asstes and liab managmnt

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A project report on asset and liability management

ACHARYA INSTITUTE OF GRADUATE STUDIES Page 1

ACKNOWLEDGEMENT

Chapter No. Title Pg. No.

1 INTRODUCTION

5-13

2 RESEARCH DESIGN OF THE STUDY

14-16

3 INDUSTRY PROFILE17-27

4 COMPANY PROFILE 28-58

5 ANALYSIS AND INTERPRETATION59-76

6 SUMMARY OF FINDINGS, SUGGESTIONSAND CONCLUSION

77-84

BIBLIOGRAPHY85


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LIST OF TABLES

Table No. Title Page No

4.1 Net Interest Income 65

4.2 Net Interest Margin 67

4.3 GAP 69

4.4 Relative Gap 71

4.5 Interest Sensitive Ratio 73

4.6 Liquidity Ratio 75

LIST OF GRAPHS

Chart

No

TITLE Page

No

4.1 Net Interest Income 66

4.2 Net Interest Margin 68

4.3 GAP 70

4.4 Relative Gap 72

4.5 Interest Sensitive Ratio 74

4.6 Liquidity Ratio 76


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CHAPTER-1

INTRODUCTION

1.1 ASSET-LIABILITY MANAGEMENT (ALM):

Asset-liability management (ALM) is a term whose meaning has evolved.

It is used in slightly different ways in different contexts. ALM was

pioneered by financial institutions, but corporations now also apply ALM

techniques.

Traditionally, banks and insurance companies used accrual accounting for

essentially all their assets and liabilities. They would take on liabilities,

such as deposits, life insurance policies or annuities. They would invest

the proceeds from these liabilities in assets such as loans, bonds or real

estate. All assets and liabilities were held at book value. Doing so

disguised possible risks arising from how the assets and liabilities were

structured. Asset Liability management is very much importance for a

bank. Banks are making profit from various services provided to their

customers. Banks profit is functions of revenue earned form the assets

and the cost incurred for the liability that has occurred for acquiring funds

for financing the assets. Proper management of bank assets and liabilitiescan increase the profitability of the bank. So the earnings of a bank

ultimately depend on liabilities. Banks have to incur costs for its liability.

For example, they have to give interest to the public and also to the

lending institutions. So banks liability is not cost-free. Efficient use of

liabilities depends on effective liability management. Effective liability

management indicates that the cost of the liability will be less and also it

will less volatile. But less cost and less volatility is inversely related. If


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we give our concentration only to less cost fund, then the funds will be

volatile. Again if we give our attention to only to less volatility, then the

cost of fund will be high because only the fixed deposit has the

characteristics of less volatility. So we have to make coordination

between least costs fund and least volatile fund.

ALM has mainly two components. One is asset management and the

other is liability management. Asset management deals with how a

manager can appropriately handle the assets of the bank and efficiently

use the profitable opportunities. On the other hand, liability management

deals with the liability side of the balance sheet. A banks earning or

spread is the difference between the revenue generated mainly from the

asset side of the business and expense generated mainly from the liability

side of the business. The foal of liability management is to gain control

over the banks funds sources.

Almost in every moment in our life we are confronted with different

types of risk. Human mind is programmed to learn to manage risk.

Managing risk is unique and fundamental in banking industry, because

unlike other industry it is exposed to multi-dimensional that has

aggravated with the advent of deregulation and globalization. No banking

industry in the world is isolated from the risks, and in this project paper

my efforts should concentrate on understanding and appreciating these

risks specially managing asset and liability so that I can learn more how

can manage them efficiently, appropriately and in a timely manner. The

major risks that a bank encounters in its business are as follows:

1) Asset Liability Management Risk

2) Credit/ Lending Risk

3) Foreign Exchange Risk


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4) Internal Controls and Compliance Risk

5) Money Laundering Risk

This Project paper is based onAsset Liability management of HDFC

Bank. To manage the above risk effectively and to ensure sustainable

performance and good governance of the banking company, the following

requirements must be fulfilled:

1) An effective regulatory frame work

2) a sound operations system to support the regulatory framework.

3) A Socio ethical standard to ensure that the people engaged in the

organization is committed towards their stakeholders in a meaningful

way. Given the fact that an appropriate asset liability management system

was required to manage risk better

1.2 ASSET LIABILITY MANAGEMENT POLICY:

Asset Liability Management (ALM) is an integral part of Bank

Management; and so, it is essential to have a structured and systematic

process for manage the Balance Sheet. Banks must have a committee

comprising of the senior management of the bank to make important

decisions related to the Balance Sheet of the Bank. The committee,

typically called the Asset Liability Committee (ALCO), should meet at

least once every month to analysis, review and formulate strategy to

manage the balance sheet. In every ALCO meeting, the key points of the

discussion should be minted and the action points should be highlighted

to better position the banks balance sheet. Asset Liability management is

one of the pillars of banking- in fact the concept of AssetLiability

management is at the core of financial business. The importance of

appropriate and effective Asset Liability management has always been


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outlined by regulators, market operatives and individuals and yet we hear

of instances of failures in Asset Liability management mechanism-the

most notable amongst them the Barings Bank and Long Term Capital

Management.

The Asset Liability Risk Management system essentially focuses on risks

that arise out of liquidity and interest rate mismatches and management of

Capital Adequacy. This aspect of risk management has become

increasingly important due to volatility that arises from a deregulated

market- driven environment. Here to the policy guideline, outlines all the

areas that are required to be covered through preciously laid down

statement on Capital Adequacy, borrowing limits commitment limits,

loan deposit ratios and medium term funding ratio. The organization

structure and job responsibilities are also outlined and the globally

accepted ALCO or The Asset Liability Committee process is detailed.

The ALCO process ensures that the management is constantly apprised of

the risks arising out of liquidity and interest rate mismatch and step can

be taken through this continuous monitoring of risk to manage it

effectively.

1.3 ALM INFORMATION SYSTEMS:

Information is the key to the ALM process. Considering the

large network of branches and the lack of an adequate system to collect

information required for ALM which analyses information on the basis of

residual maturity and behavioural pattern it will take time for banks in the

present state to get the requisite information. The problem of ALMneeds

to be addressed by following an ABC approach i.e. analysing the

behaviour of asset and liability products in the top branches accounting

for significant business and then making rational assumptions about the


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way in which assets and liabilities would behave in other branches. In

respect of foreign exchange, investment portfolio and money market

operations, in view of the centralized nature of the functions, it would be

much easier to collect reliable information. The data and assumptions can

then be refined over time as the bank management gain experience of

conducting business within an ALM framework. The spread of

computerization will also help banks in accessing data.

1.4 ALM PROCESS:

The scope of ALM function can be described as follows:

Liquidity risk management

Management of market risks (Including Interest Rate Risk)

Funding and capital planning

Profit planning and growth projection

Trading risk management

The guidelines given in this note mainly address Liquidity and Interest

Rate risks. The Asset Liability Committee (ALCO) is responsible for

balance sheet (asset liability) risk management. Managing the asset

liability is the most important responsibility of a bank as it runs the risks

for not only the bank, but also the thousands of depositors who put money

into it.The responsibility of Asset liability Management is on

theTreasury Department of the bank. Specifically, the Asset liability

Management (ALM) desk of the Treasury Department manages the

balance sheet. The results of balance sheet analysis along with

recommendation is placed in the ALCO meeting by the Treasurer where

important decisions are made to minimize risk and maximize returns.


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1.5 ASSET LIABILITY STRUCTURE OF A BANK:

Asset Liability Management Flowchart:

To understand how a bank operates, first we examine the bank balance

sheet, which list sits assets and liabilities. As the name implies, this list

balance, that is, it has the characteristics that

Total Assets = Total Liabilities + Capital

Furthermore, a banks balance sheet lists sources of banks funds

(liabilities) and uses to which they are pit (assets). Banks obtain funds by

borrowing and by issuing other liabilities such as deposits. They then use

these funds to acquire assets such as securities and loans. The revenue

that banks receive from their holdings of securities and loans covers the

expenses of issuing liabilities and ideally yields a profit.

OPERATION

FINANCE

TREASURY ALCOMEETING

IMPLEMENTATION &

FEED BACK


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1.6 ADMINISTRATION OF ALM:

There is a separate department to manage asset and liability. The treasury

department maintains asset and liability of a bank. To maintain asset and

liability treasury department has a policy to follow. This policy guideline

is given below:

1.7 POLICY GUIDELINES:

Responsibi li ty of the Board of Di rectors:

The overall responsibility of establishing broad business strategy,

significant policies and understanding significant risks of the bank rests

with the Board of Directors.

Through the establishment of Audit Committee the Board of Directors

can monitor the effectiveness of internal control system. Bangladesh

Bank has already instructed the banks to establish Audit Committee.

The internal as well as external audit reports will be sent to the board

without any intervention of the bank management and ensure that the

management takes timely and necessary actions as per the

recommendations

Have periodic review meetings with the senior management to discuss

the effectiveness of the internal control system of the bank and ensure

that the management has taken appropriate actions as per the

recommendations of the auditors and internal control.

ALCO & Asset Liability Management (ALM):

The banks asset liability management is monitored through ALCO. The

information


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Flow in the ALCO can be diagrammed as below:

Corporate banking Feedback & recommendation

Feedback & recommendation

Depo-advFinancefeedback & recommendation

Trend outlook key balance sheet features

Feedback&

Treasuryrecommendation BS Status&

Recommend

ALCO

MeetingCEO

Actions

Depo-adv

Trend outlook Other Balance sheet features

Feedback & Recommendation

Other Depts.

Feedback & Recommendation

Consumer Banking

S

T

RA

T

E

G

Y

&

AC

T

I

O

N

P

O

I

N

T

S


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An Insight into the Asset Liability Management of HDFC Bank

The Committee:

As the Treasury Department is primarily responsible for Asset Liability

Management, ideally the Treasurer (or the CEO) is the Chairman of the

ALCO Committee. The committee consists of the following key

personnel of a bank:

- Chief Executive Officer / Managing Director

- Head of Treasury / Central Accounts Department

- Head of Finance

- Head of Corporate Banking

- Head of Consumer Banking

- Head of Credit

- Chief Operating Officer / Head of Operations

The committee calls for a meeting once every month to set and review

strategies on ALM.

Key Agendas:

ALCO attends the following issues while managing Balance Sheet Risks:

Review of actions taken in previous ALCO. Economic and Market Status and Outlook. Liquidity Risk related to the Balance Sheet. Review of the price / interest rate structure. Actions to be taken.


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Policy Recognition and Assessment:

An effective internal control system continually recognizes and assesses

all of the material risks that could adversely affect the achievement of the

banks goals.

Effective risk assessment must identify and consider both internal and

external factors. Internal factors include complexity of the organization

structure, the nature of the Banks activities, the quality of personnel,

organization changes and also employee turnover. External factors

include fluctuating economic conditions, changes in the industry, socio-

political realities and technological advances.

Risk assessment by Internal Control System differs from the business

risk management process, which typically focuses more on the review of

business strategies developed to maximize the risk/reward trade-off

within the different areas of the bank. The risk assessment by Internal

Control focuses more on compliance with regulatory requirements, social,

ethical and environmental risks those affect the banking industry.

Asset liability management

In banking, asset and liability management(often abbreviated ALM) is

the practice of managing risks that arise due to mismatches between the

assets and liabilities (debts and assets) of the bank. This can also be seen

in insurance. Banks face several risks such as the liquidity risk, interest

rate risk, credit risk and operational risk. Asset liability management

(ALM) is a strategic management tool to manage interest rate risk and
http://en.wikipedia.org/wiki/Riskhttp://en.wikipedia.org/wiki/Liquidity_riskhttp://en.wikipedia.org/wiki/Interest_rate_riskhttp://en.wikipedia.org/wiki/Interest_rate_riskhttp://en.wikipedia.org/wiki/Credit_riskhttp://en.wikipedia.org/wiki/Operational_riskhttp://en.wikipedia.org/wiki/Strategic_managementhttp://en.wikipedia.org/wiki/Strategic_managementhttp://en.wikipedia.org/wiki/Operational_riskhttp://en.wikipedia.org/wiki/Credit_riskhttp://en.wikipedia.org/wiki/Interest_rate_riskhttp://en.wikipedia.org/wiki/Interest_rate_riskhttp://en.wikipedia.org/wiki/Liquidity_riskhttp://en.wikipedia.org/wiki/Risk


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liquidity risk faced by banks, other financial services companies and

corporations.

Banks manage the risks ofasset liability mismatchby matching theassets

and liabilities according to the maturity pattern or the matching of the

duration, by hedging and by securitization. Much of the techniques for

hedging stem from the delta hedging concepts introduced in the Black

Scholes model and in the work of Robert C. Merton and Robert A.

Jarrow. The early origins of asset and liability management date to the

high interest rate periods of 1975-6 and the late 1970s and early 1980s in

the United States. Van Deventer, Imai and Mesler (2004), chapter 2,

outline this history in detail.

Modern risk management now takes place from an integrated approach

to enterprise risk management that reflects the fact thatinterest rate risk,

credit risk,market risk,andliquidity risk are all interrelated. TheJarrow-

Turnbull model is an example of a risk management methodology that

integrates default and random interest rates. The earliest work in this

regard was done by Robert C. Merton. Increasing integrated risk

management is done on a full mark to market basis rather than the

accounting basis that was at the heart of the first interest rate senility gap

and duration calculations.
http://en.wikipedia.org/wiki/Bankhttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Asset_liability_mismatchhttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Liabilitieshttp://en.wikipedia.org/wiki/Securitizationhttp://en.wikipedia.org/wiki/Hedge_%28finance%29http://en.wikipedia.org/wiki/Delta_hedginghttp://en.wikipedia.org/wiki/Black%E2%80%93Scholeshttp://en.wikipedia.org/wiki/Black%E2%80%93Scholeshttp://en.wikipedia.org/wiki/Black%E2%80%93Scholeshttp://en.wikipedia.org/wiki/Robert_C._Mertonhttp://en.wikipedia.org/wiki/Robert_A._Jarrowhttp://en.wikipedia.org/wiki/Robert_A._Jarrowhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Risk_managementhttp://en.wikipedia.org/wiki/Interest_rate_riskhttp://en.wikipedia.org/wiki/Credit_riskhttp://en.wikipedia.org/wiki/Market_riskhttp://en.wikipedia.org/wiki/Liquidity_riskhttp://en.wikipedia.org/wiki/Jarrow-Turnbull_modelhttp://en.wikipedia.org/wiki/Jarrow-Turnbull_modelhttp://en.wikipedia.org/wiki/Robert_C._Mertonhttp://en.wikipedia.org/wiki/Risk_managementhttp://en.wikipedia.org/wiki/Risk_managementhttp://en.wikipedia.org/wiki/Risk_managementhttp://en.wikipedia.org/wiki/Risk_managementhttp://en.wikipedia.org/wiki/Robert_C._Mertonhttp://en.wikipedia.org/wiki/Jarrow-Turnbull_modelhttp://en.wikipedia.org/wiki/Jarrow-Turnbull_modelhttp://en.wikipedia.org/wiki/Liquidity_riskhttp://en.wikipedia.org/wiki/Market_riskhttp://en.wikipedia.org/wiki/Credit_riskhttp://en.wikipedia.org/wiki/Interest_rate_riskhttp://en.wikipedia.org/wiki/Risk_managementhttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Robert_A._Jarrowhttp://en.wikipedia.org/wiki/Robert_A._Jarrowhttp://en.wikipedia.org/wiki/Robert_C._Mertonhttp://en.wikipedia.org/wiki/Black%E2%80%93Scholeshttp://en.wikipedia.org/wiki/Black%E2%80%93Scholeshttp://en.wikipedia.org/wiki/Delta_hedginghttp://en.wikipedia.org/wiki/Hedge_%28finance%29http://en.wikipedia.org/wiki/Securitizationhttp://en.wikipedia.org/wiki/Liabilitieshttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Asset_liability_mismatchhttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Bank


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CHAPTER- 2

RESEARCH DESIGN OF THE STUDY

2.1 RATIONALE OF THE STUDY:

I am preparing this report to know the insight of the asset liability

Management of a bank.

Sample Bank:

HDFC Bank

2.2 SCOPE OF THE STUDY:

As my supervisor is very helpful and cooperative, I got some privilege to

prepare this report. As one of my friends is an employee of HDFC Bank,

I have special opportunity to collect important and sensitive data, which

make this report different from others.

2.3 OBJECTIVE OF THE STUDY:

The main objectives of preparing this Report:

To identify the management of asset and liability of HDFC Bank Ltd.

To analyse and find out degree of risks involved in each area.

To suggest how to manage this areas risks for minimizing the risk.

2.4 NEED FOR THE STUDY:

An effective Asset Liability Management Technique aims to manage the

volume, mix, maturity, rate sensitivity, quality and liquidity of assets and

liabilities as a whole so as to attain a predetermined acceptable


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risk/reward ration. It is aimed to stabilize short-term profits, long-term

earnings and long-term substance of the bank.

2.5 METHODOLOGY:

1. Sources of Data Collection:

To undertake the study in the light of research objectives, information

both from the primary and secondary sources are necessary. Primary data

collected from the bank managers and officials. And secondary data

collected through standard textbooks, reference books, domestic and

foreign journals and annual reports of bank.

2. Data Analysis:

The collected information has then been tabulated, analysed and the

findings thereof have laid the basis of research report. Data processing

and analysis has been done both manually and by using computer.

Tabular method, ratio analysis, and suitable statistical tools and

techniques have been used to operationally the research where required.

2.6 LIMITATIONS OF THE STUDY:

There were some problems while this research is conducted. A

wholehearted effort was applied to overcome the limitations and to bring

a reliable and fruitful result. In spite of having the wholehearted effort,

there exist some limitations, which acted as a barrier to conduct the

research. The limitations were

1. The major problem faced while conducting the research was

unavailability of relevant data. No banks provided the costs of their


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particular liability. Even some banks did not agree to give their annual

reports.

2. No banks provided the cost components of their liabilities. Thats why

the cost of various liabilities is assumed on the basis of historical trend.

3. While almost care has been given to cover every part of Asset Liability

Management, a few complex issues related to Market Risk have not been

covered in details.

2.7 TYPE OF RESEARCH

The study type is analytical, quantitative, and historical. Analytical

because facts and existing information is used for analysis. Quantitative

as relationship is examined by expressing variables in measurable terms

and also historical information is used for analysis and interpretation.

CHAPTER SCHME

CHAPTER-1:- INTRODUCTION

1.1 ASSET-LIABILITY MANAGEMENT (ALM):

1.2 ASSET LIABILITY MANAGEMENT POLICY

1.3 ALM INFORMATION SYSTEMS:

1.4 ALM PROCESS:

1.5 ASSET LIABILITY STRUCTURE OF A BANK:

1.6 ADMINISTRATION OF ALM:

1.7 POLICY GUIDELINES:

CHAPTER- 2:- RESEARCH DESIGN OF THE STUDY

2.1 RATIONALE OF THE STUDY:

2.2 SCOPE OF THE STUDY:

2.3 OBJECTIVE OF THE STUDY:


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2.4 NEED FOR THE STUDY:

2.5 METHODOLOGY:

2.6 LIMITATIONS OF THE STUDY:

2.7 TYPE OF RESEARCH

CHAPTER-3:- INDUSTRY PROFILE

3.1 About

3.2 HISTROY

CHAPTER-4:- COMPANY PROFILE

4.1 About

4.2 History

4.3 Some of Mr. H.T. Parikhsmajor achievements are:

3.4 Origin of the Organization

4.5 MANAGEMENT:

4.6 RATINGS/ AWARDS:

4.7 MILESTONES IN THE HISTORY

PRODUCT PROFILE

CHAPTER5:- ANALYSIS AND INTERPRETATION

CHAPTER6 FINDINGS, SUMMARY AND CONCLUSION


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CHAPTER-3

INDUSTRY PROFILE

3.1 About

Banking in India in the modern sense originated in the last decades of

the 18th century. The first banks were and Bank of Hindustan (1770-

1829) and The General Bank of India, established 1786 and since

defunct. The largest bank and the oldest still l in existence is the State

Bank of India,which originated in the Bank of Calcutta in June 1806,

which almost immediately became the Bank of Bengal.This was one of

the three presidency banks, the other two being theBank of Bombay and

the Bank of Madras,all three of which were established under charters

from theBritish East India Company.The three banks merged in 1921 to

form the Imperial Bank of India, which, upon India's independence,

became the State Bank of India in 1955. For many years the presidency

banks acted as quasi-central banks, as did their successors, until the

Reserve Bank of India was established in 1935.

In 1969 the Indian governmentnationalised all the major banks that it did

not already own and these have remained under government ownership.

They are run under a structure known as 'profit-making public sector

undertaking' (PSU) and are allowed to compete and operate as

commercial banks.The Indian banking sector is made up of four types of

banks, as well as the PSUs and the state banks; they have been joined

since 1990s by new private commercial banks and a number of foreign

banks.
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Banking in India was generally fairly mature in terms of supply, product

range and reach-even though reach in rural India and to the poor still

remains a challenge. The government has developed initiatives to address

this through the State bank of India expanding its branch network and

through through the National Bank for Agriculture and Rural

Development with things likemicrofinance.

3.2 HISTROY:-

In ancient India there is evidence of loans from the Vedic period

(beginning 1750 BC). Later during the Maurya dynasty (321 to 185 BC),

an instrument called adesha was in use, which was an order on a banker

desiring him to pay the money of the note to a third person, which

corresponds to the definition of a bill of exchange as we understand it

today. During the Buddhist period, there was considerable use of these

instruments. Merchants in large towns gave letters of credit to one

another.

Colonial era

During the colonial era merchants established the Union Bank ofCalcutta

in 1829, first as a private joint stock association, then partnership. Its

proprietors were the owners of the earlier Commercial Bank and the

Calcutta Bank, who by mutual consent created Union Bank to replace

these two banks. In 1840 it established an agency at Singapore, and

closed the one at Mirzapore that it had opened in the previous year. Also

in 1840 the Bank revealed that it had been the subject of a fraud by the

bank's accountant. Union Bank was incorporated in 1845 but failed in

1848, having been insolvent for some time and having used new money

from depositors to pay its dividends.
http://en.wikipedia.org/wiki/National_Bank_for_Agriculture_and_Rural_Developmenthttp://en.wikipedia.org/wiki/National_Bank_for_Agriculture_and_Rural_Developmenthttp://en.wikipedia.org/wiki/Microfinancehttp://en.wikipedia.org/wiki/Vedic_periodhttp://en.wikipedia.org/wiki/Maurya_dynastyhttp://en.wikipedia.org/wiki/Calcuttahttp://en.wikipedia.org/wiki/Calcuttahttp://en.wikipedia.org/wiki/Maurya_dynastyhttp://en.wikipedia.org/wiki/Vedic_periodhttp://en.wikipedia.org/wiki/Microfinancehttp://en.wikipedia.org/wiki/National_Bank_for_Agriculture_and_Rural_Developmenthttp://en.wikipedia.org/wiki/National_Bank_for_Agriculture_and_Rural_Development


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The Allahabad Bank, established in 1865 and still functioning today, is

the oldest Joint Stock bank in India, it was not the first though. That

honour belongs to the Bank of Upper India, which was established in

1863, and which survived until 1913, when it failed, with some of its

assets and liabilities being transferred to the Alliance Bank of Simla.

Foreign banks too started to appear, particularly inCalcutta,in the 1860s.

The Comptoird'Escompte de Paris opened a branch in Calcutta in 1860,

and another in Bombay in 1862; branches in Madras and Pondicherry,

then a French possession, followed.HSBC established itself inBengal in

1869. Calcutta was the most active trading port in India, mainly due to

the trade of theBritish Empire,and so became a banking centre.

The first entirely Indian joint stock bank was the Oudh Commercial

Bank, established in 1881 inFaizabad.It failed in 1958. The next was the

Punjab National Bank,established inLahore in 1895, which has survived

to the present and is now one of the largest banks in India. Around the

turn of the 20th Century, the Indian economy was passing through a

relative period of stability. Around five decades had elapsed since the

Indian Mutiny, and the social, industrial and other infrastructure had

improved. Indians had established small banks, most of which served

particular ethnic and religious communities.

The presidency banks dominated banking in India but there were also

some exchange banks and a number of Indianjoint stockbanks. All these

banks operated in different segments of the economy. The exchange

banks, mostly owned by Europeans, concentrated on financing foreign

trade. Indian joint stock banks were generally under capitalised and

lacked the experience and maturity to compete with the presidency and

exchange banks. This segmentation let Lord Curzon to observe, "In
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respect of banking it seems we are behind the times. We are like some old

fashioned sailing ship, divided by solid wooden bulkheads into separate

and cumbersome compartments."

The period between 1906 and 1911, saw the establishment of banks

inspired by the Swadeshi movement. The Swadeshi movement inspired

local businessmen and political figures to found banks of and for the

Indian community. A number of banks established then have survived to

the present such as Bank of India,Corporation Bank,Indian Bank,Bank

of Baroda,Canara Bank andCentral Bank of India.

The fervour of Swadeshi movement lead to establishing of many private

banks inDakshina Kannada andUdupi district which were unified earlier

and known by the name South Canara ( South Kanara ) district. Four

nationalised banks started in this district and also a leading private sector

bank. Hence undivided Dakshina Kannada district is known as "Cradle of

Indian Banking".

During theFirst World War (19141918) through the end of theSecond

World War (19391945), and two years thereafter until the independence

of India were challenging for Indian banking. The years of the First

World War were turbulent, and it took its toll with banks simply

collapsing despite theIndian economy gaining indirect boost due to war-

related economic activities. At least 94 banks in India failed between

1913 and 1918 as indicated in the following table:
http://en.wikipedia.org/wiki/Swadeshihttp://en.wikipedia.org/wiki/Bank_of_Indiahttp://en.wikipedia.org/wiki/Corporation_Bankhttp://en.wikipedia.org/wiki/Indian_Bankhttp://en.wikipedia.org/wiki/Bank_of_Barodahttp://en.wikipedia.org/wiki/Bank_of_Barodahttp://en.wikipedia.org/wiki/Canara_Bankhttp://en.wikipedia.org/wiki/Central_Bank_of_Indiahttp://en.wikipedia.org/wiki/Dakshina_Kannadahttp://en.wikipedia.org/wiki/Udupi_districthttp://en.wikipedia.org/wiki/First_World_Warhttp://en.wikipedia.org/wiki/Second_World_Warhttp://en.wikipedia.org/wiki/Second_World_Warhttp://en.wikipedia.org/wiki/Indian_independencehttp://en.wikipedia.org/wiki/Economy_of_Indiahttp://en.wikipedia.org/wiki/Economy_of_Indiahttp://en.wikipedia.org/wiki/Indian_independencehttp://en.wikipedia.org/wiki/Second_World_Warhttp://en.wikipedia.org/wiki/Second_World_Warhttp://en.wikipedia.org/wiki/First_World_Warhttp://en.wikipedia.org/wiki/Udupi_districthttp://en.wikipedia.org/wiki/Dakshina_Kannadahttp://en.wikipedia.org/wiki/Central_Bank_of_Indiahttp://en.wikipedia.org/wiki/Canara_Bankhttp://en.wikipedia.org/wiki/Bank_of_Barodahttp://en.wikipedia.org/wiki/Bank_of_Barodahttp://en.wikipedia.org/wiki/Indian_Bankhttp://en.wikipedia.org/wiki/Corporation_Bankhttp://en.wikipedia.org/wiki/Bank_of_Indiahttp://en.wikipedia.org/wiki/Swadeshi


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Year Number of Banks

that failed

Authorised Capital

(Rs. Lakhs)

Paid Up capital

(Rs. Lakhs)

1913 12 274 35

1914 42 710 109

1915 11 56 5

1916 13 231 4

1917 9 76 25

1918 7 209 1

Post-Independence

The partition of India in 1947 adversely impacted the economies of

Punjab andWest Bengal,paralysing banking activities for months. India's

independence marked the end of a regime of the Laissez-faire for the

Indian banking. The Government of India initiated measures to play an

active role in the economic life of the nation, and the Industrial Policy

Resolution adopted by the government in 1948 envisaged a mixed

economy.This resulted into greater involvement of the state in different

segments of the economy including banking and finance. The major steps

to regulate banking included:

The Reserve Bank of India, India's central banking authority, wasestablished in April 1935, but was nationalised on 1 January 1949

under the terms of the Reserve Bank of India (Transfer to Public

Ownership) Act, 1948 (RBI, 2005b).

In 1949, the Banking Regulation Act was enacted whichempowered the Reserve Bank of India (RBI) "to regulate, control,

and inspect the banks in India"
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The Banking Regulation Act also provided that no new bank orbranch of an existing bank could be opened without a license from

the RBI, and no two banks could have common directors.

Nationalisation in the 1960s

Despite the provisions, control and regulations of Reserve Bank of India,

banks in India except the State Bank of India or 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 nationalisation 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 Nationalisation."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 14 largest

commercial banks with effect from the midnight of 19 July 1969. These

banks contained 85 present of bank deposits in the country.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

Parliamentpassed the Banking Companies (Acquisition and Transfer of

Undertaking) Bill, and it received thepresidential approval on 9 August

1969.
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A second dose of nationalisation of 6 more commercial banks followed in

1980. The stated reason for the nationalisation 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

mergedNew Bank of India withPunjab National Bank. It was the only

merger between nationalised banks and resulted in the reduction of the

number of nationalised banks from 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.

Liberalisation in the 1990s

In the early 1990s, the then NarasimhaRao government embarked on a

policy ofliberalisation,licensing a small number of private banks. These

came to be 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.
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The new policy shook the Banking sector in India completely. Bankers,

till this time, were used to the 464 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 not just demanded more from their

banks but also received more.

Current period

By 2010, banking in India was generally fairly mature in terms of supply,

product range and reach-even though reach in rural India still remains a

challenge for the private sector and foreign banks. In terms of quality of

assets and capital adequacy, Indian banks are considered to have clean,

strong and transparent balance sheets relative to other banks in

comparable economies in its region. The Reserve Bank of India is an

autonomous body, with minimal pressure from the government. The

stated policy of the Bank on the Indian Rupee is to manage volatility but

without any fixed exchange rate-and this has mostly been true. With the

growth in the Indian economy expected to be strong for quite some time-

especially in its services sector-the demand for banking services,

especiallyretail banking,mortgages and investment services are expected

to be strong. One may also expect M&as, takeovers, and asset sales.

In March 2006, the Reserve Bank of India allowed Warburg Pincus to

increase its stake inKotak Mahindra Bank (a private sector bank) to 10%.

This is the first time an investor has been allowed to hold more than 5%

in a private sector bank since the RBI announced norms in 2005 that any

stake exceeding 5% in the private sector banks would need to be vetted

by them.
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In recent years critics have charged that the non-government owned

banks are too aggressive in their loan recovery efforts in connection with

housing, vehicle and personal loans. There are press reports that the

banks' loan recovery efforts have driven defaulting borrowers to suicide.

Adoption of banking technology

The IT revolution had a great impact in the Indian banking system. The

use of computers had led to introduction of online banking in India. The

use of the modern innovation and computerisation of the banking sector

of India has increased many folds after the economic liberalisation of

1991 as the country's banking sector has been exposed to the world's

market. The Indian banks were finding it difficult to compete with the

international banks in terms of the customer service without the use of the

information technology and computers.

Number of branches of scheduled banks of India as of March 2005

The RBI set up a number of committees to define and coordinate banking

technology. These have included:

In 1984 formed the Committee on Mechanisation in the BankingIndustry (1984) whose chairman was Dr C Rangarajan, Deputy

Governor, Reserve

Bank of India. The major recommendations of this committee wasintroducing

MICR technology in all the banks in the metropolis in India. Thisprovided use of standardized cheque forms and encoders.

In 1988, the RBI set up the Committee on Computerisation inBanks (1988)headed by Dr. C.R. Rangarajan which emphasized
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that settlement operation must be computerized in the clearing

houses of RBI in Bhubaneshwar, Guwahati, Jaipur, Patna and

Thiruvananthapuram. It further stated that there should be National

Clearing of inter-citycheques 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

implementing on-line banking. The committee submitted its reports

in 1989 and computerisation began from 1993 with the settlement

between IBA and bank employees' association.

In 1994, Committee on Technology Issues relating to Paymentsystems,Cheque Clearing andSecurities Settlement in the Banking

Industry (1994)[was set up under chairman Shri WS 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 banks with

more than 100 branches.

In 1995, Committee for proposing Legislation on Electronic FundsTransfer and other Electronic Payments (1995) again emphasized

EFT system.

Number of ATMs of different Scheduled Commercial Banks of India as

on end March 2005 Total numbers ofATMs installed in India by various

banks as on end June 2012 is 99,218. The New Private Sector Banks in

India is having the largest numbers of ATMs which is followed by off-

site ATMs belonging to SBI and its subsidiaries and then it is followed by
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New Private Banks, Nationalised banks and Foreign banks. While on site

is highest for the Nationalised banks of India.

Ever since the initiation of the process of deregulation of the Indian

banking systemand gradual freeing of interest rates to market

forces, and consequent injection of a dose of competition among

the banks, introduction of asset-liability management (ALM) in the

public sector banks (PSBs) has been suggested by several experts.

But, initiatives in this respect on the part of most bank

managements have been absent. This seems to have led the Reserve

Bank of India to announce in its monetary and credit policy of

October 1997that it would issue ALM guidelines to banks. While

the guidelines are awaited, an informal check with several PSBs

shows that none of these banks has moved decisively to date to

introduce ALM.One reason for this neglect appears to be a wrong

notion among bankers that their banks already practice ALM. As

per this understanding, ALM is a system of matching cash inflows

and outflows, and thus of liquidity management. Hence, if a bank

meets its cash reserve ratio and statutory liquidity ratio stipulations

regularly without undue and frequent resort to purchased funds, it

can be said to have a satisfactory system of managing liquidity

risks, and, hence, of ALM.The actual concept of ALM is howevermuch wider, and of greater importance to banks performance.

Historically, ALM has evolved from the early practice of managing

liquidity on the bank's asset side, to a later shift to the liability side,

termed liability management, to a still later realisation of using

both the assets as well as liabilities sides of the balance sheet to

achieve optimum resources management. But that was till the1970s.

In the 1980s, volatility of interest rates in USA and Europe caused


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the focus to broaden to include the issue of interest rate risk. ALM

began to extend beyond the bank treasury to cover the loan and

deposit functions. The induction of credit risk into the issue of

determining adequacy of bank capital further enlarged the scope of

ALM in later1980s. In the current decade, earning proper returns of

bank equity and hence maximisation of its market value has meant

that ALM covers the management of the entire balance sheet of a

bank. This implies that the bank managements are now expected to

target required profit levels and ensure minimisation of risks to

acceptable levels to retain the interest of investors in their banks.

This also implies that costing and pricing policies have become of

paramount importance in banks.In the regulated banking

environment in India prior to the 1990s; the equation of ALM to

liquidity management by bankers could be understood. There was

no interest rate risk as the interest rates were regulated and

prescribed by the RBI. Spreads between the deposit and lending

rates were very wide (these still are considerable); also, these

spreads were more or less uniform among the commercial banks

and were changed only by RBI. If a bank suffered significant

losses in managing its banking assets, the same were absorbed by

the comfortably wide spreads. Clearly, the bank balance sheet wasnot being managed by banks themselves; it was being `managed'

through prescriptions of the regulatory authority and the

government. This situation has now changed. The banks have been

given a large amount of freedom to manage their balance sheets.

But the knowledge, newsystems and organisational changes that are

called for to manage it, particularly the newbanking risks, are still

lagging. The turmoil in domestic and international markets


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duringthe last few months and impending changes in the country's

financial system are a grimwarning to our bank managements to

gear up their balance sheet management in a single heave. To begin

with, as the RBI's monetary and credit policy of October

1997recommends, an adequate system of ALM to incorporate

comprehensive riskmanagement should be introduced in the PSBs.

It is suggested that the PSBs shouldintroduce ALM which would

focus on liquidity management, interest rate riskmanagement and

spread management.

Broadly, there are 3 requirements to implement ALMin these

banks, in the stated order:

o Developing a better understanding of ALMconcepts,o Introducing an ALM information system, and,o Setting up ALM decision-making processes (ALM

Committee/ALCO).

The above requirements are already met bythe new private sector

banks, for example. These banks have their balance sheetsavailable

at the close of every day. Repeated changes in interest rates by

them during thelast 3 months to manage interest rate risk and their

maturity mismatches are based on dataprovided by their MIS. In

contrast, loan and deposit pricing by PSBs is based partly on

hunches, partly on estimates of internal macro data, and partly on

their competitors' rates.Hence, PSBs would first and foremost need

to focus son putting in place an ALM whichwould provide the

necessary framework to define, measure, monitor, modify and

manage interest rate risk. This is the need of the hour.


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CHAPTER-4

COMPANY PROFILE

4.1 About

HDFC Bank Limited(BSE:500180,NSE:HDFCBANK,NYSE:HDB)

is an Indian financial services company based in Mumbai, Maharashtra

that was incorporated in August 1994. HDFC Bank is the fifth or sixth

largest bank in India by assets and the first largest bank by market

capitalization as of November 1, 2012. The bank was promoted by the

Housing Development Finance Corporation, a premier housing finance

company (set up in 1977) of India. As on December 2012, HDFC Bank

has 2,776 branches and 10,490 ATMs, in 1,399 cities in India, and all

branches of the bank are linked on an online real-time basis. As of

December 2012 the bank had balance sheet size of Rs. 3837 billion. For

the fiscal year 2011-12, the bank has reported net profit of 5167.07crore

(US$950 million), up 31.6% from the previous fiscal.

On March 14, 2013 an online magazine named Cobrapost.com released

video footage from Operation Red Spider showing high ranking officials

and some employees of HDFC bank willing to turn black money into

white which is violation ofMoney Laundering Control Act.After this the

government of India andReserve Bank of India have ordered an inquiry
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4.2 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 principle' 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./The 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.

The balance sheet size of the combined entity is more than Rs.1, 63,000

crore. In 2008 HDFC Bank acquiredCenturion Bank of Punjab taking its

total branches to more than 1,000. The amalgamated bank emerged with a

base of about Rs. 1, 22,000 crore and net advances of about Rs.89,

000crore.

Business focus

HDFC Bank deals with three key business segments. - Wholesale

Banking Services, Retail Banking Services, Treasury. It has entered the

banking consortia of over 50 corporates for providing working capital

finance, trade services,corporate finance,andmerchant banking.It is also

providing sophisticated product structures in areas of foreign exchange

and derivatives, money markets and debt trading And Equity research.
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Wholesale banking services

For customers from ongoleBlue-chip manufacturing companies in the

Indian crop to small & mid-sized corporates and agri-based businesses

the Bank provides a wide range of commercial and transactional banking

services, including working capital finance, trade services, transactional

services, cash management, etc. The bank is also a leading provider of the

above services to its corporate customers, mutual funds, stock exchange

members and banks.

Retail banking services

HDFC Bank was the first bank in India to launch an International Debit

Card in association with VISA (Visa Electron) and issues the Master

Card Maestro debit card as well. The Bank launched its credit card

business in late 2001. By March 2009, the bank had a total card base

(debit and credit cards) of over 13 million. The Bank is also one of the

leading players in the merchant acquiring business with over 70,000

Point-of-sale (POS) terminals for debit / credit cards acceptance at

merchant establishments. The Bank is positioned in various net based

B2C opportunities

Including a wide range of Internet banking services for Fixed Deposits,

Loans, Bill Payments, etc. With Finest of Technology and Best of Man

power in Banking Industry HDFC Bank's retail services have become by

and large the best in India and since the contribution to CASA i.e. total

number of current and savings account of more than 50%, HDFC BANK

has full potential to become India's No.1 Private Sector Bank.
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Treasury

Within this business, the bank has three main product areas - Foreign

Exchange and Derivatives, Local Currency Money Market & Debt

Securities, and Equities. These services are provided through the bank's

Treasury team. To comply with statutory reserve requirements, the bank

is required to hold 25% of its deposits in government securities. The

Treasury business is responsible for managing the returns and market risk

on this investment portfolio.

Distribution network

An HDFC Bank Branch

HDFC Bank is headquartered in Mumbai and as of March 31, 2012, the

Banks distribution network was at 2,544 branches and 8,913 ATMs in

1,399 cities as against 1,986 branches and 10000 ATMs in 996 cities asof October 2012
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HDFC FOUNDER: -

Mr. H.T. Parekh

~ An i ndustrialist, wri ter and phil anthropist ~

Born on March 10, 1911 in a banking family at Surat, Mr. Hasmukh

Thakordas Parekh, fondly referred to as Hasmukhbhai was the

doyen of the Indian housing and financial sector. A graduate in

Economics from Mumbai, Mr. Parekh also pursued a BSc. degree in

Banking and Finance from the London School of Economics.After

returning to India in 1936, Mr. Parekh began his financial career

with a leading stockbroking firm, Harkisandass Lukhmidass.

Simultaneously, he was a lecturer in Economics at the St. Xavier's

College in Mumbai for about three years. He considered his two-

decade long stint at the broking firm valuable, as it not only gave

him his most basic lessons in the business but also immensely

contributed to his personal growth.


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During this period Mr. Parekh also continued to study and write on

different aspects of the economy and economic policy, money and

banking, and also participated in public discussions.

Driven by deep interest in investment banking, he decided to move

on to his next major assignment. In 1956, Mr. Parekh joined the

newly set up development finance institution Industrial Credit and

nvestment Corporation of India Limited (ICICI). Under his

leadership ICICI grew impressively to gain acceptance of the Indian

business community, recognition of Government and even became a

show piece for the World Bank. For decades he had been stressing

the need for a financial corporation specializing in providing long

term finance for ownership housing. Thus even at the age of 66,

when most people think of retirement, Mr. Parekh was determined

to set up his most ambitious enterprise. His lifelong dream o

helping Indians own their home, as he had seen abroad during his

student days, led to the formation of the Housing Development

Finance Corporation Limited (HDFC) in 1977. It was the first-of-

its-kind in India. It is under Mr. Parekhs leadership and direction

that HDFC grew manifold while being strongly rooted in the

principles of integrity, transparency and professionalism. Soon

HDFC became a major role model not only for the country but forthe entire Asian region. In keeping with his zeal for promoting new

ventures, in 1983, Mr. Parekh promoted the first private sector oil

exploration company in India,Hindustan Oil Exploration Company

Limited. He also set up Gujarat Rural Housing Finance

Corporation Limited in 1986.


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Mr. Parekhs love for writing blossomed right from his school days.

In addition to being a regular contributor to the media with over 200

published articles to his credit on a variety of subjects such as

industry, economic policy, capital market, development banking,

credit policy, etc., he was the author of several books. He authored

The Bombay Money Market, a novel book detailing the intricate

workings of the money market in lndia. He also chronicled his

considerable experience as a development banker in his book, The

Story of a Development Bank (ICICI: 1955-1979). Some of his

other books include The Future of Joint-Stock Enterprise in India,

India and Regional Development, Management of Industry in India

and The Indian Capital Market - Past, Present & Future. Also, his

writings in Gujarati, HiranePatro and HiraneVadhuPatro are

considered works of great importance in Gujarati literature.

His wisdom and warmth drew people from all walks of life to him

for advice, guidance and inspiration. Mr. Parekh was a man of few

words, and believed that strong views need not be expressed in

strong words. He had a keen eye for talent and nurtured it by

providing direction and ample learning opportunities. Known for

his humility, affection and concern for fellowmen, Mr. Parekh was

associated with several philanthropic causes and welfare

organizations. In 1986, he was one of the founders of the Centre for

dvancement of Philanthropy and served as its Chairman since its

inception until his retirement in 1993. His concern and love for the

city of Mumbai (erstwhile Bombay) led him to form the

BombayCommunity Public Trust in 1991. This venture was


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designed specifically to address the needs of disadvantaged citizens

in the city of Mumbai. He took the initiative to finance Mu mbais

first public toilet by any corporate house Sulabh Shauchalaya.

Additionally, Mr. Parekh served astrustee of the Sameeksha Trust,

Saurashtra Trust, Kasturba Gandhi National Memorial Trust, The

India Foundation, The India Heritage Trust, The Chakallas Puraskar

Trustand also servedas the President of theSocial ServiceLeague.

4.3Some of Mr. H.T. Parekhs major achievements are:

The James Taylor prize for standing 1st in B.A. (Economics)from the University of Mumbai.

Honorary Fellow of the London School of Economics andPolitical Science, U.K.

Padma Bhushanby the Government of India for hiscontribution to the field of economic activities in 1992.The

thoughts and dreams of a legend like Mr. H.T. Parekh live on

forever, changing human lives for the better.

HDFC Bank Limited

Type Public

Traded as

BSE:500180

NSE:HDFCBANK

NYSE:HDB
http://en.wikipedia.org/wiki/London_School_of_Economicshttp://en.wikipedia.org/wiki/Padma_Bhushanhttp://en.wikipedia.org/wiki/Types_of_business_entityhttp://en.wikipedia.org/wiki/Ticker_symbolhttp://en.wikipedia.org/wiki/Bombay_Stock_Exchangehttp://www.bseindia.com/bseplus/StockReach/AdvanceStockReach.aspx?scripcode=500180http://en.wikipedia.org/wiki/National_Stock_Exchange_of_Indiahttp://www.nseindia.com/marketinfo/companyinfo/companysearch.jsp?cons=HDFCBANK&section=7http://en.wikipedia.org/wiki/New_York_Stock_Exchangehttp://www.nyse.com/about/listed/lcddata.html?ticker=hdbhttp://en.wikipedia.org/wiki/File:HDFC_Bank_Logo.svghttp://www.nyse.com/about/listed/lcddata.html?ticker=hdbhttp://en.wikipedia.org/wiki/New_York_Stock_Exchangehttp://www.nseindia.com/marketinfo/companyinfo/companysearch.jsp?cons=HDFCBANK&section=7http://en.wikipedia.org/wiki/National_Stock_Exchange_of_Indiahttp://www.bseindia.com/bseplus/StockReach/AdvanceStockReach.aspx?scripcode=500180http://en.wikipedia.org/wiki/Bombay_Stock_Exchangehttp://en.wikipedia.org/wiki/Ticker_symbolhttp://en.wikipedia.org/wiki/Types_of_business_entityhttp://en.wikipedia.org/wiki/Padma_Bhushanhttp://en.wikipedia.org/wiki/London_School_of_Economics


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BSE SENSEX Constituent

Industry Banking,Financial services

Founded August 1994

Headquarters Mumbai,Maharashtra,India

Area served Worldwide

Key people Mr Aditya Puri (MD)

Products

Credit cards,consumer

banking,corporate banking,

finance and insurance,

investment banking,

mortgage loans,private

banking,private equity,

wealth management

Revenue US$ 6.487 billion (2012)

Operating

income US$ 1.451 billion (2012)

Profit US$ 978.3 million (2012)

Total assets US$ 70.17 billion (2012)

Total equity US$ 7.793 billion (2012)

Employees 66,076 (2012)

Website HDFCBank.com
http://en.wikipedia.org/wiki/BSE_SENSEXhttp://en.wikipedia.org/wiki/Financial_serviceshttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Maharashtrahttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Managing_Directorhttp://en.wikipedia.org/wiki/Credit_cardhttp://en.wikipedia.org/wiki/Retail_bankinghttp://en.wikipedia.org/wiki/Retail_bankinghttp://en.wikipedia.org/wiki/Commercial_bankhttp://en.wikipedia.org/wiki/Financial_serviceshttp://en.wikipedia.org/wiki/Investment_bankinghttp://en.wikipedia.org/wiki/Mortgage_loanhttp://en.wikipedia.org/wiki/Private_bankinghttp://en.wikipedia.org/wiki/Private_bankinghttp://en.wikipedia.org/wiki/Private_equityhttp://en.wikipedia.org/wiki/Wealth_managementhttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Earnings_before_interest_and_taxeshttp://en.wikipedia.org/wiki/Earnings_before_interest_and_taxeshttp://en.wikipedia.org/wiki/Earnings_before_interest_and_taxeshttp://en.wikipedia.org/wiki/Net_incomehttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Equity_%28finance%29http://en.wikipedia.org/wiki/Equity_%28finance%29http://www.hdfcbank.com/http://www.hdfcbank.com/http://en.wikipedia.org/wiki/Equity_%28finance%29http://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Net_incomehttp://en.wikipedia.org/wiki/Earnings_before_interest_and_taxeshttp://en.wikipedia.org/wiki/Earnings_before_interest_and_taxeshttp://en.wikipedia.org/wiki/United_States_dollarhttp://en.wikipedia.org/wiki/Wealth_managementhttp://en.wikipedia.org/wiki/Private_equityhttp://en.wikipedia.org/wiki/Private_bankinghttp://en.wikipedia.org/wiki/Private_bankinghttp://en.wikipedia.org/wiki/Mortgage_loanhttp://en.wikipedia.org/wiki/Investment_bankinghttp://en.wikipedia.org/wiki/Financial_serviceshttp://en.wikipedia.org/wiki/Commercial_bankhttp://en.wikipedia.org/wiki/Retail_bankinghttp://en.wikipedia.org/wiki/Retail_bankinghttp://en.wikipedia.org/wiki/Credit_cardhttp://en.wikipedia.org/wiki/Managing_Directorhttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Maharashtrahttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Financial_serviceshttp://en.wikipedia.org/wiki/BSE_SENSEX


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3.4Origin of the Organization

HDFC BANK LTD. is leading private sector bank and financial services

company in India. The Housing Development Finance Corporation

Limited(HDFC) was amongst the first to receive an in principle approval

from the Reserve Bank of India (RBI) to set up a bank in the private

sector, as part ofRBI`s liberalization of the Indian Banking Industry in

1994.The Bank was incorporated in August 1994 in the name of HDFC

BANK LTD., with its registered office in Mumbai, in India and

commenced operation as a Scheduled Commercial Bank in January 1995.

The Bank is a banking company governed by Indias Banking

Regulations Act, 1949. The Banks sharesare listed on the Bombay Stock

Exchange Ltd., the National Stock Exchange of India Limited and its

ADSs are listed on the New York Stock Exchange.

The bank is a part of the HDFC Group of Companies founded by

outparent.This bank is public limited company established under the laws

ofIndia.HDFC LTD. and its subsidiaries owned approximately 22% of

our outstanding Equity Shares as of March 31st 2006.From the beginning,

HDFCBank its operation with the aim of becoming a world-class Indian

Bank andthe endeavour of fulfilling all the financial requirements of

customer under one roof.

Over the years, by delivering superior financial products and services, the

bank has built a stable and long lasting relationship with nearly 7 million

customers without compromising standard for maintaining high quality

association, culture for learning,


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quick absorption of latest and best technologies and unwavering

adherence to best practice in governance have been the core strength that

have brought the bank to the present position withthe constant learning to

growth, the bank has continued to use the dividends of leadership to fuel

future expansion and presence. The strategy of bank is to provide

comprehensive range of financial products and services for their

customers through multiple distributed in channels, with high quality

Service and superior execution. Themultiple distribution channel

including an electronically linked branch network, automated telephone

banking, internet banking and banking by mobile phone, to offer

customer convenient access to their product. The quality of service is

provided by bank through intensive staff training and the use of our

technology platform. Their focus on knowledgeable and personalized

services draws customers to our products and increases the loyalty to the

existing customers. The HDFC Banks philosophy is based on four core

values that is

Operational excellence, Customer focus, Product leadership and People.

The bank is professionally managed organization with board of directors

consisting of eminent persons who represent various fields including

finance, taxation, construction, urban policy and development. The board

primarily focus on strategy formulation policy and control, design to

delivery increasing value to share holders.

Today, HDFC are market leader in most of the segments that the yope

rate and their goal is to acquire the best position in attracting customers.

The bank has grown rapidly since commencing operations in Jan

1995.Currently the bank has a nation spread over 583 branches in 263

cities across the country by operating in three principle segments, that is

Wholesale banking


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Retail banking Treasury service

4.5 MANAGEMENT:

Mr. C.M. Vasudev has been appointed as the Chairman of the Bank with

effect from 6th July 2010. Mr. Vasudev has been a Director of the Bank

since October 2006. A retired IAS officer, Mr. Vasudev has had an

illustrious career in the civil services and has held several key positions in

India and overseas, including Finance Secretary, Government of India,

Executive Director, World Bank and Government nominee on the Boards

of many companies in the financial sector. The Managing Director, Mr.

Aditya Puri, has been a professional banker for over 25 years, and before

joining HDFC Bank in 1994 was heading Citibank's operations in

Malaysia.

The Bank's Board of Directors is composed of eminent individuals with a

wealth of experience in public policy, administration, industry and

commercial banking. Senior executives representing HDFC are also on

the Board. Senior banking professionals with substantial experience in

India and abroad head various businesses and functions and report to the

Managing Director. Given the professional expertise of the management

team and the overall focus on recruiting and retaining the best talent in

the industry, the bank believes that its people are a significant competitive

strength.


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Directors and executives:

HDFC Banks Memorandum and articles of association providest hat

until otherwise determined by a general meeting of shareholders. The

number of our directors shall not be less than three (3) or more than

fifteen (15) directors, excluding directors appointed pursuant to the term

of issue date. Banks board of directors consisted of nine (9) members

were comprised of;

Mr. C.M. Vasudev (Chairmen) Mr.Aditya Puri (Managing Director) Dr. V.R.Gadwal (Non-Executive Director) Mr. Vineet Jain (Non-Executive Director) Mr. K.M.Mistry (Non-Executive Director) Mrs. Renukarnad (Non-Executive Director) Mr. Aravind Pande (Non-Executive Director) Mr. Bobby Parikh (Non-Executive Director) Mr. Ashim Samanta (Non-Executive Director)

BACKGROUND: -The Housing Development Finance Corporation Limited

(HDFC) was amongst the first to receive an in principle approval from the

Reserve Bank of India (RBI) to set up a bank in the private sector, as part of

RBIs 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.


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PROMOTER:-HDFC is Indias premier housing finance company and enjoys

an impeccable track record in India as well as in international markets. Since

its inception in 1977, the Corporation has maintained a consistent and healthy

growth in its operations to remain the market leader in mortgages. Its

outstanding loan portfolio covers well over a million dwelling units. HDFC

has developed significant expertise in retail mortgage loans to different market

segments and also has a large corporate client base for its housing related

credit facilities. With its experience in the financial markets, strong market

reputation, large shareholder base and unique consumer franchise, HDFC was

ideally positioned to promote a bank in the Indian environment

BUSINESS FOCUS: -HDFC Banks mission is to be a World Class Indian

Bank. The objective is to build sound customer franchises across distinct

businesses so as to be the preferred provider of banking services for target

retail and wholesale customer segments, and to achieve healthy growth in

profitability, consistent with the banks risk appetite. The bank is committed to

maintain the highest level of ethical standards, professional integrity,

corporate governance and regulatory compliance. HDFC Banks business

philosophy is based on four core values: Operational Excellence, Customer

Focus, Product Leadership and People.


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CAPITAL STRUCTURE: -As on 31st March, 2013 the authorized share

capital of the Bank is Rs. 550 crore. The paid-up capital as on the said date is

Rs 475,88,38,060/- (2379419030 equity shares of Rs. 2/- each). The HDFC

Group holds 22.83% of the Bank's equity and about 17.08% of the equity is

held by the ADS / GDR Depositories (in respect of the bank's American

Depository Shares (ADS) and Global Depository Receipts (GDR) Issues).

34.07% of the equity is held by Foreign Institutional Investors (FIIs) and the

Bank has 4, 40,853 shareholders. The shares are listed on the Bombay Stock

Exchange Limited and The National Stock Exchange of India Limited. The

Bank's American Depository Shares (ADS) are listed on the New York Stock

Exchange (NYSE) under the symbol 'HDB' and the Bank's Global Depository

Receipts (GDRs) are listed on Luxembourg Stock Exchange under ISIN No

US40415F2002.

AMALGAMATION OF TIMES BANK & CENTURION BANK OF

PUNJAB WITH HDFC BANK: - On May 23, 2008, the amalgamation o

Centurion Bank of Punjab with HDFC Bank was formally approved by

Reserve Bank of India to complete the statutory and regulatory approval

process. As per the scheme of amalgamation, shareholders of CBoP received 1

share of HDFC Bank for every 29 shares of CBoP. The amalgamation added

significant value to HDFC Bank in terms of increased branch network,

geographic reach, and customer base, and a bigger pool of skilled manpower.

In a milestone transaction in the Indian banking industry, Times Bank Limited

(another new private sector bank promoted by Bennett, Coleman & Co. /

Times Group) was merged with HDFC Bank Ltd., effective February 26,

2000. This was the first merger of two private banks in the New Generation

Private Sector Banks. As per the scheme of amalg

Documents

asstes and liab managmnt