money.

HDFC HDFC Bank was incorporated in August 1994 and Promoted by Housing Development Finance Corporation Limited (HDFC) India’s premier housing finance company, which also enjoys an impeccable track record in India as well as in International markets. HDFC was amongst the first to receive an ‘in principal’ approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI’s liberalisation of the Indian Banking Industry. HDFC bank concentrates is four areas – corporate banking, treasury management, custodial services and retail banking. It has entered the banking consortia of over 50 corporates for providing working capital finance, trade services, corporate finance and merchant banking. HDFC bank has become the

first private sector bank to be authorised by the Central Board of Direct Taxes (CBDT) as well as the RBI to accept direct taxes, commencing April 01, 2001. The taxes will be accepted at specified branches of the bank. Also is has announced a strategic tie-up with a Bangalore-based business solutions software developer Tally Solutions Pvt. Ltd. (TSPL) for developing and offering products and services facilitating on-line accounting and banking services to SMEs (Small and Medium Enterprises). In 2001-02, the bank was listed on the New York Stock Exchange in the form of ADS. Each ADS represents 3 equity shares. Consequent to the issue, the paid up capital of the Bank has increased by RS. 37.42 crores.

SBI The origin of the State Bank of India goes back to the first decades of the nineteenth century with the establishment of the Bank of Calcutta in 1806 in Calcutta. Three years later the bank received its charter and was re-designed as the Bank of Bengal (2nd January 1809). A unique institution, it was the first joint-stock bank of British India sponsored by the Government of Bengal. The Bank of Bombay (15 April 1840) and the Bank of Madras (1 July 1843) followed the bank of Bengal. These three bank remained at the apex of modern banking in India till their amalgamation as the Imperial Bank of India on 27 January 1921. Primarily Anglo-Indian creations, the three presidency banks came into existence either as a result of the compulsions of imperial finance or by the felt needs of local European commerce and where not imposed from outside in an arbitrary manner to modernise India’s economy. Their evolution was, however, shaped by ideas called from similar developments in Europe and England, and was influenced by changes occurring in the structure of both the local trading environment and those in the relations of the Indian economy to the economy of Europe and the Global economic framework.

3.2 HISTORY HDFC Bank was incorporated in 1994 by Housing Development Finance Corporation Limited (HDFC), India’s largest housing finance company. It was among the first companies to receive an ‘In principal’ approval from the Reserve bank of India (RBI) to set up a bank in the private sector. The Bank started operations as a scheduled commercial bank in January 1995 under the RBI’s liberalisation policies. Times Bank Limited (Owned by Bennett, Coleman & Co. / Times Group) was merged with HDFC Bank Ltd., in 2000. This was the first merger of two private banks in India. Shareholders of times Bank received 1 Share of HDFC bank for every 5.75 shares of Times Bank. In 2008, HDFC Bank acquired Centurion Bank of Punjab taking its total branches to more than 1,000. The amalgamated bank merged with a base of about Rs. 1,22,000 crore and net advances of about Rs. 89,000 crore. The balance sheet size of the combined entity is more than Rs. 1,63,000 crore.

SBI The roots of the State Bank of India lie in the first decade of 19th century, when the Bank of Calcutta, later renamed the bank of Bengal, was established on 2 June 1806. The Bank of Bengal was one of three Presidency banks, the other two being the Bank of Bombay (incorporated on 15 April 1840) and the bank of Madras ( incorporated on 1 July 1843). All three Presidency banks were incorporated as joint stock companies and were the result of the royal charters. These three banks received the exclusive right to issue paper currency till 1861 when with the Paper Currency Act, the right was taken over by the Government of India. The Presidency banks amalgamated on 27 January 1921, and the re-organized banking entity took as its name Imperial Bank of India. The Imperial bank of India remained a joint stock company but without Government participation. Pursuant to the provisions of the State Bank of India Act of 1955, the Reserve Bank of India, which is India’s central bank, acquired a controlling interest in

the Imperial Bank of India. On 30 April 1955, the imperial Bank of India become State bank of India. The government of India recently acquired the Reserve Bank of India’s stake in SBI so as to remove any conflict of interest because the RBI is the country’s banking regulatory authority. In 1959, the government passed the State Bank of India (Subsidiary Banks) Act, which made eight state banks associates of SBI.

3.3 SOURCES OF INCOME HDFC  ProductsHDFC Bank offers the following core products:  NRI Banking

Under NRI Banking, HDFC offers:             

Accounts & Deposits Money Transfer Investments & Insurance Research Reports Payment Services SME Banking Under SME Banking, HDFC offers: Accounts & Deposits Business Financing Trade Services Payments & Collections Cards ATM Wholesale Banking HDFC offers Wholesale Banking for Corporate and Financial Institutions & Trusts. The Bank also provides services such as Investment Banking and other services in the Government sector. Services  Wholesale Banking Services  Retail banking services  Treasury-

HDFC Bank has two subsidiaries:

 HDB Financial Services Limited (‘HDBFS’): small and medium business enterprises. It also runs call canters for collection services to the HDFC bank’s retail loan products. HDFC Bank holds 97.4% shares in HDBFS. HDBFS is

engaged in retail asset Financing. It is a non-deposit taking non-bank finance company (NBFC). Apart from lending to individuals, the company grants loans to Micro,

HDFC SECURITIES LIMITED (‘HSL’): SBI PRODUCT AND SERVICES Personal Banking       

Deposits Loans Cards Investments Insurance Demat Services Wealth Management

NRI Banking     

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

Corporate net banking Cash Management Trade Services FX Online SME services Online Taxes Custodial services

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

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

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

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

3.4 SWOT ANALYSIS HDFC STRENGTH  First Private life insurance Company who got license by IRDA.  Domestic image of HDFC supported by Standard life’s international image is strength of the company.  Strong and well spread network of qualified intermediaries and salesperson.  Strong capital and reverse base.  The company provides customer service of the highest order.  Huge basket of product range which are suitable to all age and income groups.

WEAKNESSES    

Less number of branches compare to nearest competitors. Heavy management expenses and administrative costs. Lower customer confidence on the private players. Poor retention percentage of tied up agents.

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

THRATES  Poaching of customer base by other companies.  People have more trust on big public sector insurance companies like Life insurance Corporation (LIC) of India, Oriental insurance Ltd., New India Assurance Company Ltd., etc.

 Other private insurance companies also aim for the same uninsured population.

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

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

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

THRATES  This shows the reduce in market share to its close competitor ICICI other private banks like HDFC, AXIS bank etc.  FDIs allowed in banking sector is increased to 49%, this is a major threat to SBI as people tend to switch to foreign banks for better facilities and technologies in banking service.  Other government banks like PNB, Andhra, Allahabad bank and Indian bank are showing.

 Customer prefer to switch to private banks and financial service providers for loans and mortgages, as SBI involves stringent verification procedures and take long time for processing.

CHAPTER 4. COMPARATIVE STUDY OF FINANCIAL ASPECTS 4.1 STATEMENT OF PROFIT AND LOSS ACCOUNT  HDFC BANK  SBI BANK 4.2 BALANCESHEET STATEMENT  HDFC BANK  SBI BANK 4.3 RATIO ANALYSIS  HDFC BANK  SBI BANK

4.1 PROFIT AND LOSS ACCOUNT HDFC BANK STATEMNET OF PROFIT AND LOSS ACCOUNT AS ON Particulars

Mar 2018 Mar 2017 Mar 2016 Mar 2015 Mar 2014 ( ).Cr

( ).Cr

( ).Cr

( ).Cr

( ).Cr

Interest Earned

80241.36

69305.96

60221.45

48469.90

41135.53

Other Income

15220.30

8996.35

7919.64

Total

95461.66

81602.46

70973.17

57466.25

49055.17

Interest expended

40146.49

36166.73

32629.93

26074.24

22652.90

Payments to/Provisions for Employees

6805.74

6483.66

5702.20

4750.96

4178.98

Operating Expenses & Administrative Expenses

4802.03

4453.22

INCOME :

12296.50 10751.72

II. Expenditure

3998.66

3396.44 2968.47

906.34

833.12

705.84

656.30

671.61

Other Expenses, Provisions & Contingencies

16103.75

11526.63

9298.61

7259.60

5811.16

Provision for Tax

10107.25

7916.97

6507.59

5204.03

4269.41

-896.68

-327.54

-165.88

-91.23

24.27

95461.66

81602.46

70973.17

57466.25

49055.17

17486.73

14549.64

12296.21

10215.92

8478.38

Depreciation

Deferred Tax Total III. Profit & Loss Reported Net

Profit Adjusted Net Profit

17486.73

14549.64

12296.21

10208.55

8476.19

Profit brought forward

32668.94

23527.69

18627.79

14654.15

11132.18

Transfer to Statutory Reserve

4371.68

3637.41

3074.05

2553.98

2119.59

Transfer to Other Reserves

1939.99

1772.67

1443.25

1274.05

909.32

Trans. to Government /Proposed Dividend

3390.58

-1.69

2879.02

2414.25

1927.49

Balance carried forward to Balance Sheet

40453.42

32668.94

23527.69

18627.79

14654.15

Equity Dividend %

650.00

550.00

475.00

400.00

342.50

Earnings Per Share-Unit Curr

67.38

56.78

46.70

39.13

34.18

IV. Appropriations

SBI BANK STATEMENT OF PROFIT AND LOSS ACCOUNT AS ON Particulars Mar 2018 ( ).Cr

Mar 2017 ( ).Cr

Mar 2016 ( ).Cr

Mar 2 Mar 2014 015 ( ).Cr ( ).Cr

INCOME : Interest Earned

Other Income

Total

II. Expenditure

220499.32

175518.24

163998.30 1 5 2 3 9 7 . 0 7

136350.80

44600.69

35460.93

27845.37 2 2 5 7 5 . 8 9

18552.92

265100.01

210979.17

191843.67 1 7 4 9 7 2 . 9 6

154903.72

145645.60

113658.50

106803.49 9 7 3 8 1 . 8 2

87068.63

Payments to/Provisions for Employees

33178.68

26489.28

25113.82 2 3 5 3 7 . 0 7

22504.28

Operating Expenses & Administrative Expenses

10959.58

8384.64

7696.25 7 2 3 2 . 5 7

6519.86

Depreciation

2919.47

2293.31

1700.30 1 1 1 6 . 4 9

1333.94

Other Expenses, Provisions & Contingencie s

87924.92

45298.26

36755.73 2 6 3 9 1 .

21303.13

Interest expended

0 4 Provision for Tax

673.54

4033.29

Deferred Tax

-9654.33

337.78

265100.01

-6547.45

Total

3577.93 6 6 8 9 . 9 5 245.47

4227.46

4 7 7 . 5 6

1055.25

210979.17

191843.67 1 7 4 9 7 2 . 9 6

154903.72

10484.10

9950.65 1 3 1 0 1 . 5 7

10891.17

III. Profit & Loss Reported Net Profit

Extraordinary Items

-28.73

-25.82

Adjusted Net Profit

-6518.72

Profit brought forward

-11.54

2 7 . 8 8

-25.70

10509.92

9962.19 1 3 1 2 9 . 4 5

10916.87

0.32

0.32

0.32 0 . 3 2

0.34

Transfer to Statutory Reserve

0.00

3145.23

2985.20 4 0 2 9 . 0 8

3339.62

Transfer to Other Reserves

2123.74

4923.93

4612.63 5 9 9 4 . 5 6

5013.39

IV. Appropriatio ns

0.00

2414.94

2352.84 3 0 7 7 . 9 3

2538.18

-8670.88

0.32

0.32 0 . 3 2

0.32

Equity Dividend %

0.00

260.00

260.00 3 5 0 . 0 0

300.00

Earnings Per Share-Unit Curr

0.00

12.76

12.39 1 6 . 9 7

141.88

Trans. to Government /Proposed Dividend

Balance carried forward to Balance Sheet

4.2 BALANCESHEET STATEMENT

HDFC BANK BALANCESHEET OF HDFC BANK BASED ON LAST FIVE YEARS Particulars

Mar 2018 ( ).Cr

Mar 2017 ( ).Cr

Mar 2016 ( ).Cr

Mar 2015 ( ).Cr

Mar 2014 ( ).Cr

Capital

519.02

512.51

505,64

501.30

479.81

Reserve Total

105775.98

88949.84

72172.13

61508.12

42998.82

Deposits

788770.64

643639.66

546424.19

450795.64

367337.48

Borrowings

123104.97

74028.87

84968.98

45213.56

39438.99

Other Liabilities & 45817.45 Provisions

56830.80

36818.98

32557.39

41402.97

Total Liabilities

1063988.06

863961.68

740889.92

590576.01

491658.07

Cash & Balances With RBI

104670.47

37896.87

30058.31

27510.45

25345.63

Balances with Bank & Money at Call

18244.61

11055.22

8860.53

8821

14238.01

Investments

242200.24

214463.34

195836.28

151641.75

120951.07

Advances

658333.09

554568.20

464593.96

303000.27

239720.64

Fixed Assets

3607.20

3626.74

3343.16

3121.73

2939.92

Other Assets

36932.43

42351.30

38197.69

33986.03

25183.17

Total Assets

1063988.04

863961.67

740889.93

590575.99

491658.85

Contingent Liability

875488.22

817869.58

853318.11

975233.95

723154.92

Bill for Collection

42753.83

30848.04

23490

22304.93

20943.06

SOURCES OF FUNDS :

Application Of Funds:

Miscellaneous Expenditure not written off

SBI BALANCESHEET OF SBI BANK BASED ON LAST FIVE YEARS Particulars

Mar 2018 ( ).Cr

Mar 2017 ( ).Cr

Mar 2016 ( ).Cr

Mar 2015 ( ).Cr

Mar 2014 ( ).Cr

Capital

892.46

797.35

776.28

746.57

746.57

Reserve Total

218236.10

187488.71

143498.16

127691.65

117535.68

Deposits

2706343.29 2044751.39 1730722.44 1613264.64 1431079.90

Borrowings

362142.07

317693.66

323344.59

168678.90

146459.49

Other Liabilities & Provisions

167138.08

155235.19

163185.42

141113.87

98748.45

Total Liabilities

3454752

2705966.30 2361526

2051495.63 1794570.00

Cash & Balances With RBI

150397.18

127997.62

129629.33

115883.84

84955.66

Balances with Bank & Money at Call

41501.46

43974.03

37838.33

38871.94

47593.97

Investments

1060986

765979.38

575651

481758

398799.57

Advances

1934880

1571078

1463700

1300026

1209828

SOURCES OF FUNDS :

Application Of Funds:

Fixed Assets

39992.25

42918.92

10389.28

9329.16

8002.16

Other Assets

226994.20

154007

144317.75

105625.54

45390.01

Miscellaneous Expenditure not written off

0.00

0.00

0.00

0.00

0.00

Total Assets

3454752

2705966

2361526

2051495

1794570

Contingent Liability

1162020

1046440

971956

1000627

1017329

Bill for Collection

74027.90

65640.42

92211.65

4.3 RATIO ANALYSIS 1) Demand Deposit Ratio The sum of money that is given to a bank but can be withdrawn as per the requirement of the depositor. Amounts that are lying in the savings and current accounts are known as demand deposits because they can be used at any point of time. Demand Deposit Ratio= Demand Deposit/ Total Deposit Year

HDFC

SBI

2015

19.92

14.92

2016

22.24

15.24

2017

22.27

14.04

2018

19.41

11.78

Mean

20.96

13.95

SD

1.90

2.85

CV

10.12

20.35

RATIO ANALYSIS 25

20

15

10

5

0 2015

2016

2017 HDFC

SBI

2018

As shown in table the ration of demand deposit is more in HDFC bank (20.96) Demand Deposit is more in HDFC bank than in SBI it may be because no interest is paid on these accounts except in special cases where a large dormant balance is kept which could otherwise be transferred to the savings deposits.

2) Saving Deposit Ratio Accounts that pay interest and can be withdrawn on upon demand Offered by banks, credit unions, and Savings and Loans. Saving Deposit Ratio = Saving Deposit/ Total Deposit. RATIO ANALYSIS 40 35 30 25 20 15 10 5 0 2015

2016

2017 HDFC

2018

SBI

Year

HDFC

SBI

2015

24.45

26.71

2016

29.79

32.01

2017

29.99

35.36

2018

30.31

35.37

Mean

28.63

32.36

SD

2.92

4.15

CV

9.95

12.78

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

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

Year

SBI

HDFC

2015

2.3

4.2

2016

2.4

3.9

2017

2.9

4.1

2018

3.3

3.9

Mean

2.72

4.02

SD

0.46

0.15

CV

17.04

3.72

4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2015

2016

2017 SBI

HDFC

2018

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

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

Year

SBI

HDFC

2015

26.71

24.45

2016

32.01

29.79

2017

35.36

30.42

2018

35.37

29.99

Mean

32.36

28.66

SD

4.08

2.82

CV

12.62

9.84

40 35 30 25 20

15 10 5 0 2015

2016

2017 SBI

2018

HDFC

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

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

Year

SBI

HDFC

2015

15.4

10.1

2016

14.9

8

2017

16.7

8.7

2018

14.8

9

Mean

15.45

8.95

SD

0.87

0.87

CV

5.65

9.76

18 16 14 12 10 8 6 4 2 0 2015

2016

2017 SBI

HDFC

2018

As shown in the table debt equity is ratio is maximum in case of SBI, and variation is least in case of HDFC.

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

SBI

HDFC

2015

0.8

1.2

2016

0.8

1.3

2017

0.6

1.4

2018

0.8

1.5

Mean

0.75

1.35

SD

0.1

0.12

CV

13.33

9.56

1.6 1.4 1.2 1 0.8 0.6 0.4

0.2 0 2015

2016

2017 SBI

2018

HDFC

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

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

SBI

HDFC

2015

15.1

14.9

2016

14.1

13.9

2017

12.8

15.6

2018

14.4

17.4

Mean

14.1

15.45

SD

0.96

1.47

CV

6.82

9.5

20 18 16 14 12 10 8 6 4 2 0 2015

2016

2017 SBI

2018

HDFC

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

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

Year

SBI

HDFC

2015

14.3

15.7

2016

13.4

17.4

2017

12

16.2

2018

13.9

16.5

Mean

13.4

16.45

SD

1.00

0.71

CV

7.48

4.34

20 18 16 14 12 10 8 6 4 2 0 2015

2016

2017 SBI

HDFC

2018

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

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

Year

SBI

HDFC

2015

19.5

19.87

2016

16.96

24.36

2017

16.97

30.58

2018

16.29

27.19

Mean

17.43

25.5

SD

1.41

4.53

CV

8.12

17.77

35 30 25 20 15 10 5

0 2015

2016

2017 SBI

2018

HDFC

As shown in table operating margin of HDFC is maximum 25.5 followed by operating margin is directly concerned with profitability, SBI is least variable is more variable which states that SBI bank’s profitability doesn’t change much.

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

SBI

HDFC

2015

12.03

11.35

2016

10.54

14.76

2017

8.55

16.09

2018

9.73

15.93

Mean

10.21

14.53

SD

1.46

2.20

CV

14.31

15.15

18 16 14 12 10

8 6 4 2 0 2015

2016

2017 SBI

2018

HDFC

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

5.1 CASE STUDY ON HDFC BANK COMPANY PROFILE NAME

: Housing Development Finance

Corporation ltd

FOUNDED IN

: August 1994

TYPE

: Public Company

HEADQUAETERS

: Mumbai, Maharashtra, India

KEY PEOPLE

: Mr . Deepak Parekh, Chairman

Mr . Aditya Puri, MD

AREASERVED

: Worldwide

TOTAL ASSETS

: US $98.74 billion

NO. OF EMPLOYEES

: 70000

NO.OF BRANCHES

: 4014

NO.OF ATMS

: 11766

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

CASE – LAUNCH OF ULTRA PREMIUM CREDIT CARD The HDFC Bank is the largest credit card issuer in country. Also HDFC bank is one of the leading players in the private banking space, The High Network

Individuals (HNI) in Indian grew by 20.8% with India rising to 12 th position and being within the striking distance of top global pecking order. The Bank aimed to become the undisputed leader. It also aimed to fulfil the need of Number – rich clientele.

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

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

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

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

5.2 CASE STUDY ON SBI COMPANY PROFILE NAME

: State Bank of India

FOUNDED IN

: 1935

TYPE

: Public Company

HEADQUAETERS

: Mumbai ,Maharashtra, India

KEY PEOPLE

: Arundhati Bhattacharya

AREASERVED

: Worldwide

TOTAL ASSETS

: US $ 200 billion

NO. OF EMPLOYEES

: 205000

NO.OF BRANCHES

: 17350

NO.OF ATMS

: 20000

This report is a case study of the State Bank of India (SBI) and its journey to implementing a new core system in its domestic footprint. This domestic footprint is one of the largest in the world, with over 17,385 branches of State Bank of India and its six Associate Bank running one the TCS Banks system.

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

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

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

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

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

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

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

CHAPTER 6. DETAILS OF THE STUDY 6.1 FINDINGS OF THE STUDY 6.2 SUGGESTONS 6.3 CONCLUSTIONS

6.1 FINDINGS OF THE STUDY 1. It is found that net profit margin and Adjusted Cash Margin of both banks registered a low level of volatility .The Return on Net Worth(RNW) and Adjusted Return on Net worth (ARNW)of SBI and HDFC was found almost with similar trend.3 2. It is found that the deposits of SBI are superior to HDFC Bank. This is because of the confidence of the people in SBI as it is largest public sector bank in India. The volumes of Demand Deposits of SBI and HDFC Bank are almost similar, but the volume of savings and term Deposits are significantly differing. 3. It is found that the loans and advances, term loans, and short term loans of SBI are greater than HDFC Bank as SBI is having a greater network and customer base. 4. The operating profit per share of SBI and HDFC reported a mixed trend. It is due to dynamics in the business profit of the individual banks. 5. The net operating per share of SBI is found declining where as, HDFC bank reported very least growth as the operating profit of SBI differed significantly from HDFC bank. 6. It is found that Other Income over the Total Income of SBI is very high in percent when compared to HDFC. It can be concluded that the private banks concentrate on real core bank activities for generating the income to the possible extent, whereas, the public sector banks are not. 7. Interest Expended/Interest Earned of HDFC followed a declining trend, where the SBI reported a gradual increase in the same over the study period. 8. In the case of Advance/Loan Funds ratio SBI reported a poor performance, whereas, HDFC Bank experienced an opposite trend. 9. The volume of profit of SBI and HDFC Bank are very satisfactory as they are more than degree of 1. But comparatively, the profits before provisions are significant in the case of HDFC bank.

6.2 RESEARCH AND METHDOLOGY Data has been collected from the following sources:  Primary Data  Secondary Data All the data has been collected by visiting official websites and other web pages of HDFC Bank & SBI Bank.

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

Kailash M (2012)- The paper compares public and private sector banks in Global and Indian level. The findings revealed that private sector banks have good services to customers and they retained customers by providing better facilities. The study finds out importance of new products and services for banks for retaining customers.

The studies mentioned above clearly points out to the importance of having a structured study on this where banks in different categories are compared with respect to the service quality aspect which will help them to find out their core competencies and to capitalize on them and at the same time find out the areas where they can improve

6.4 SUGGESTIONS In order to improve their financial performance, the SBI and HDFC banks are advised the following based on the analysis.  The minimum balance for Saving Account in HDFC Bank should be reduced from RS.10000 to RS. 1000so that people who are not financially strong enough can maintain their account properly.  The banks should motivate and impart right knowledge about banking to their staff.  The bank have to fundamentally reorient its business models by moving from product centric silos to customer centric strategies.  The bank must become more clients centric by leveraging sophisticated insights to improve risk management pricing, channel performance and client satisfaction.

6.5 CONCLUSIONS  It is very important to study the profitability of the banking sector. It is only profits that make the banking sector healthy and strong.  The comparative analysis of the profitability of the two banks clearly reveals that there is no significant difference in the financial performance in terms of profitability ratios of SBI and HDFC.  Therefore, profitability ratios are employed by management in order to assess how efficiently they carry on their business operations and also it is suggested for the entire bank to take effective steps to improve the operating efficiency of the business

ANNEXURE QUESTIONNAIRE FOR BANK MANAGER OF HDFC & SBI Q.1 Say something about some specific features of your bank? Q.2 Say something related to structure of your bank? Q.3 How the HDFC/SBI Bank earn more profit other than public /private sector bank? Q.4 What are the strategy used for increasing your profit? Q.5 From which branch you get more profit than other branches? Q.6 Tell me about your one of the best policy used by the bank and their positive effects on your profitability? Q.7 From which source you get more income? Q.8 Which kind of people prefer your bank? Q.9 For which kind of purpose the people prefer your bank? Q.10 Which kind of steps you take to increase your profitability? Q.11 How your bank maintain brand image? Q.12 What are the major area of expenses? Q.13 Which steps you take for minimize your expenses? Q.14 How they affects your profitability? Q.15 Which year is more profitable for your bank?

WEBLIOGRAPHY www.hdfc .com www.sbi.com

BIBLIOGRAPHY Annual Reports of HDFC Banks Annual Reports of SBI Bank

GROUND WORK HDFC Bank, new panvel Branch. SBI Bank, wagle estate Branch.

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