1

Ratio Analysis

Of

HDFC Bank

Financial Accounting Project

Under Dr. Jayanta Kumar Seal

Ankit Kumar Sharma 56 Atul Pandey 59

Siddhesh Kokje 94 Suyash Peepre 101

2

Table of Contents

S. No Topic Page No.

1 Profitability Ratios 3

2 Solvency Ratios 7

3 Liquidity Ratios 9

4 Key Performance Indicators 12

3

Profitability Ratios:

Net Profit Margin The ratio of net profits to revenues for a company or business segment - typically expressed as a percentage – that shows how much of each dollar earned by the company is translated into profits. Net margins can generally be calculated as:

Analysis of Based on Data: Net profit margin of HDFC Bank kept on fluctuating every fiscal year, same is the case with SBI and Axis Bank. The Net Profit Margin of ICICI Bank has seen a continuous growth from FY2011-FY2015 whereas PNB has witnessed a downfall every fiscal year. The Banking sector has witnessed a general downward trend in the net profit margin.

Mar'11 Mar'12 Mar'13 Mar'14 Mar'15

HDFC 19.7 18.93 19.18 20.61 21.07

SBI 9.05 10.99 11.78 7.98 8.59

ICICI 19.83 19.27 20.77 22.2 22.76

PNB 16.42 13.4 11.33 7.73 6.61

Axis Bank 22.35 19.28 19.05 20.29 20.73

Average 17.47 16.374 16.422 15.762 15.952

0

5

10

15

20

25

Net Margin

4

Return on Equity

The Amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporations' profitability by revealing how much profit a company generates with the money shareholders have invested. ROE is expressed as a percentage and calculated as:

Return on Equity = Net Income/Shareholder's Equity Net income is for the full fiscal year (before dividends paid to common stock holders but after dividends to preferred stock.) Shareholder's equity does not include preferred shares. Also known as "return on net worth" (RONW).

Analysis of Based on Data: The Return on Equity of HDFC Bank has seen a growth from FY2011-FY2014 before dropping in FY2015.On the other hand ICICI Bank has seen a consistent growth as well as Axis bank has seen a consistent decline in last 5 years. Also public sector bank SBI has seen a downfall in FY2014.The graph of public sector as well as private sector banks is continuously declining from FY2013

Mar'11 Mar'12 Mar'13 Mar'14 Mar'15

HDFC 15.47 17.26 18.57 19.5 16.47

SBI 11.34 13.94 14.26 9.2 10.2

ICICI 9.35 10.7 12.48 13.4 13.89

PNB 22.12 18.52 15.19 9.69 8.12

Axis Bank 17.83 18.59 15.64 16.26 16.46

Average 15.222 15.802 15.228 13.61 13.028

0

5

10

15

20

25

Return On Equity

HDFC SBI ICICI PNB Axis Bank Average

5

Interest Spread The difference between the average yields a financial institution receives from loans and other interest-accruing activities and the average rate it pays on deposits and borrowings. The net interest rate spread is a key determinant of a financial institution's profitability (or lack thereof).

Interest Spread = Interest charged on Loans - Interest offered on Deposits

Analysis of Based on Data:

The net interest spread of HDFC has seen a continuous growth from FY2011-2013 before

dropping in FY2014 and maintained the same trend in FY2015. There was a general downward

trend for private sector banks like Axis bank, ICICI Bank, and PNB in FY2014 and continued the

same in FY2015 which affected the profitability of the institution. The overall banking sector has

witnessed a downfall in the net interest spread IN FY2014-FY2015.

Mar'11 Mar'12 Mar'13 Mar'14 Mar'15

HDFC 8.25 8.42 8.78 8.01 8.01

SBI 6.12 6.87 5.95 5.76 6.26

ICICI 6.95 7.45 7.82 7.35 7.04

PNB 6.74 6.87 7.29 6.95 6.73

Axis Bank 6.66 7.46 7.9 7.67 7.34

Average 6.944 7.414 7.548 7.148 7.076

4

5

6

7

8

9

10

Interest Spread

HDFC SBI ICICI PNB Axis Bank Average

6

Assets Turnover Ratio The ratio of the value of a company’s sales or revenues generated relative to the value of its assets. The Asset Turnover ratio can often be used as an indicator of the efficiency with which a company is deploying its assets in generating revenue.

Asset Turnover = Sales or Revenues/Total Assets This ratio measures how efficiently a firm uses its assets to generate sales, so a higher ratio is always more favorable. Higher turnover ratios mean the company is using its assets more efficiently. Lower ratios mean that the company isn't using its assets efficiently and most likely have management or production problems. But since this ratio varies widely from one industry to the next, comparisons are only meaningful when they are made for different companies in the same sector.

Analysis of Based on Data:

The Asset Turnover ratio is also a key component, which breaks down Return on Equity into three parts, the other two being profit margin and financial leverage. The Asset Turnover ratio of HDFC is increasing till 2013. After 2013, it has been on decreasing trend and is below the average. In 2015 the asset turnover ratio is 0.1 which means that company is generating 0.1$ of sales for every dollar invested in the assets.

Mar'11 Mar'12 Mar'13 Mar'14 Mar'15

HDFC 0.09 0.1 0.11 0.1 0.1

SBI 0.08 0.09 0.09 0.09 0.08

ICICI 0.07 0.08 0.08 0.08 0.08

PNB 0.08 0.09 0.09 0.09 0.08

Axis Bank 0.07 0.09 0.09 0.09 0.09

Average 0.078 0.09 0.11 0.112 0.1084

0.04

0.05

0.06

0.07

0.08

0.09

0.1

0.11

0.12

Asset Turnover Ratio

HDFC SBI ICICI PNB Axis Bank Average

7

Solvency Ratios

Credit Deposit Ratio It is a commonly used statistic to calculate the liquidity of banks by dividing the total amount of loans by total number of deposits. This number is either called as Loan to Deposit ratio or Credit Deposit ratio and is usually expressed as a percentage.

Credit Deposit Ratio = Total Loans/ Total Deposits

If the ratio is too high then the bank has its funds tied up in loans and do not have enough liquidity to cover any unforeseen requirements. On the other hand if the ratio is too low then the banks have idle funds at their hands on which they are not earning any profit.

Analysis of Based on Data: The credit deposit ratio of HDFC has been consistent from past five financial years and comparatively lower than ICICI bank and National Average (after 2013). Though this fetches higher income for the bank, it also exposes the bank to a greater risk of the loans turning bad.

Mar'11 Mar'12 Mar'13 Mar'14 Mar'15

HDFC 76.02 78.06 80.14 81.79 81.71

SBI 79.9 52.14 85.17 86.84 84.47

ICICI 90.45 97.71 99.25 100.71 104.72

PNB 76.25 77.39 78.13 78.06 76.6

Axis Bank 74.65 76.26 77.58 80.03 84.71

Average 79.454 76.312 84.054 85.486 86.442

40

50

60

70

80

90

100

110

Credit Deposit Ratio

HDFC SBI ICICI PNB Axis Bank Average

8

Cash Deposit Ratio Cash Deposit ratio is defined as the minimum amount of cash that is to be maintained on hand from the depositor's balances maintained at bank. This is a requirement which is regulated by the federal bank, Reserve Bank of India. This ratio affects the amount of cash available for the banks to invest or lend and also affects the total money supply in the country.

Cash Deposit Ratio = Amount of Cash to be maintained on hand/ Total deposits

Analysis of Based on Data: Cash to deposit ratio determines the amount of funds that are available for the bank for investing or lending. This has a significant impact on the credit portfolio of the bank and thereby on the profits of the bank. Cash to deposit ratio of HDFC Bank has decreased from 2011 to 2013 and has increased marginally over the last two years. This indicates an increase in the amount of funds available for loans and investments. For the industry as whole, the cash to deposit ratio of all the banks except for PNB, are almost in the similar range with a 0.5 deviation.

Mar'11 Mar'12 Mar'13 Mar'14 Mar'15

HDFC 10.79 8.81 5.46 6.02 6.46

SBI 8.96 7.51 5.34 5.81 6.76

ICICI 11.32 8.6 7.21 6.54 6.85

PNB 7.49 6.1 4.72 4.76 4.88

Axis Bank 7.07 6.01 5.39 5.97 6.11

Average 9.126 7.406 5.624 5.82 6.212

3

4

5

6

7

8

9

10

11

12

Cash Deposit Ratio

HDFC SBI ICICI PNB Axis Bank Average

9

Liquidity Ratios

Current Ratio Current ratio measures a company's ability to pay its short-term obligations. The ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables).

The Current Ratio formula is:

The current ratio is also known as the working capital ratio.

Analysis of Based on Data: The current ratio of HDFC Bank has been fluctuating. It has increased from FY2011 to FY2012, then decreased from FY2012 to FY2013. It has remained constant from FY2013 to FY2014 and then again decreased in FY2015. The Current Ratio is above average which means it is safe enough to pay its short term debts.

Mar'11 Mar'12 Mar'13 Mar'14 Mar'15

HDFC 0.06 0.08 0.06 0.06 0.04

SBI 0.04 0.05 0.04 0.03 0.04

ICICI 0.07 0.07 0.09 0.09 0.06

PNB 0.03 0.02 0.02 0.02 0.02

Axis Bank 0.02 0.03 0.03 0.03 0.03

Average 0.044 0.05 0.048 0.046 0.038

0

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

0.09

0.1

Current Ratio

HDFC SBI ICICI PNB Axis Bank Average

10

Quick Ratio

Quick Ratio is an indicator of a company’s short-term liquidity. It measures a company’s ability to meet its short-term obligations with its most liquid assets. For this reason, the ratio excludes inventories from current assets, and is calculated as follows:

Quick ratio = (current assets – inventories) / current liabilities

Where Current Asset= cash and equivalents + marketable securities + accounts receivable

Analysis of Based on Data:

The quick ratio of HDFC has been on an increasing trend consistently which is advantageous in meeting short term liabilities. The quick ratio of ICICI Bank fares better than other private sector banks like PNB and Axis Bank. The overall trend of quick ratio in banking sector is fluctuating every fiscal year.

Mar'11 Mar'12 Mar'13 Mar'14 Mar'15

HDFC 6.89 6.2 7.84 8.55 12.69

SBI 8.5 12.05 12.15 13.88 10.78

ICICI 15.86 16.71 10.53 11.31 13.81

PNB 22.24 23.81 22.4 25.19 24.23

Axis Bank 19.6 21.63 20.1 18.57 20.64

Average 14.618 16.08 14.604 15.5 16.43

0

5

10

15

20

25

30

Quick Ratio

HDFC SBI ICICI PNB Axis Bank Average

11

Earnings per Share

The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability.

Calculated as:

Analysis of Based on Data:

Earnings per share is the amount of money each share of stock would receive if all of the profits were distributed to the outstanding shares at the end of the year. The earnings per share of HDFC has decreased from the FY2011 to FY2012. After which it has increased linearly but at a slow pace. Presently it is 40.76 which is above the average.

Mar'11 Mar'12 Mar'13 Mar'14 Mar'15

SBI 116.07 174.46 206.2 145.88 17.55

ICICI 44.73 56.09 72.17 84.95 19.28

HDFC 84.4 22.02 28.27 35.34 40.76

PNB 139.94 144 134.31 92.32 16.51

Axis Bank 82.54 102.67 110.68 132.33 31.04

Average 93.536 99.848 110.326 98.164 25.028

0

50

100

150

200

250

Earnings Per Share

SBI ICICI HDFC PNB Axis Bank Average

12

Key Performance Indicators

Interest Income and Fee Based Income

Interest Income and Fee Based Income are one of the Key performance Indicators of the banking industry. Interest income is the difference between the revenue that is generated from a bank's assets and the expenses associated with paying out its liabilities. A typical bank's assets consist of all forms of personal and commercial loans, mortgages and securities. The liabilities are, of course, the customer deposits.

Fee based income is the income which the bank collects for account related activities like issuing of a new cheque book or statement or attestation of signature, Opening letter of credit, Funds transfer, Remittances etc. Fee based income are forming a significant part of the total income for the banks.

Mar'11 Mar'12 Mar'13 Mar'14 Mar'15

HDFC 82.13 83.88 83.65 83.86 84.14

SBI 83.72 88.13 88.18 88.02 80.83

ICICI 65.13 48.84 87 60.49 60.7

PNB 88.19 89.66 90.86 90.43 88.74

Axis Bank 76.59 80.23 80.58 80.54 80.17

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40

50

60

70

80

90

100

Interest Income % in Total income:

HDFC SBI ICICI PNB Axis Bank

Mar'11 Mar'12 Mar'13 Mar'14 Mar'15

HDFC 17.87 16.12 16.35 16.14 15.66

SBI 16.28 11.87 11.82 11.98 12.9

ICICI 20.38 18.28 17.24 19.1 19.87

PNB 11.81 10.34 9.14 9.57 11.28

Axis Bank 23.41 19.77 19.42 19.46 19.08

0

5

10

15

20

25

Fee Based Income % in Total Income:

HDFC SBI ICICI PNB Axis Bank

13

Capital Adequacy Ratio Capital Adequacy ratio is a measure of banks capital and is a key performance indicator of banking industry. It is also known as capital to risk weighted assets ratio as it is expressed as a percentage of bank's risk weighted credit exposures. It is used to protect depositors and promote stability and efficiency of financial systems around the world. There are two types of capital:

Tier I capital: It is the capital reserve absorbs losses without the bank being required to cease trading or its day to day operations.

Tier II Capital: It is the capital reserve which can absorb losses in the event of bank winding up its operations and provides lesser degree of protection to depositors.

It is also known as "Capital to Risk Weighted Assets Ratio (CRAR)"

Analysis Based on Data:

HDFC Bank has good amount of capital in comparison with other banks thus having good ability to meet

the time liabilities and other risks such as credit risk, operation risk, etc. As the ratio indicates stability

and efficiency of financial systems around the world, HDFC Bank should continue to focus on increasing

its capital adequacy ratio in current scenario with a rise in non-performing assets exerting pressure on

their profitability.

2011 2012 2013 2014 2015

HDFC 16.22 16.52 16.8 16.07 16.79

SBI 11.98 13.86 12.92 12.96 12

PNB 12.42 12.63 12.72 12.11 12.89

ICICI 19.54 18.52 18.74 17.7 17.02

AXIS 12.65 13.66 17 16.07 15.09

Average 14.562 15.038 15.636 14.982 14.758

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12

14

16

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20

22

Capital Adequacy Ratio

HDFC SBI PNB ICICI AXIS Average

14

Non-Performing Assets NPAs refer to the loans that are in jeopardy of default. If the borrower fails to repay principal or interest for period of 90 days then the loan is considered as Non-performing asset.

An asset which is considered as NPA for not more than 12 months is considered to be Substandard assets for which banks have to maintain 20% of its reserves.

An asset which is considered as NPA for more than 12 months is called Doubtful asset for which banks have to maintain 30% of its reserves.

An asset where loss is identified by the bank but it is not written off is called loss asset for which banks have to maintain 100% of its reserves.

Analysis of Based on Data: HDFC Bank’s net NPA % is more or less stable at 0.3% of Net Advances so there’s nothing to worry for

both the investors and management. It has the least Net NPA% when compared to the top 5 in the

industry The bank’s gross NPAs (0.9% of loans) and net NPAs (0.2% of loans) are some of the best in the

sector. NPA ratio lower than 10 year average even in current challenging environment. HDFC Bank

numbers indicate that private banks continue to beat the economic downtrend, while their public sector

counterparts, except State Bank of India (SBI), are finding it difficult to do so mainly due to their poor

capital base.

Mar'11 Mar'12 Mar'13 Mar'14 Mar'15

HDFC 0.2 0.2 0.2 0.25 0.3

SBI 1.63 1.82 2.1 2.57 2.12

ICICI 1.11 0.73 0.77 0.97 1.61

PNB 0.65 1.52 2.35 2.85 4.06

Axis Bank 0.26 0.25 0.32 0.4 0.44

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

Net NPA%

HDFC SBI ICICI PNB Axis Bank