Contents

Acknowledgement
Introduction
Objective & Achievement

Organisation Structure

Financial Performance

Ratio Analysis

Methodlogy

Recommendation

Biblography
 ACKNOMLGEMENT

I am very greatful to MR. SAMEER

YADAV (Assitant Manager

HDFC BANK ,JAIPUR) for giving me

advise & guidance.

He helped me a lot of collecting

material to complete the project

Entitled ” FINANCIAL STRUCTURE OF

HDFC BANK”.
 INTRODUCTION

• HDFC or Housing Development Finance

Corporation Limited,

founded 1977 by Hasmukhbhai Parekh,

is an Indian company

which is primarily in the business of

providing home loans.

• HDFC Bank (NYSE: HDB), one of the first, new

generation,

tech-savvcommercial banks of India

• It, was incorporated in August 1994, after the

Reserve Bank of India

allowed setting up of Banks in the

private sector

• The Bank was promoted by the Housing

Development Finance

Corporation Limited, a premier

housing finance company

(set up in 1977) of India.

• Net Profit for the year ended March 31, 2006

was Rs. 1,141 crores.

Results of the latest quarter ended

June 2007, indicate that the

Bank continues to grow in a steady

manner.

• Over a decade of its operations, HDFC Bank has

been recogniation

rated and awarded by a number of

organizations.
OBJECTIVE & ACHIEVEMENT
As in the past years, awards and recognition have been
conferred on your Bank by leading domestic and
international organizations during the fiscal 2007-08.
Some of them are:
● For the fifth consecutive year, your Bank has bagged
the Business Today’s Best Bank Award.

● Outlook Money and NDTV Profit’s Best Bank

private sector category.

● Bombay Stock Exchange and Nasscom Foundation’s

Business for Social Responsibility Award.

● ‘Dun & Bradstreet – American Express Corporate

Best Bank Award 2007.’ There were 26 categories in
all, including FMCG, Telecom and Software & IT.

● The Financial Express-Ernst & Young Best Bank

award in the Private Sector category - Your bank
shared the top slot with another bank

● The Asia Pacific HRM Congress in Mumbai - Your

Bank bagged as many as ten awards including
 “Organisation with innovative HR Practices”
.
● Business Today Survey conducted by the Monitor
Group Innovation Study – Your Bank is one of India’s
most innovative 28 companies across ten major
business sectors

● The ‘Asian Banker Excellence in Retail Financial

Service Awards’ - The Best Retail Bank in India.

MISSION

HDFC Bank’s mission is to be “a World Class Indian Bank”,

benchmarking ourselves against international
and best practices in terms of product offerings,
technology, service levels, risk management and audit
& compliance. The objective is to build sound customer
franchises across distinct businesses so as to be a
preferred provider of banking services for target retail
and wholesale customer segments, and to achieve a
healthy growth in profitability, consistent with the Bank’s
risk appetite. We are committed to do this while ensuring
the highest levels of ethical standards, professional
integrity, corporate governance and regulatory
compliance.
BUSINESS STRATEGY
Our business strategy emphasizes the following;-
● Increase our market share in India’s expanding
banking and financial services industry by following
a disciplined growth strategy focusing on balancing
quality and volume growth while delivering high
quality customer service;

● Leverage our technology platform and open scaleable

systems to deliver more products to more customers
and to control operating costs;

● Maintain high standards for asset quality through

disciplined 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 healthy earnings growth with low volatility.

Our mission is 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 audit
& compliance. The objective is to build sound customer
franchises across distinct businesses so as to be a
preferred provider of banking services for target retail
and wholesale customer segments, and to achieve a
healthy growth in profitability, consistent with the Bank’s
risk appetite. We are committed to do this while ensuring
the highest levels of ethical standards, professional
integrity, corporate governance and regulatory
compliance.
Our business strategy emphasizes the following:
● Increase our market share in India’s expanding
banking and financial services industry by following
a disciplined growth strategy focusing on balancing
quality and volume growth while delivering high
quality customer service;

● Leverage our technology platform and open scaleable

 systems to deliver more products to more customers
and to control operating costs;

● Maintain high standards for asset quality through

disciplined 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 healthy earnings growth with low volatility.

Our mission is 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 audit
& compliance. The objective is to build sound customer
franchises across distinct businesses so as to be a
preferred provider of banking services for target retail
and wholesale customer segments, and to achieve a
healthy growth in profitability, consistent with the Bank’s
risk appetite. We are committed to do this while ensuring
the highest levels of ethical standards, professional
integrity, corporate governance and regulatory
FINANCIAL PERFORMANCE
 FINANCIAL PERFORMANCE

(Rs. in crores)
For the year ended
March 31, 2008
March31,2007
Deposits and Other Borrowings 105,247.5
71,113.3
Advances 63,426.9
46,944.8
Total Income 12,398.2
8,164.2*
Profit before Depreciation and Tax 2,552.4
1,858.4
Net Profit 1 ,590.2
1,141.5
Profit brought forward 1,932.0
1,455.0
Total Profit available for Appropriation 3,522.2
2,596.5

Appropriations

Transfer to Statutory Reserve 397.5

285.4
Transfer to General Reserve 159.0
114.1
Transfer to Investment Reserve Account (net) 38.5
3.0
Proposed Dividend 301.3
223.6
Tax including Surcharge and Education Cess on Dividend 51.2
38.0
Dividend paid for Prior Years 0.1
0.4
Balance carried over to Balance Sheet 2,574.6
1,932.0

Bank posted total income and net profit of

Rs. 12,398.2 crores and Rs. 1,590.2 crores respectively
for the financial year 2007-08 as against Rs. 8,164.2
crores and Rs. 1,141.5 crores respectively in the
previous year.
 DIVIDEVD:-

The Bank has had a consistent dividend policy of

balancing the twin objectives of appropriately
rewarding shareholders and retaining capital to
maintain a healthy capital adequacy ratio to support
future growth. It has had a consistent track record
of moderate but steady increases in dividend
declarations over the last so many years with the
dividend payout ratio ranging between 20% and 25%.
In line with this, and in recognition of the robust
performance during 2007-08,

The HDFC bank recommend a dividend of 85% for the

year ended March 31, 2008, as against 70% for
the year ended March 31, 2007. This dividend shall
be subject to tax on dividend to be paid by the
Bank.

The financial performance during the fiscal year

2007-08 remained healthy with total net revenues (net
interest income plus other income) increasing by 50.7%
to Rs. 7,511.0 crores from Rs.4,984.7 crores in 2006-
07. The revenue growth was driven principally by an
increase in net interest income. Net interest income grew
by 50.7% primarily due to increase in the average
 balance sheet size by 39.8% and an increase in net
interest margin from 4.0% to around 4.4%. The key
driver in volumes was growth in advances. Margin
expansion was contributed by increase in yields across
all products partially offset by increase in time deposit
costs.
The other income (non-interest revenue) increased by
50.6% to Rs. 2,283.2 crores primarily due to fees and
commissions, profit/(loss) on revaluation / sale of
investment and income from foreign exchange and
derivatives income. In 2007-08, commission income
increased by 32.7% to Rs. 1,714.5 crores with the main
drivers being commission from distribution of third party
mutual funds and insurance, fees on debit/credit cards,
transactional charges/fees on deposit accounts,
processing fees of retail assets and cards, and fees
from trade products. The Bank earned a profit on sale /
revaluation of investments of Rs. 241.8 crores during
the year. Foreign exchange and derivatives revenues

grew from Rs. 280.3 crores to Rs. 319.8 crores which

largely related to customer transactions. Of this, 80%
of the revenues came from plain vanilla foreign
transactions exchange.
Operating (non-interest) expenses increased from Rs.
2,420.8 crores in 2006-07 to Rs. 3,745.6 crores in 2007-
08, due to higher infrastructure and staffing expenses
in relation to the expansion in the branch network,
(including branches which were in the process of being
set up and would be commissioned in the June 2008
quarter) and growth in the retail loan and credit card
businesses. Operating cost to net revenues increased
to 49.9%, from 48.6% in the corresponding year.
Staff expenses accounted for 34.7% of non-interest expenses
in 2007-08 as against 32.1% in 2006-07, due to an
increase in staff strength and increase in average salary
levels. A large portion of the increase has been in the
direct sales infrastructure which stepped the pace of
liability and card account acquisitions substantially during
the year. Loan loss provisions and provision for standard
assets increased from Rs. 861.0 crores to Rs. 1,216.0
crores in 2007-08 which was broadly in line with the
increase in retail loans and the product mix across
various loan products. The Bank also provided Rs. 264.4
-crores as contingent provisions for tax, legal and other
contingencies.
Additional Capital

In June 2007, the Bank allotted 1,35,82,000 equity

shares of Rs. 10/- each at a premium of Rs. 1,013.49
per share on a preferential basis to Housing
Development Finance Corporation Ltd. (HDFC)
aggregating to Rs. 1,390 crores. In July 2007, the Bank
made a public offering of 6,594,504 American Depositary
Shares (ADS), each ADS representing three equity
shares, at a price of $ 92.10 per ADS aggregating to of
Rs. 2,394 crores (net of underwriting discounts and
commissions).
During the year under review, 16.78 lacs shares were
allotted to the employees of your Bank pursuant to the
 exercise of options under the Employee Stock Option
Scheme of the Bank

Capital Adequacy Ratio

Bank’s total Capital Adequacy Ratio (CAR) stood

at a healthy 13.6%, well above the regulatory
minimum of 9.0%. Of this, Tier I CAR was 10.3%.

Amalgamation of Centurion Bank of Punjab Limited

with
the Bank

On March 27, 2008, the shareholders of the Bank

accorded their consent to a scheme of
amalgamation of Centurion Bank of Punjab Limited
with HDFC Bank Limited. The shareholders of the
Bank approved the issuance of one equity share of
Rs. 10/- each of HDFC Bank Limited for every twenty
nine equity shares of Re. 1/- each held in Centurion
Bank of Punjab Limited. This is subject to receipt
of approvals from the Reserve Bank of India, stock
exchanges and other requisite statutory and
regulatory authorities.

the shareholders also accorded their consent to

issue equity shares and/
or warrants convertible into equity shares at the rate
of Rs. 1,530.13 each to HDFC and/or other promoter
group companies on preferential basis, subject to
final regulatory approvals in this regard. The
Shareholders of the Bank have also approved an
increase in the authorized capital from Rs. 450 crores
to Rs. 550 crores.
 MANAGEMENT’S DISCUSSIONS
AND

ANALYSIS
Macro- Economic Industry developments

In the 25 years till 2007, the country’s real GDP grew

on an average at 6.2% per annum. In the last four years,
however, GDP growth has been faster at 8.8% per
annum. The real GDP growth for 2007-08 is expected
to have been between 8.7-8.9%. Investment expenditure,
so crucial to economic growth, increased from 22.8%
of GDP in FY02 to 35.9% in FY07. The domestic
savings rate increased from 23.5% in FY02 to 34.8%in
FY07.

The services sector with a share of nearly 60% in

India’s GDP and accounting for almost three-fourth in
its overall growth, continues to be the key driver. The
manufacturing sector has shown good growth too on
the back of domestic and export-led demand. The
country’s merchandise exports have grown by a healthy
21.6% in the April 07-January 08 period as compared
to 23.7% in the corresponding period of previous year.
For most part of the year, liquidity in the banking system
was volatile but largely in surplus due to strong capital
flows and softening credit demand. The Reserve Bank
of India (RBI) followed a tight monetary policy to check
inflationary pressures arising to a large extent, out of
hardening global energy and commodity prices. The RBI
increased reserve requirements to suck out excess
liquidity from the banking system directly and raised
the Cash Reserve Ratio (CRR) by 150 basis points during
the financial year ended March 31 2008.

Deposit rates remained flat (7.50% to 9.00% p.a.) for

most of the first half of the year, but rose by about
0.5% p.a. across tenors in September 2007, primarily
due to the onset of the ‘busy’ credit season and
tightening of monetary policy. Longer tenor yields,
however fell by roughly 0.5% on the back of falling credit
demand. The short tenor deposit rates, however, moved
up by 0.25% in December 2007 but did not see the
sharp spike that had been experienced in the March
2007 quarter.
Retail consumer borrowing and spending
slowed down in the second half of 2006-07 in the wake
of the monetary tightening. This has impacted sectors
like automobiles and consumer durables where consumer
credit has played a key role in driving demand. Rise in
interest rates has also taken its toll on demand for
housing and the growth of the real estate sector. Nonfood
credit clocked a 22% growth in the last fortnight
of February 2008 as against 28.9% in the last week of
March 2007. However, downward revisions (of 50 basis
points on an average) in lending rates in the March 2008
by a number of banks could reverse this trend at least
partially.

On the foreign trade side, though overall exports showed

an accelerated growth during the last year, a number of
sectors such as textiles, handicrafts, and leather
products saw growth moderating. The rupee appreciated
sharply over the last year (by as much as 11%), which
was largely responsible for the deceleration in exports.
The prospect of a slowdown in the global economy has
increased the risk of a prolonged slowdown in exports.
Imports however remained robust in 2007-08, growing
almost 30% in the first three quarters of the year (as
against 22% for the corresponding period last year) on
the back of higher global prices of oil and food. This
widened the trade deficit to USD 67 billion in April-
 January FY08 from USD 45 billion in the corresponding
period of previous year. Despite the increase in the trade
deficit, overall, balance of payments was comfortable
due to large capital inflows (comprising mainly foreign
direct investment, portfolio inflows and external
borrowings). Foreign exchange reserves grew by $107
billion during the year.

Indian equity markets gained sharply in the first

ninemonths
of 2007-08. However, as the global financial
crisis deepened, benchmark indices fell sharply in the
last quarter. Markets are likely to track the global
financial markets and remain volatile in 2008-09 although
the Indian economic fundamentals still remain strong
and attractive in absolute terms. Diminished risk appetite
among investors could adversely impact capital inflows
into emerging markets like India.

INDUSTRY STRUCTURE AND

DEVELOPMENT
 Indian banks faced a new set of challenges brought
about by changes in both the international and domestic
environment. International credit markets tightened
considerably on the back of rising defaults and
foreclosures in the US mortgage market and the
resultant risk aversion. Its impact was first felt in the
mortgage-linked securities and the inter-bank money
markets. A number of large US and European banks
reported large loan losses and write-downs. The
contagion effects subsequently spread to other asset
classes including emerging markets bonds and equities.
The expectation is that the turmoil in the financial sector
will spill over to the real estate sector. Growth in the G-
7 economies, particularly the US is expected to be
lower in 2008 and this is likely to impinge on growth in
other economies, including India.

The Indian economy appeared to have entered a phase

of moderation in 2007-08. The Central Statistical
Organisation (CSO) has estimated a decline in the
growth rate of India’s Gross Domestic Product (GDP)
to 8.7% in 2007-08 from 9.6% in 2006-07. The growth
in credit off-take from scheduled commercial banks
(measured year on year) has fallen to 21.9% in the last
fortnight of February 2008 from 28.2% in the first half
of April 2007.

RISKS AND CONCERNS

Indian banks faced a new set of challenges brought
about by changes in both the international and domestic
environment. International credit markets tightened
considerably on the back of rising defaults and
foreclosures in the US mortgage market and the
resultant risk aversion. Its impact was first felt in the
mortgage-linked securities and the inter-bank money
markets. A number of large US and European banks
reported large loan losses and write-downs. The
contagion effects subsequently spread to other asset
classes including emerging markets bonds and equities.
The expectation is that the turmoil in the financial sector
will spill over to the real estate sector. Growth in the G-
7 economies, particularly the US is expected to be
lower in 2008 and this is likely to impinge on growth in
other economies, including India.

The Indian economy appeared to have entered a phase

of moderation in 2007-08. The Central Statistical
Organisation (CSO) has estimated a decline in the
growth rate of India’s Gross Domestic Product (GDP)
to 8.7% in 2007-08 from 9.6% in 2006-07. The growth
in credit off-take from scheduled commercial banks
(measured year on year) has fallen to 21.9% in the last
fortnight of February 2008 from 28.2% in the first half
of April 2007.
 domestic credit.

Lower capital inflows could also impact domestic

liquidity, which has largely been a function of external
capital inflows for most of 2007-08 with the ratio of net
foreign exchange assets to reserve money consistently
exceeding 100%.
The initial moderation in bank credit growth rates in
2007-
08 seems to have been largely confined to the retail
segment (housing, consumer durables and auto loans).
It is possible that the moderation in growth in 2008-09
could be more broad-based, affecting both retail and
certain wholesale segments, due to trends in
consumption and capital formation. This has obvious
implications for the credit portfolio of the banking
system. A low 2.1% growth in the ‘capital goods’
component of the index of industrial production (IIP) for
January 2008 seems to indicate a further decline in
investment demand going forward which could affect
overall credit growth for the banking system, particularly
in term loans and project finance.

Rising global commodity prices created inflationary

pressures for most of 2007-08. A benign ‘base-effect’
and the suppression in the petroleum product prices kept
headline wholesale price inflation in a comfort zone for
the first three quarters of the year. However, given the
focus on managing underlying price pressures rather than
headline inflation, monetary policy showed no signs of
easing in 2007-08. Thus banks operated in an
environment where the central bank did not allow any
surplus liquidity in the system, resulting in interest rates
remaining firm.

OPPORTUNITIES
The financial system in India has witnessed considerably
less turmoil and volatility than that in advanced
economies. Given this scenario, domestic corporates are
more likely to turn to local sources of funding. Cyclical
slowdown is unlikely to impact segments of the economy
such as agriculture where a structural shift is under way.

The rural economy has been the greater focus of

government policy in recent years, and significant
opportunities lie for banks here where the penetration
of credit and financial products is still relatively low.
The central and state governments appear to be driving
an ambitious programme in the infrastructure sectors.
The eleventh five year plan (2007-2012) envisages an
investment of USD 500 billion, with approximately USD
80 billion envisaged for 2008-09 alone. This presents a
major opportunity for banks and financial institutions to
finance these investments.

Although growth in retail credit has moderated in the

last year, the low penetration levels of retail credit
(estimated at less than 12% of GDP), the shift in
demographics towards a higher proportion of younger
working population, the changing attitudes towards
borrowings, higher income levels amongst the growing
middle class, and the large pent-up demand for housing,
cars etc., all augur well for the long-term, sustainable
growth of retail lending in the Indian market.
Despite the prospect of a slowdown in the global
economy, commodity price pressures, particularly those
in food and mineral oils, show little sign of abating. As
the base-effect wears off, headline inflation is likely to
ramp up to well over 7%. So, inflation concerns are
likely to influence monetary policy stance going forward
and the prospect of an economic slowdown need not
entail immediate monetary easing. Thus, the operating
environment of banks in 2008-09 could be a combination
of slower credit growth and some upward bias in interest
rates.
OUTLOOKS
 The Indian economy seems likely to see some
moderation in growth rates in 2008-09 relative to 2007-
08. It is still likely to experience healthy growth in
absolute terms and will probably remain one of the
fastest growing economies in the world. Nonetheless,
with a lower GDP growth coupled with tighter liquidity
conditions (as RBI tackles concerns on inflation) and
stable or slightly higher interest rates, system credit
growth is likely to be lower than in 2007-08. Downward
pressures on economic growth may not immediately
translate into an expansionary monetary policy, given
the continued risks of inflation from global energy and
commodity prices. Thus, slightly slower credit growth
could coexist with firm, if not rising, interest rates. Given
India’s strong macro-economic fundamentals, however,
structural drivers will continue to support growth which
is a positive for banks as well.
BUSINESS SEGEMENT
 the bank has been able to
achieve healthy growth across various operating and
financial parameters. This performance reflects the
strength and diversity of the bank’s three primary
business franchises – retail banking, wholesale banking
and treasury, and of its disciplined approach to risk –
reward management.
The retail banking business continued its growth in
2007-
08. In this business, HDFC Bank also has positioned itself as
a one-stop shop financial services provider, catering
primarily to the middle class, mass affluent and high
networth customers. thisBank’s range of retail financial
products and services is fairly exhaustive and includes
deposit products of virtually all types, loans, credit
cards, debit cards, depository (custody services),
investment advisory, bill payments and several
transactional services. Apart from its own products
Bank sells third party financial products like mutual
funds and insurance too. To provide its customers greater
flexibility and convenience as well as to reduce servicing
costs, the bank has invested in multiple channels –
branches, ATMs, phone banking, internet banking and
mobile banking. The success of the Bank’s multi-channel
strategy is evidenced in the fact that almost 83% of
customer initiated transactions are serviced through the
non-branch channels.
 HDFC Bank’s data warehouse and
Customer Relationship Management (CRM) solutions
have helped it target existing and potential customers
more effectively and cost effectively and offer them
products appropriate to their profile and needs. Reduced
costs of acquisition apart, this has also led to deepening
of customer relationships and lower credit losses.
Bank’s total customer base increased to over 11.6
million. On the distribution side, HDFC Bank added 77
new branches during the year to take the total to 761
branches (across 327 cities) as of March 2008 from
684 branches (in 316 cities) in March 2007. 372 new
ATMs were also added during 2007-08 taking the size
of the ATM network from 1605 to 1977.HDFCBank’s
focus on semi-urban and under-banked markets
continued, with 58% of the Bank’s branches now outside
the top nine Indian cities. Savings account deposits,
which reflect the strength of the retail liability franchise,
grew by 33.5% to Rs 26,154 crores in 2007-08. The
retail gross loan portfolio grew 38.8% to Rs 39,316
crores during the year.
In credit cards, our Bank continued with its strategy
of focusing on quality customer acquisitions and
improving processes to reduce cycle times and bringing
in cost efficiencies. HDFC Bank had 3.8 million cards in
force as at March 2008. It has a significant presence
in the “merchant acquiring” business also with the total
number of point-of-sale (POS) terminals installed at over
61,000. On housing loans, Bank continued
 originating home loans under its arrangement with
Housing Development Finance Corporation with monthly
home loan origination crossing Rs.550 crores (sanctions)
by March 2008. During the year, the Bank did not
exercise its option to take any part of the 70% of its
HDFC home loan origination that it has the right to take
back on its books as “AAA” mortgage backed securities.
The wholesale banking business too registered a robust
growth in 2007-08. In this business, the Bank provides
its corporate and institutional clients a wide range of
commercial and transactional banking products, backed
by high quality service and relationship management.

The Bank’s commercial banking business covers not

only the top end of the corporate sector but also the
long corporate segments and other small and
medium enterprises (SMEs). The Bank now has four
business groups catering to various SME customers with
a wide range of banking services covering their working
capital and term finance, trade services, cash
management, foreign exchange and electronic banking
requirements.

During financial year 2007-08, growth in the wholesale

banking business continued to be driven by new
customer acquisition and higher cross-sell with a focus
on optimizing yields and increasing product penetration.
HDFC Bank’s cash management and vendor & distributor
finance products continued to be an important
contributor to growth in the corporate banking business.
HDFC Bank further consolidated its position as a leading
player in the cash management business (covering all
outstation collection, disbursement and electronic fund
transfer products across the Bank’s various customer
segments) with volumes growing to over Rs. 24 trillion
an increase of more than 80% over the volumes in FY
2006-07. Bank also strengthened its market
leadership in cash settlement services for major stock
exchanges and commodity exchanges in the country.
, HDFC Bank met the overall priority sector
 lending requirement of 40% of net bank credit and
improved its performance in certain sub-limits where it
fell short of the requirements.

This Bank also achieved healthy growth in its agriculture

and micro-finance portfolios. With products including the
Kisan Gold Card, rural supply chain initiatives and
commodity finance the Bank is well positioned to meet
its customers’ requirements across the entire agriculture
financing cycle.

Bank’s experience with its hub and spoke model

for rural markets has been positive so far. Through this
route, Bank has targeted potential outreach
locations within a certain radius of its semi-urban and
rural branches, distributing a set of products that
includes savings accounts, fixed deposits, two-wheeler
and auto loans, kisan card crop loans, tractor loans and
warehouse receipt loans. The Bank has also rolled out
special rural fixed deposit and savings account products.
The specially designed rural savings account includes
features such as mobile banking, net banking, instant
alerts and payable-at-par cheque books. The Bank also
has specialised Agri Desks at certain branches across
the country which works as a single point contact for
farmers.

The Bank has relationships with 110 micro finance

institutions and has extended credit facilities, whereby
1.61 million households have been beneficiaries of
financial inclusion. In addition, the Bank under the direct
SHG linkage programme, has credit-linked and financed
over 32,000 Self-Help Groups with roughly half a million
households benefiting from this.

The treasury group manages the Bank’s balance sheet

and is responsible for compliance with reserve
requirements and management of liquidity and interest
rate risk. On the foreign exchange and derivatives front,
revenues are driven primarily by spreads on customer
transactions based on trade flows and customers’
hedging needs. During 2007-08, revenues from foreign
exchange and derivative transactions grew by 14.1% to
Rs. 319.8 crores where the revenues were distributed
across large corporate, emerging corporate, business
banking and retail customer segments for plain vanilla
forex products and across primarily large corporate and
emerging corporate segments for derivatives. The Bank
offers Indian rupee and foreign exchange derivative
products to its customers, who use them to hedge their
market risks. The Bank enters into forex and derivative
deals with counterparties after it has set up appropriate
counterparty credit limits based on its evaluation of the
ability of the counterparty to meet its obligations in the
event of crystallization of the exposure. Appropriate credit
covenants may be stipulated where required as trigger
events to call for collaterals or terminate a transaction
and contain the risk. In the event of any customer
default, the Bank, at the minimum, conforms to the
Reserve Bank of India guidelines with regard to
provisioning requirements for non-performing assets. On
a conservative basis, the Bank may make incremental
provisions based on its assessment of impairment of
 the credit. Where the Bank enters into foreign currency
derivative contracts with its customers it lays them off
in the inter-bank market on a matched basis. For such
foreign currency derivatives, the Bank does not have
any open positions or assume any market risks but

carries only the counterparty credit risk (where the customer

has
crystallized or mark-to-market losses). The Bank also
deals in Indian rupee derivatives on its own accounts
including for the purpose of its own balance sheet risk
management. The Bank recognizes changes in the
market value of all rupee derivative instruments (other
than those designated as hedges) in the profit and loss
account in the period of change. Rupee derivative
contracts classified as hedge are recorded on an accrual
basis.
Given the regulatory requirement of holding government
securities to meet the statutory liquidity ratio (SLR)
requirement, your Bank has to necessarily maintain
a large portfolio of government securities. While a
significant portion of these SLR securities are held
in the “Held-to-Maturity’ (HTM) category, to the extent
some of these are held in the “Available for Sale”
(AFS) category, this enables the Bank to realise
gains in a declining interest rate environment and
exposes the Bank to losses or depreciation in value
of investments when yields rise.
SERVICE QUALITY INITIATIVES
 HDFCBank continued to seek and drive process
improvement in all spheres of business through
structured Quality Projects using Lean Sigma Project
Management Methodology. Over 1,000 projects were
executed during the year that resulted in substantial Cost
and Turn Around Times reduction, and productivity and
process efficiency improvement.
Service Quality initiatives were refined to capture and
improve upon real customer experiences at various
touch-points. New elements were added and renewed
improvement schemes installed to provide customer
delight. HDFC Bank launched a Service Quality
improvement drive for some of the key support
departments as well. Customer feedback was taken into
account to introduce new services using technology to
ensure customer convenience, secured transactions and,
reduced cost of transactions.
 Bank plans to use this platform to drive systemic
changes and process re-engineering using technology,
Lean Six Sigma tool-kit, 5 S and other business
excellence initiatives to further enhance customer
experience and value to business.
 RISK MANAGEMENT AND PORTFOLIO
QUALITY

Taking on various types of risk is integral to the banking

business. Sound risk management and balancing riskreward
trade-offs are therefore critical to a bank’s
success. Business and revenue growth have therefore
to be weighed in the context of the risks implicit in the
Bank’s business strategy. Of the various types of risks
the Bank is exposed to, the most important are credit
risk, market risk (which includes liquidity risk and price
risk) and operational risk. The identification,
measurement, monitoring and management of risks
remain a key focus area for the Bank. For credit risk,
distinct policies and processes are in place for the retail
and wholesale businesses. In retail loan businesses, the
credit cycle is managed through appropriate front-end
 credit, operational and collection processes. For each
product, programs defining customer segments,
underwriting standards, security structure etc., are
specified to ensure consistency of credit buying patterns.
Given the granularity of individual exposures, retail credit
risk is managed largely on a portfolio basis, across
various products and customer segments. For wholesale
credit exposures, management of credit risk is done
through target market definition, appropriate credit
approval processes, ongoing post-disbursement
monitoring and remedial management procedures. Overall
portfolio diversification and reviews also facilitate
mitigation and management.
The Risk Monitoring Committee of the Board monitors
the Bank’s risk management policies and procedures,
vets treasury risk limits before they are considered by
the Board, and reviews portfolio composition and
impaired credits. From an industry concentration
perspective, as of March 31, 2008, the following table
gives industry wise classification of the loans and
investments outstanding (excluding SLR investments,
equity shares, Bank certificate of deposits and mutual
fund units).

Rs Crores Funds%to
Total
Exposure Exposure
Automossbiles and Auto Ancillaries 5,203 7.0%

Transportation 5,144 6.9%

Trade 4,111 5.5%

Banks and Financial Institutions 3,152 4.2%

Other Financial Intermediaries 2,644 3.6%

Food Processing 1,695 2.3%

Metals and Metal Products 1,560 2.1%

Engineering 1,487 2.0%

Other industries each of loans and 16,235 21.8%

investments
outstanding (43 industries)

Retail-Except where otherwise 33,130 44.6%

classified

74,361 100%
Total

Note: Classification of exposure to real estate sector under Exposures in

Sensitive Sectors. This includes not only exposure to borrowers in
the real estate industry but also exposures to borrowers in other industries,
where the exposures are primarily
secured by real estate and investment in home finance institutions and
securitisation.
the Bank’s ratio of gross
nonperforming assets (NPAs) to total customer assets
was 1.29%. Net non-performing assets (gross nonperforming
 assets less specific loan loss provisions,
interest in suspense and ECGC claims received) were
0.42% of customer assets as of March 31, 2008. The
specific loan loss provisions that the Bank has made
for its non-performing assets continue to be more
conservative than the regulatory requirement. The Basel
Committee on Banking Supervision (BCBS) released the
International Convergence of Capital Measurement &
Capital Standards in June 2004, providing the New
Framework for Capital Adequacy). Pursuant to
this Accord, Reserve Bank of India came out with its
final guidelines in April 2007. In terms of these
guidelines, Indian banks having operational presence
outside India are required to migrate to the selected
approaches (Standardised Approach for credit risk and
Basic Indicator Approach for operational risk) with effect
from March 31, 2008. All other scheduled commercial
banks are required to migrate to these approaches no
later than March 31, 2009. The Bank is in preparedness
to adopt the above approaches as per the final
guidelines issued in April 2007. Meanwhile, Reserve
Bank of India has published its amendments to the final
guidelines in March 2008. The Bank has examined these
amendments and is in the process of reconfiguring its
systems and processes to account for these changes.
While the Bank, to begin with, will migrate to the above
approaches defined in the Reserve Bank of India
guidelines
Bank comply with the standards set out for the more
advanced capital approaches under Basel II. These
initiatives include augmentation of the risk management
systems in terms of architecture, capabilities,
technology, etc., in areas such as ratings systems,
borrower segmentation, exposure consolidation, risk
mapping, risk estimation, capital computation, etc. The
Bank has been investing appropriately in augmenting
its risk management systems and capabilities. The
implementation of the Basel II framework is in harmony
with the Bank’s objective of adopting international best
practices in risk management.

Balance Sheet
 As at March 31,
2008
Schedu As at As at
PARTICULARS le 31-mar -08 31- mar
Rs. Lac -07
Rs.Lac
CAPITAL AND LIABILITIES

Capital 1 354,43 319,39

Reserves and Surplus 2 11,142,80 6,113,76

3 100,142,80 68,297,94
Deposits
4 4,478,86 2,185,39
Borrowings
5 16,431,91 13,689,13
Other Liabilities and Provisions

Total 133,176,60 91,235,61

ASSETS
12,553,18 5,075,25
6
Cash and balances with Reserve
Bank of India 2,225,16 3,971,40
7
Balances with Banks and Money
at Call and Short notice 49,393,54 30,564,80
8
Investments 64,426,90 46,944,78
9
1,175,13 966,67
Advances 10
4,402,,69 3,712,71
Fixed Assets 11

Other Assets
133,176,60 91,235,61

Total
Notes & principal accounting policies integral part of
the financial statements

This BALANCE SHEET taken on the behalf of board

of director of HDFC Bank.

 SUMMER
Y

The Housing Development Finance

Corporation Limited (HDFC) amongst the first to
receive an 'in principle' approval from the Reserve
Bank of India (RBI) to set up a bank in the private
sector, as part of the RBI's liberalisation of the
Indian Banking Industry in 1994. The bank was
incorporated in August 1994 in the name of 'HDFC
Bank Limited', with its registered office in Mumbai,
India. HDFC Bank commenced operations as a
Scheduled Commercial Bank in January 1995. The
current Managing Director Of HDFC bank is
Mr.Aditya Purii

Currently HDFC Bank has 758 branches, 1,716

ATMs, in 325 cities in India, and all branches of the
bank are linked on an online real-time basis. The
bank offers many innovative products & services to
individuals, corporates, trusts, governments,
partnerships, financial institutions, mutual funds,
insurance companies.

It is a path breaker in the Indian banking

sector. In 2007 HDFC Bank acquired Centurion
Bank of Punjab taking its total branches to more
than 1,000. Though, the official license was given
to Centurion Bank of Punjab branches, to continue
working as HDFC Bank branches, on May 23, 2008.
 BIBIOGRA
PHY

Annual report of hdfc bank

Article of BUSINESS TODAY

WWW.HDFC.COM

WWW.valueresearch,com

www.capitalmarket.com

www.google.com

www.yahoo.com