RESEARCH REPORT

(BCOM (H)-1604)

On

“Comparative study on Financial Analysis of SBI AND

HDFC BANK”

Towards partial fulfillment of

Bachelor of Commerce (Honours)

(BBD University, Lucknow)

Guided By: Submitted by:

Ms. Anuradha Maurya Shishti Singh

(Assistant Professor) (Roll No. 1160678102)
(SOM BBDU, LUCKNOW) B. Com (H) 3rd Year

Session 2018-2019

School of Management

Babu Banarasi Das University

Sector I, Dr. Akhilesh Das Nagar, Faizabad Road, Lucknow (U.P.) India
ii
 DECLARATION

This is to declare that I Shishti Singh student of Bachelor of Commerce (Honours),

have personally worked on the project entitled “Comparative study on Financial

Analysis of SBI AND HDFC BANK”. The data mentioned in this report were

obtained during genuine work done and collected by me. The data obtained from

other sources have been duly acknowledged. The result embodied in this project has

not been submitted to any other University or Institute for the award of any degree.

Shishti Singh

iii
 ACKNOWLEDGEMENT
Before I get into the thick of the things I would like to add a few heartfelt words for

the people who were part of this research report in numerous ways and people who

gave unending support right from the stage the project was started, appreciated and

encouraged when being depressed.

In this context I would like to express my gratitude towards my parents and family

members who have constantly supported and played a pivotal role in shaping my

career.

I owe my sincere gratitude towards faculty guide Ms. Anuradha Maurya of BBDU,

Lucknow for extending the support towards the completion of the Research Report.

And finally I would like to thank my friends for their unending support.

Shishti Singh

iv
 PREFACE

Research Report is an important part of the Management studies. It bears immense

important in the field of Business Management. It offers the student to explore the

valuable treasure of experience and an exposure to real work culture followed by the

industries and thereby helping the students to bridge gap between the theories

explained in the book and their practical implementations.

Research plays an important role in future building of an individual so that we can

understand the real world in which he has to work in future. The theories greatly
enhance our knowledge and provide opportunities to blend theoretical with the
practical knowledge where researcher gets familiar with certain aspect of research. I
feel proud to get myself to do research at topic “Comparative study on Financial
Analysis of SBI AND HDFC BANK”.

v
 EXECUTIVE SUMMARY

The first task of financial analysis is to select the information relevant to the decision

under consideration to the total information contained in the financial statement. The

second step is to arrange the information in a way to highlight significant relationship.

The final step is interpretation and drawing of inference and conclusions. Financial

statement is the process of selection, relation and evaluation.

OBJECTIVES OF THE STUDY

 To study the present financial condition of HDFC BANK AND SBI BANK.

 To study the market shares in banking sector of HDFC BANK AND SBI

BANK.

 To study the credit worthiness of the banks.

 To study the solvency of the banks.

Banks are the most common institutions and media for transfer of funds and

investments. The banking business is becoming more and more complex as a result of

liberalization and globalization. The present study is an attempt to examine and

compare the performance of the two largest banks of India. The analysis is based on

the ratio analysis. The various ratios which is used in study are Operating Profit

Margin (OPM), Net Profit Margin (NPM), Return on Equity (RoE), Earnings per

Share (EPS), Price Earnings Ratio (PER), Dividends per Share (DPS) , Dividends

Payout Ratio (DPR) and etc The brief study of all the two banks is done and it is

found that that SBI is largest bank and then the HDFC.

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 TABLE OF CONTENT

1. Certificate Ii

2. Declaration Iii

3. Acknowledgement Iv

4. Preface V

5. Executive Summary VI

6. Introduction 1

7. Review of Literature

8. Company Profile

9. Objectives of the study

10. Research Methodology

11. Use and Importance of the study

12. Data Analysis

13. Findings

14. Recommendations

15. Conclusion

16. Limitation

17. Bibliography

vii
Introduction

1
 INTRODUCTION

HDFC BANK LTD.

HDFC Bank, a private sector bank was incorporated in the year of 1994 by

Housing Development Finance Corporation Limited (HDFC), India's premier housing

finance company. 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. The Bank

commenced its operations as a Scheduled Commercial Bank in January 1995 with the

help of RBI's liberalization. HDFC Bank deals with three key business segments -

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

banking consortia of over 50 corporate for providing working capital finance, trade

services, corporate finance and merchant banking. It is also providing sophisticated

product structures, sound advice and fine pricing mainly in areas of foreign exchange

and derivatives, money markets and debt trading and equity research through its state-

of-the-art dealing room.

Notable event was happened in the history of bank as well as Indian banking

sector in Feb. 2000, the Times Bank was amalgamated with HDFC bank. This was an

important milestone, being the first merger of two private sector banks. HDFC Bank

was the first Bank to launch an International Debit Card in association with VISA

(Visa Electron). The Bank launched its Credit Card business in 2001. In the same year

HDFC Bank has became the first private sector bank to be authorized by the Central

Board of Direct Taxes (CBDT) as well as the RBI to accept direct taxes. The taxes

accepted at specified branches of the bank. Also it has announced a strategic tie-up

with a Bangalore-based business solutions software developer Tally Solutions Pvt

(TSPL) for developing and offering products and services facilitating on-line

2
accounting and banking services to SMEs (Small and Medium Enterprises). In 2001-

02 the bank was listed on the New York Stock Exchange in the form of ADS and

bank had alliance with LIC for provide online payment of insurance premium to the

customers.

Bank received plenty of awards to its credit, in the year 2003 bank received

"Best Local Bank in India" by Finance Asia, "Best Domestic Bank in India Region" in

The Asset Triple A Country Awards 2003. Apart from this, 'Best Bank in the Private

Sector' for the year 2003 in the Outlook Express Awards, 'Best New Private Sector

Bank 2003' by the Financial Express in the FE-Ernst & Young Best Bank's survey

2003. It was also figured in the 'Best Under a Billion, 200 Best Small Companies for

2003' by Forbes Global and for use of information technology the bank was awarded

with 'Best IT user in Banking' at the IT User Awards 2003 conferred by

Economictimes.com & Nasscom. In the year of 2004 to 2005, "Best Domestic

Commercial Bank" & "Best Cash Management Bank"- India- Asia money Awards for

Corporate Excellence of 2004-05, "Best Bank" - India - Finance Asia, "Company of

the Year "- The Economic Times Awards for Corporate Excellence 2004-05, "Best

Domestic Bank in India" - The Asset Triple A Country Awards 2005, "Most

Customer Responsive Company- Banking and Financial Services" - The Economic

Times - Avaya Global Connect Customer Responsiveness Awards 2005. During the

year of 2006-07 also bank received number of awards, The Asian Banker

Achievement Award, Best Listed Bank of India in 2006 by Business World, Euro

money Award as Best Bank in India, One of Asia Pacific's Best 50 Companies in

2006 by Forbes Magazine, Asia money Award for Best Local Cash Management in

Large and Medium segments, other than above bank received " Best Bank in India "

award continuously from the year 2003 to 2007 conferred by the magazine Business

3
Today. The Financial Express rated 1st in India's Best Banks 2007 under New Private

Sector Bank under along with Axis Bank.

As on 2007 May, The Reserve Bank of India has allowed HDFC Bank to start

a non banking finance company. The NBFC, to be set up by HDFC Bank as a wholly

owned subsidiary and will undertake retail operations such as auto, personal loans

etc.. As part and apart from the regular banking activity, HDFC Bank and The

Institute for Technology and Management (ITM), Chennai gone under Memorandum

of Understanding to promote co-operation advancement of academic and business

exchanges between the two.

4
STATE BANK OF INDIA (SBI)

SBI, started as Imperial Bank then named State Bank of India commenced its

operations from the year 1955, is the largest commercial bank in India in terms of

profits, assets, deposits, branches and employees. As of March 2008, the bank has had

21 subsidiaries and 10,000 branches. SBI offering the services of banking and as well

as non- banking services to their customers. It provides a whole range of financial

services which includes Life Insurance, Merchant Banking, Mutual Funds, Credit

Cards, Factoring, Security Trading & Primary dealership in the Money market. The

Bank is actively involved in non-profit activity called community services banking

apart from its normal banking activity.

The bank also concentrate in agriculture, for that it took initiative spotlight

kharif and spotlight rabi campaigns for higher disbursement. It introduced Automated

Teller Machine with Kishan Credit Cards in all circles to assist agriculture peoples,

cumulatively the bank has credit linked 7.68 Lac. Self Help Groups and disbursed

loans to the extent of Rs 3,468 Crs. so far. In the year 2001 the SBI Life was started.

SBI is the only Bank to have been permitted a 74% stake in the insurance business.

The Bank's insurance subsidiary "SBI Life Insurance Company" is a joint venture

with Cardif S.A holds 26% stake. SBI Life enjoys the unique distinction of being the

first private sector life insurance company in India to make profits for two

consecutive years.

During the year 2004-05 SBI was the only one bank in India to ranked among

top 100 banks in the world and also among the top 20 banks in Asia in the annual

survey by "The Banker" as well as in the same year bank received two prestigious

awards for technology from the same The Banker magazine. In the year 2005-06 the

bank introduced "SBI e-tax" an online tax payments facility for direct and indirect tax

5
payment, the centralized pension processing center also launched during the year. SBI

made a partnership with Tata Consultancy Services for setup C-Edg Technologies and

consulting services to the banking, financial services and insurance industry. The

bank noted as The most preferred bank in a survey by TV 18 in association with AC

Nielsen-ORG Marg along with SBI voted as The most preferred housing loan

provider in AWAAZ consumer awards for 2006. In the customer loyalty survey 2006-

07 conducted by "Business World", SBI has been ranked number One in all

parameters of customer satisfaction, service orientation, customer care/ call center,

customer loyalty and home loans. SBI Funds (SBIFMPL) was judged "Mutual fund of

the year" by CNBC/TV-18/CRISL. SBI FMBL Equity schemes won 11 awards and

ranging of the AMC in terms of Assets under management remained at 7th position

during the year 2006-07. SBI cards is in 2nd position in the country under market

share. During the year 2006-07 14.81 lac additional cards were issued by SBI and

they crossed the landmark of 3 million cards totally.

The strategic initiatives that SBI have launched business groups in 2007

namely rural and agri business; treasury and marketing; corporate strategy and new

business; and fourth mid corporate group is on the anvil. They also introduced new

products and services such as web-based remittance, instant fund transfer, online-

trading, comprehensive cash management.

SBI opened its 10,000th branch in March 2008; it becomes only the second

bank in the world to have more than 10,000 branches after China's ICBC. SBI is

pursuing aggressive IT policy, where the Automated Teller Machines are now also

enabled to pay utility bills, college fees, book air-line tickets and accept donations,

further bilateral sharing of ATMs was extended to thirteen banks covering 15,700

Automated Teller Machines and an Memorandum of Understanding has been signed

6
with the Indian railways for installing ATMs at 682 railway stations. Infrastructure

fund, private equity, venture capital and pension fund management are under in

process to assist the customer in time. SBI is targeting to emerge as the best rated

bank among public, private, foreign and state -owned banks by the end of the next

fiscal. Employee Stock Option Scheme, where employees have the option to pick up

shares as per their needs is avail in SBI. SBI plans to implement the mobile banking

technology will soon with aim of customer will no be just "Branch customers" but

will be "Bank customer

7
BANKING IN INDIA

Banking in India originated in the last decades of the 18th century. The oldest

bank in existence in India is the State Bank of India, a government-owned bank that

traces its origins back to June 1806 and that is the largest commercial bank in the

country. Central banking is the responsibility of the Reserve Bank of India, which in

1935 formally took over these responsibilities from the then Imperial Bank of India,

relegating it to commercial banking functions. After India's independence in 1947, the

Reserve Bank was nationalized and given broader powers. In 1969 the government

nationalized the 14 largest commercial banks; the government nationalized the six

next largest in 1980.

Currently, India has 88 scheduled commercial banks (SCBs) - 27 public sector

banks (that is with the Government of India holding a stake), 31 private banks (these

do not have government stake; they may be publicly listed and traded on stock

exchanges) and 38 foreign banks. They have a combined network of over 53,000

branches and 17,000 ATMs. According to a report by ICRA Limited, a rating agency,

the public sector banks hold over 75 percent of total assets of the banking industry,

with the private and foreign banks holding 18.2% and 6.5% respectively.

Currently (2007), banking in India is 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.

8
CHART No.1

9
 Financial Analysis

The first task of financial analysis is to select the information relevant to the decision

under consideration to the total information contained in the financial statement. The

second step is to arrange the information in a way to highlight significant relationship.

The final step is interpretation and drawing of inference and conclusions. Financial

statement is the process of selection, relation and evaluation.

Analyzing financial statements involves evaluating three characteristics of a

company: its liquidity, its profitability, and its insolvency. A short-term creditor, such

as a bank, is primarily interested in the ability of the borrower to pay obligations when

they come due. The liquidity of the borrower is extremely important in evaluating the

safety of a loan. A long-term creditor, such as a bondholder, however, looks to

profitability and solvency measures that indicate the company’s ability to survive over

a long period of time. Long-term creditors consider such measures as the amount of

debt in the company’s capital structure and its ability to meet interest payments.

Similarly, stockholders are interested in the profitability and solvency of the

company. They want to assess the likelihood of dividends and the growth potential of

the stock.

Comparison can be made on a number of different bases.

Following are the three illustrations:

1. Intra-company basis.

This basis compares an item or financial relationship within a company in the

current year with the same item or relationship in one or more prior years. For

example, Sears, Roebuck and Co. can compare its cash balance at the end of the

current year with last year’s balance to find the amount of the increase or decrease.

10
 Likewise, Sears can compare the percentage of cash to current assets at the end of the

current year with the percentage in one or more prior years. Intra-company

comparisons are useful in detecting changes in financial relationships and significant

trends.

2. Industry averages.

This basis compares an item or financial relationship of a company with industry

averages (or norms) published by financial ratings organizations such as Dun &

Bradstreet, Moody’s and Standard & Poor’s. For example, Sears’s net income can be

compared with the average net income of all companies in the retail chain-store

industry. Comparisons with industry averages provide information as to a company’s

relative performance within the industry.

3. Intercompany basis.

This basis compares an item or financial relationship of one company with the same

item or relationship in one or more competing companies. The comparisons are made

on the basis of the published financial statements of the individual companies. For

example, Sears’s total sales for the year can be compared with the total sales of its

major competitors such as Kmart and Wal-Mart. Intercompany comparisons are

useful in determining a company’s competitive position.

Fundamental Analysis has a very broad scope. One aspect looks at the general

(qualitative) factors of a company. The other side considers tangible and measurable

factors (quantitative). This means crunching and analyzing numbers from the

financial statements. If used in conjunction with other methods, quantitative analysis

can produce excellent results.

This financial analysis of SBI and HDFC is based on the ratio analysis.

11
 Ratio analysis isn't just comparing different numbers from the balance sheet, income

statement, and cash flow statement. It's comparing the number against previous years,

other companies, the industry, or even the economy in general. Ratios look at the

relationships between individual values and relate them to how a company has

performed in the past, and might perform in the future.

Pre-Requisites to Ratio Analysis:

In order to use the ratio analysis as device to make purposeful conclusions, there are

certain pre-requisites, which must be taken care of. It may be noted that these

prerequisites are not conditions for calculations for meaningful conclusions. The

accounting figures are inactive in them & can be used for any ratio but meaningful &

correct interpretation & conclusion can be arrived at only if the following points are

well considered.

1) The dates of different financial statements from where data is taken must be same.

2) If possible, only audited financial statements should be considered, otherwise there

must be sufficient evidence that the data is correct.

3) Accounting policies followed by different firms must be same in case of cross section

analysis otherwise the results of the ratio analysis would be distorted.

4) One ratio may not throw light on any performance of the firm. Therefore, a group of

ratios must be preferred. This will be conductive to counter checks.

5) Last but not least, the analyst must find out that the two figures being used to

calculate a ratio must be related to each other, otherwise there is no purpose of

calculating a ratio.

Classification of Ratio:

CLASSIFICATION OF RATIO

12
BASED ON FINANCIAL BASED ON FUNCTION BASED ON USER
STATEMENT

1] BALANCE SHEET 1] LIQUIDITY RATIO 1] RATIOS FOR

RATIO 2] LEVERAGE RATIO SHORT TERM
2] REVENUE 3] ACTIVITY RATIO CREDITORS
STATEMENT 4] PROFITABILITY 2] RATIO FOR
RATIO RATIO SHAREHOLDER

3] COMPOSITE 5] COVERAGE 3] RATIOS FOR

RATIO RATIO MANAGEMENT

4] RATIO FOR
LONG TERM
CREDITORS

13
Based on Financial Statement

Accounting ratios express the relationship between figures taken from financial

statements. Figures may be taken from Balance Sheet, P& P A/C, or both. One-way of

classification of ratios is based upon the sources from which are taken.

1] Balance sheet ratio:

If the ratios are based on the figures of balance sheet, they are called Balance Sheet

Ratios. E.g. Ratio of current assets to current liabilities or Debt to equity ratio. While

calculating these ratios, there is no need to refer to the Revenue statement. These

ratios study the relationship between the assets & the liabilities, of the concern. These

ratios help to judge the liquidity, solvency & capital structure of the concern. Balance

sheet ratios are Current ratio, Liquid ratio, and Proprietary ratio, Capital gearing ratio,

Debt equity ratio, and Stock working capital ratio.

2] Revenue ratio:

Ratio based on the figures from the revenue statement is called revenue statement

ratios. These ratios study the relationship between the profitability & the sales of the

concern. Revenue ratios are Gross profit ratio, Operating ratio, Expense ratio, Net

profit ratio, Net operating profit ratio, Stock turnover ratio.

3] Composite ratio:

These ratios indicate the relationship between two items, of which one is found in the

balance sheet & other in revenue statement.

There are two types of composite ratios-

14
a) Some composite ratios study the relationship between the profits & the investments of

the concern. E.g. return on capital employed, return on proprietors fund, return on

equity capital etc.

b) Other composite ratios e.g. debtors turnover ratios, creditors turnover ratios, dividend

payout ratios, & debt service ratios

Based on Function:

Accounting ratios can also be classified according to their functions in to liquidity

ratios, leverage ratios, activity ratios, profitability ratios & turnover ratios.

1] Liquidity ratios:

It shows the relationship between the current assets & current liabilities of the concern

e.g. liquid ratios & current ratios.

2] Leverage ratios:

It shows the relationship between proprietors funds & debts used in financing the

assets of the concern e.g. capital gearing ratios, debt equity ratios, & Proprietary

ratios.

3] Activity ratios:

It shows relationship between the sales & the assets. It is also known as Turnover

ratios & productivity ratios e.g. stock turnover ratios, debtors’ turnover ratios.

4] Profitability ratios:

a) It shows the relationship between profits & sales e.g. operating ratios, gross

profitratios, operating net profit ratios, expenses ratios

b) It shows the relationship between profit & investment e.g. return on investment,

return on equity capital.

5] Coverage ratios:

15
It shows the relationship between the profit on the one hand & the claims of the

outsiders to be paid out of such profit e.g. dividend payout ratios & debt service

ratios.

16
Based on User:

1] Ratios for short-term creditors:

Current ratios, liquid ratios, stock working capital ratios

2] Ratios for the shareholders:

Return on proprietors fund, return on equity capital

3] Ratios for management:

Return on capital employed, turnover ratios, operating ratios, expenses ratios

4] Ratios for long-term creditors:

Debt equity ratios, return on capital employed, proprietor ratios.

17
Liquidity Ratio: -

Liquidity refers to the ability of a firm to meet its short-term (usually up to 1 year)

obligations. The ratios, which indicate the liquidity of a company, are Current ratio,

Quick/Acid-Test ratio, and Cash ratio. These ratios are discussed below

Current Ratio

Meaning:

This ratio compares the current assets with the current liabilities. It is also known as

‘working capital ratio’ or ‘solvency ratio’. It is expressed in the form of pure ratio.

E.g. 2:1

Formula:

Current assets

Current ratio =

Current liabilities

The current assets of a firm represents those assets which can be, in the ordinary

course of business, converted into cash within a short period time, normally not

exceeding one year. The current liabilities defined as liabilities which are short term

maturing obligations to be met, as originally contemplated, with in a year.

Current ratio (CR) is the ratio of total current assets (CA) to total current liabilities

(CL). Current assets include cash and bank balances; inventory of raw materials,

semi-finished and finished goods; marketable securities; debtors (net of provision for

bad and doubtful debts); bills receivable; and prepaid expenses. Current liabilities

consist of trade creditors, bills payable, bank credit, and provision for taxation,

dividends payable and outstanding expenses. This ratio measures the liquidity of the

current assets and the ability of a company to meet its short-term debt obligation.

18
CR measures the ability of the company to meet its CL, i.e., CA gets converted into

cash in the operating cycle of the firm and provides the funds needed to pay for CL.

The higher the current ratio, the greater the short-term solvency. This compares

assets, which will become liquid within approximately twelve months with liabilities,

which will be due for payment in the same period and is intended to indicate whether

there are sufficient short-term assets to meet the short- term liabilities. Recommended

current ratio is 2: 1. Any ratio below indicates that the entity may face liquidity

problem but also Ratio over 2: 1 as above indicates over trading, that is the entity is

under utilizing its current assets.

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Liquid Ratio:

Meaning:

Liquid ratio is also known as acid test ratio or quick ratio. Liquid ratio compares the

quick assets with the quick liabilities. It is expressed in the form of pure ratio. E.g.

1:1.

The term quick assets refer to current assets, which can be converted into, cash

immediately or at a short notice without diminution of value.

Formula:

Quick assets

Liquid ratio =

Quick liabilities

Quick Ratio (QR) is the ratio between quick current assets (QA) and CL. QA refers to

those current assets that can be converted into cash immediately without any value

strength. QA includes cash and bank balances, short-term marketable securities, and

sundry debtors. Inventory and prepaid expenses are excluded since these cannot be

turned into cash as and when required.

QR indicates the extent to which a company can pay its current liabilities without

relying on the sale of inventory. This is a fairly stringent measure of liquidity because

it is based on those current assets, which are highly liquid. Inventories are excluded

from the numerator of this ratio because they are deemed the least liquid component

of current assets. Generally, a quick ratio of 1:1 is considered good. One drawback of

the quick ratio is that it ignores the timing of receipts and payments.

20
Cash Ratio:

Meaning:

This is also called as super quick ratio. This ratio considers only the absolute liquidity

available with the firm.

Formula:

Cash + Bank + Marketable securities

Cash ratio =

Total current liabilities

Since cash and bank balances and short term marketable securities are the most liquid

assets of a firm, financial analysts look at the cash ratio. If the super liquid assets are

too much in relation to the current liabilities then it may affect the profitability of the

firm.

21
Investment/ Shareholder

EARNING PER SHARE:-

Meaning:

Earnings per Share are calculated to find out overall profitability of the organization.

Earnings per Share representearning of the company whether or not dividends are

declared. If there is only one class of shares, the earning per share are determined by

dividing net profit by the number of equity shares.

EPS measures the profits available to the equity shareholders on each share held.

Formula:

Net Profit after Tax

Earnings per share =

Number of equity share

The higher EPS will attract more investors to acquire shares in the company as it

indicates that the business is more profitable enough to pay the dividends in time. But

remember not all profit earned is going to be distributed as dividends the company

also retains some profits for the business

22
Dividend per Share:-

Meaning:

DPS shows how much is paid as dividend to the shareholders on each share held.

Formula:

Dividend Paid to Ordinary Shareholders

Dividend per Share =

Number of Ordinary Shares

Dividend Payout Ratio:-

Meaning:

Dividend Pay-out Ratio shows the relationship between the dividends paid to equity

shareholders out of the profit available to the equity shareholders.

Formula:

Dividend per share

Dividend Payout ratio = *100

Earnings per share

D/P ratio shows the percentage share of net profits after taxes and after preference

dividend has been paid to the preference equity holders.

23
Gearing

CAPITAL GEARING RATIO:-

Meaning:

Gearing means the process of increasing the equity shareholders return through the

use of debt. Equity shareholders earn more when the rate of the return on total capital

is more than the rate of interest on debts. This is also known as leverage or trading on

equity. The Capital-gearing ratio shows the relationship between two types of capital

viz: - equity capital & preference capital & long term borrowings. It is expressed as a

pure ratio.

Formula:

Preference capital+ secured loan

Capital gearing ratio =

Equity capital & reserve & surplus

Capital gearing ratio indicates the proportion of debt & equity in the financing of

assets of a concern.

Profitability

These ratios help measure the profitability of a firm. A firm, which generates a

substantial amount of profits per rupee of sales, can comfortably meet its operating

expenses and provide more returns to its shareholders. The relationship between profit

and sales is measured by profitability ratios. There are two types of profitability

ratios: Gross Profit Margin and Net Profit Margin.

24
GROSS PROFIT RATIO:-

Meaning:

This ratio measures the relationship between gross profit and sales. It is defined as the

excess of the net sales over cost of goods sold or excess of revenue over cost. This

ratio shows the profit that remains after the manufacturing costs have been met. It

measures the efficiency of production as well as pricing. This ratio helps to judge how

efficient the concern is I managing its production, purchase, selling & inventory, how

good its control is over the direct cost, how productive the concern , how much

amount is left to meet other expenses & earn net profit.

Gross profit

Gross profit ratio = * 100

Net sales

Net Profit Ratio:-

Meaning:

Net Profit ratio indicates the relationship between the net profit & the sales it is

usually expressed in the form of a percentage.

Formula:

NPAT

Net profit ratio = * 100

Net sales

This ratio shows the net earnings (to be distributed to both equity and preference

shareholders) as a percentage of net sales. It measures the overall efficiency of

production, administration, selling, financing, pricing and tax management. Jointly

25
considered, the gross and net profit margin ratios provide an understanding of the cost

and profit structure of a firm.

Return on Capital Employed:-

Meaning:

The profitability of the firm can also be analyzed from the point of view of the total

funds employed in the firm. The term fund employed or the capital employed refers to

the total long-term source of funds. It means that the capital employed comprises of

shareholder funds plus long-term debts. Alternatively it can also be defined as fixed

assets plus net working capital.

Capital employed refers to the long-term funds invested by the creditors and the

owners of a firm. It is the sum of long-term liabilities and owner's equity. ROCE

indicates the efficiency with which the long-term funds of a firm are utilized.

Formula:

NPAT

Return on capital employed = *100

Capital employed

Financial

These ratios determine how quickly certain current assets can be converted into cash.

They are also called efficiency ratios or asset utilization ratios as they measure the

efficiency of a firm in managing assets. These ratios are based on the relationship

between the level of activity represented by sales or cost of goods sold and levels of

investment in various assets. The important turnover ratios are debtors turnover ratio,

average collection period, inventory/stock turnover ratio, fixed assets turnover ratio,

and total assets turnover ratio. These are described below:

26
DEBTORS TURNOVER RATIO (DTO)

Meaning:

DTO is calculated by dividing the net credit sales by average debtors outstanding

during the year. It measures the liquidity of a firm's debts. Net credit sales are the

gross credit sales minus returns, if any, from customers. Average debtors are the

average of debtors at the beginning and at the end of the year. This ratio shows how

rapidly debts are collected. The higher the DTO, the better it is for the organization.

Formula:

Credit sales

Debtors turnover ratio =

Average debtors

Inventory or Stock Turnover Ratio (ITR)

Meaning:

ITR refers to the number of times the inventory is sold and replaced during the

accounting period.

Formula:

Cost of Goods Sold

Stock Turnover Ratio =

Average stock

ITR reflects the efficiency of inventory management. The higher the ratio, the more

efficient is the management of inventories, and vice versa. However, a high inventory

turnover may also result from a low level of inventory, which may lead to frequent

27
stock outs and loss of sales and customer goodwill. For calculating ITR, the average

of inventories at the beginning and the end of the year is taken. In general, averages

may be used when a flow figure (in this case, cost of goods sold) is related to a stock

figure (inventories).

Fixed Assets Turnover (FAT)

The FAT ratio measures the net sales per rupee of investment in fixed assets.

Formula:

Net sales

Fixed assets turnover =

Net fixed assets

This ratio measures the efficiency with which fixed assets are employed. A high ratio

indicates a high degree of efficiency in asset utilization while a low ratio reflects an

inefficient use of assets. However, this ratio should be used with caution because

when the fixed assets of a firm are old and substantially depreciated, the fixed assets

turnover ratio tends to be high (because the denominator of the ratio is very low).

Proprietors Ratio:

Meaning:

Proprietary ratio is a test of financial & credit strength of the business. It relates

shareholders fund to total assets. This ratio determines the long term or ultimate

solvency of the company.

In other words, Proprietary ratio determines as to what extent the owner’s interest &

expectations are fulfilled from the total investment made in the business operation.

28
Proprietary ratio compares the proprietor fund with total liabilities. It is usually

expressed in the form of percentage. Total assets also know it as net worth.

Formula:

Proprietary fund

Proprietary ratio = OR

Total fund

Shareholders fund

Proprietary ratio =

Fixed assets + current liabilities

Stock Working Capital Ratio:

Meaning:

This ratio shows the relationship between the closing stock & the working capital. It

helps to judge the quantum of inventories in relation to the working capital of the

business. The purpose of this ratio is to show the extent to which working capital is

blocked in inventories. The ratio highlights the predominance of stocks in the current

financial position of the company. It is expressed as a percentage.

Formula:

Stock

Stock working capital ratio =

Working Capital

29
Stock working capital ratio is a liquidity ratio. It indicates the composition & quality

of the working capital. This ratio also helps to study the solvency of a concern. It is a

qualitative test of solvency. It shows the extent of funds blocked in stock. If

investment in stock is higher it means that the amount of liquid assets is lower.

Debt Equity Ratio:

Mening:

This ratio compares the long-term debts with shareholders fund. The relationship

between borrowed funds & owners capital is a popular measure of the long term

financial solvency of a firm. This relationship is shown by debt equity ratio.

Alternatively, this ratio indicates the relative proportion of debt & equity in financing

the assets of the firm. It is usually expressed as a pure ratio. E.g. 2:1

30
Formula:

Total long-term debt

Debt equity ratio =

Total shareholders fund

Debt equity ratio is also called as leverage ratio. Leverage means the process of the

increasing the equity shareholders return through the use of debt. Leverage is also

known as ‘gearing’ or ‘trading on equity’. Debt equity ratio shows the margin of

safety for long-term creditors & the balance between debt & equity.

Return on Proprietor Fund:

Meaning:

Return on proprietors fund is also known as ‘return on proprietor’s equity’ or ‘return

on shareholders’ investment’ or ‘investment ratio’. This ratio indicates the

relationship between net profits earned & total proprietor’s funds. Return on

proprietors fund is a profitability ratio, which the relationship between profit &

investment by the proprietors in the concern. Its purpose is to measure the rate of

return on the total fund made available by the owners. This ratio helps to judge how

efficient the concern is in managing the owner’s fund at disposal. This ratio is of

practical importance to prospective investors & shareholders.

Formula:

NPAT

Return on proprietors fund = * 100

Proprietor’s fund

31
Creditors Turnover Ratio:

It is same as debtors turnover ratio. It shows the speed at which payments are made to

the supplier for purchase made from them. It is a relation between net credit purchase

and average creditors

Net credit purchase

Credit turnover ratio =

Average creditors

Months in a year

Average age of accounts payable =

Credit turnover ratio

Both the ratios indicate promptness in payment of creditor purchases. Higher

creditors turnover ratio or a lower credit period enjoyed signifies that the creditors are

being paid promptly. It enhances credit worthiness of the company. A very low ratio

indicates that the company is not taking full benefit of the credit period allowed by the

creditors.

32
Review of
Literature

33
 REVIEW OF LITERATURE

Review of Literature refers to the collection of the results of the various researches

relating to the present study. It takes into consideration the research of the previous

researchers which are related to the present research in any way. Here are the reviews

of the previous researches related with the present study:

Bollen (1999) conducted a studyon Ratio Variables on which he found three different

uses of ratio variables in aggregate data analysis: (1) as measures of theoretical

concepts, (2) as a means to control an extraneous factor, and (3) as a correction for

heteroscedasticity. In the use of ratios as indices of concepts, a problem can arise if it

is regressed on other indices or variables that contain a common component. For

example, the relationship between two per capita measures may be confounded with

the common population component in each variable. Regarding the second use of

ratios, only under exceptional conditions will ratio variables be a suitable means of

controlling an extraneous factor. Finally, the use of ratios to correct for

heteroscedasticity is also often misused. Only under special conditions will the

common form forgers soon with ratio variables correct for heteroscedasticity.

Alternatives to ratios for each of these cases are discussed and evaluated.

Cooper (2000)conducted a studyon Financial Intermediation on which he observed

that the quantitative behavior of business-cycle models in which the intermediation

process acts either as a source of fluctuations or as a propagator of real shocks. In

neither case do we find convincing evidence that the intermediation process is an

important element of aggregate fluctuations. For an economy driven by

intermediation shocks, consumption is not smoother than output, investment is

negatively correlated with output, variations in the capital stock are quite large, and

34
interest rates are procyclical. The model economy thus fails to match unconditional

moments for the U.S. economy. We also structurally estimate parameters of a model

economy in which intermediation and productivity shocks are present, allowing for

the intermediation process to propagate the real shock. The unconditional correlations

are closer to those observed only when the intermediation shock is relatively

unimportant.

Gerrard (2001) conducted a studyonThe Financial Performanceon which he found

that Using ratio analysis the financial performance of a sample ofindependent single-

plant engineering firms in Leeds is examinedwith regard to structural and locational

differences in establishments.A number of determinants of performance are derived

and testedagainst the constructed data base. Inner-city engineering firmsperform

relatively less well on all indicators of performancecompared with outer-city firms.

The study illustrates the importanceof using different measures of performance since

this affectsthe magnitude and significance of the results. Financial supportis necessary

to sustain engineering in the inner city in thelong run.

Schmidgall (2003)conducted a studyonFinancial Analysis Using the Statement of

Cash Flows on which he observed that Managers use many financial ratios to judge

the health of theirbusinesses. With the recent requirement of a statement of cashflow

(SCF) by the Financial Accounting Standards Board, managersnow have a new set of

ratios that will give a realistic pictureof the business. The ratios include cash flow-

interest coverage,cash flow-dividend coverage, and cash flow from operations tocash

flow in investments. These ratios are particularly usefulbecause they show changes in

a hotel or restaurant's cash positionover time, rather than at a given moment, as is the

case withmany other ratios.

35
Murinde (2003)) conducted studyon Corporate Financial Structures on which he

observed that the financial structure of a sample of Indian non-financialcompanies

using a new and unique dataset consisting of a panelcontaining the published accounts

of almost 900 companies thatpublished a full set of accounts every year during 1989-

99.In a new departure in the literature, the dataset includes quotedand unquoted

companies. We compare the sources-uses approachto analyzing company financial

structures with the asset-liabilityapproach. We use both approaches to characterize

and to comparethe financial structures of Indian companies over time; betweenquoted

and unquoted companies; and between companies whichbelong to a business group

and those that do not. Finally, wecompare our results to those obtained previously for

India andfor the industrial countries.

McMahon (2005)conducted a studyon Financial Informationon which he found that

financial statements mean little to the uninitiated. This paper, explains, in layman's

terms, how to understandfinancial information. It covers measures of profitability.The

second article will cover measures of company liquidityand the use of financial ratios.

This paper continues to explainhow to interpret and understand financial information.

It dealswith measures of liquidity, solvency and fund flows and describeshow to

establish standards against which a company's financialratios can be compared.

Lee (2008 conducted a studyon Financial Risk on which he observed that Financial

researchers, including those concentrating on the lodging industry, use various

financial risk measures for their studies. Examples of those risk measures are beta,

earnings variability, bankruptcy probability, debt-to-equity ratio and book-to-market

ratio. The purpose of this study is, first, to descriptively investigate various financial

risk measures used in the lodging financial literature by performing factor analysis

36
and identifying four distinct risk groups. Second, this study examines the predictive

ability of the four risk groups for lodging firm performance. The findings of this study

suggest that strategic and stock performance risk factors better represent a lodging

firm's financial risk than do bankruptcy and firm performance risk factors, and also,

ROA than ROE better estimates lodging firm performance in terms of their

relationships with financial risk factors.

Johnson (2009)conducted a studyon Financial Ratio patterns on which he found that

the properties and characteristics of financial ratios have received considerable

attention in recent years with interest primarily focused on determining the predictive

ability of financial ratios and related financial data. Principal areas of investigation

have included the prediction of corporate bond ratings , and the anticipation of

financial impairment]. Related studies have examined the characteristics of merged

firms the differences in financial ratio averages among industries whether firms seek

to adjust their financial ratios toward industry averages the relationship between

accounting-determined and market-determined risk measures, and the influence of

financial ratios on analysts' judgments about impending bankruptcy The general

conclusion to emerge from these various research efforts is that a number of financial

ratios have predictive and descriptive utility when properly employed.

To summarize the literature ,Ratio analysis is a key dimension of financial

management,suggesting a relationship between profit and loss as mentioned inthe

balance sheet of an organization. Its appropriate use will gotoward giving a true

picture of the financial health of the unit. Itsbenefits can be seen in areas of

management, production,marketing, personnel management etc

37
Company
Profile

38
 COMPANY PROFILE

HDFC Bank

BSE: 500180

NSE: HDFCBANK

Traded as NYSE: HDB

BSE SENSEX Constituent

CNX Nifty Constituent

Industry Banking, Financial services

Founded August 1994

Headquarters Mumbai, Maharashtra, India

Area served Worldwide

Key people Aditya Puri (MD)

Investment Banking

Investment Management

Wealth Management

Private Banking

Corporate Banking
Products
Private Equity

Finance and Insurance

Consumer Banking

Mortgages

Credit Cards

39
 Revenue 743.7322 billion (US$11 billion) (2016)

Profit 128.1733 billion (US$1.9 billion) (2016)

Total assets 6.87892 trillion (US$100 billion) (2015)

Total equity 5.0564 billion (US$75 million)

Number of employees 76,286 (March 2015)

Website HDFCBank.com

HDFC Bank is an Indian banking and financial services company headquartered in

Mumbai, Maharashtra. It has about 76,286 employees including 12,680 women and

has a presence in Bahrain, Hong Kong and Dubai. HDFC Bank is the second largest

private bank in India as measured by assets. It is the largest bank in India by market

capitalization as of February 2016. It was ranked 58th among India’s most trusted

brands according to Brand Trust Report, 2015.

History

In 1994, HDFC Bank was incorporated, with its registered office in Mumbai, India.

Its first corporate office and a full service branch at Sandoz House, Worli was

inaugurated by the then Union Finance Minister, Dr. Manmohan Singh.

As of June 30, 2016, the Bank’s distribution network was at 4,541 branches and

12,013 ATMs.

40
Products and services

HDFC Bank provides a number of products and services which includes Wholesale

banking, Retail banking, Treasury, Auto (car) Loans, Two Wheeler Loans, Personal

loans, Loan Against Property and Credit Cards.

Acquisitions

HDFC Bank merged with Times Bank in February, 2000. This was the first merger of

two private banks in the New Generation Private Sector Banks category. In 2008,

Centurion Bank was acquired by HDFC Bank. HDFC Bank Board approved the

acquisition of CBoP for Rs. 9,510 crore in one of the largest mergers in the financial

sector in India.

41
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 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.

HDFC is India's 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.

HDFC Bank's 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 bank's risk appetite. The bank is

committed to maintain the highest level of ethical standards, professional integrity,

corporate governance and regulatory compliance. HDFC Bank’s business philosophy

is based on five core values: Operational Excellence, Customer Focus, Product

Leadership, People and Sustainability.

42
 State Bank of India

State Bank Bhavan at Nariman Point in Mumbai

 NSE: SBIN
 BSE: 500112
 LSE: SBID
Traded as
 BSE SENSEX Constituent
 CNX Nifty Constituent

Industry Banking, financial services

 2 June 1806, Bank of Calcutta
 27 January 1921, Imperial Bank of India
Founded  1 July 1955, State Bank of India
 2 June 1956, nationalization

Headquarters Mumbai, Maharashtra, India

Area served Worldwide
Key people Rajnish Kumar (Chairman)
Consumer banking, corporate banking, finance and
insurance, investment banking, mortgage loans, private
Products
banking, private equity, savings, securities, asset
management, wealth management, credit cards
Revenue ₹298,640.45 crore (US$46 billion) (2017)
Operating income ₹50,847.90 crore (US$7.8 billion) (2017)
Net income ₹10,484.10 crore (US$1.6 billion) (2017)
Total assets ₹2,705,966.30 crore (US$410 billion) (2017)
43
 Total equity ₹144,274.65 crore (US$22 billion) (2016)
Owner Government of India (61.23%)
Number of employees 209,567 (2017)
Capital ratio 13.12% (2016)
Website sbi.co.in

State Bank of India (SBI) is an Indian multinational, public sector banking and

financial services company. It is a government-owned corporation with its

headquarters in Mumbai, Maharashtra. On April 1, 2017, the State Bank of India,

which was India's largest bank, merged with five of its associate banks (State Bank of

Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of

Patiala and State Bank of Travancore), and with the Bharatiya Mahila Bank. This was

the first ever large scale consolidation in the Indian banking industry. With the

merger, SBI became one of the 50 largest banks in the world (balance sheet size of

₹33 trillion, 278,000 employees, 420 million customers, and more than 24,000

branches and 59,000 ATMs). SBI's market share was projected to increase to 22

percent from 17 per cent. It has 198 offices in 37 countries; 301 correspondents in 72

countries. The company is ranked 232nd on the Fortune Global 500 list of the world's

biggest corporations as of 2016.The bank descends from the Bank of Calcutta,

founded in 1806, via the Imperial Bank of India, making it the oldest commercial

bank in the Indian subcontinent. The Bank of Madras merged into the other two

"presidency banks" in British India, the Bank of Calcutta and the Bank of Bombay, to

form the Imperial Bank of India, which in turn became the State Bank of India in

1955.The Government of India took control of the Imperial Bank of India in 1955,

with Reserve Bank of India (India's central bank) taking a 60% stake, renaming it the

State Bank of India. In 2008, the government took over the stake held by the Reserve

44
Bank of India. The State Bank of India has 20% market share in deposits and loans

among Indian commercial banks.

History
The roots of the State Bank of India lie in the first decade of the 19th century, when

the Bank of Calcutta later renamed the Bank of Bengal, was established on 2 June

1806. The Bank of Bengal was one of three Presidency banks, the other two being the

Bank of Bombay (incorporated on 15 April 1840) and the Bank of Madras

(incorporated on 1 July 1843). All three Presidency banks were incorporated as joint

stock companies and were the result of royal charters. These three banks received the

exclusive right to issue paper currency till 1861 when, with the Paper Currency Act,

the right was taken over by the Government of India. The Presidency banks

amalgamated on 27 January 1921, and the re-organised banking entity took as its

name Imperial Bank of India. The Imperial Bank of India remained a joint stock

company but without Government participation.

Pursuant to the provisions of the State Bank of India Act of 1955, the Reserve Bank

of India, which is India's central bank, acquired a controlling interest in the Imperial

Bank of India. On 1 July 1955, the imperial Bank of India became the State Bank of

India. In 2008, the Government of India acquired the Reserve Bank of India's stake in

SBI so as to remove any conflict of interest because the RBI is the country's banking

regulatory authority.

In 1959, the government passed the State Bank of India (Subsidiary Banks) Act. This

made SBI subsidiaries of eight that had belonged to princely states prior to their

nationalization and operational takeover between September 1959 and October 1960,

45
which made eight state banks associates of SBI. This une with the first Five Year

Plan, which prioritised the development of rural India. The government integrated

these banks into the State Bank of India system to expand its rural outreach. In 1963

SBI merged State Bank of Jaipur (est. 1943) and State Bank of Bikaner (est.1944).

SBI has acquired local banks in rescues. The first was the Bank of Bihar (est. 1911),

which SBI acquired in 1969, together with its 28 branches. The next year SBI

acquired National Bank of Lahore (est. 1942), which had 24 branches. Five years

later, in 1975, SBI acquired Krishnaram Baldeo Bank, which had been established in

1916 in Gwalior State, under the patronage of Maharaja Madho Rao Scindia. The

bank had been the Dukan Pichadi, a small moneylender, owned by the Maharaja. The

new bank's first manager was Jall N. Broacha, a Parsi. In 1985, SBI acquired the Bank

of Cochin in Kerala, which had 120 branches. SBI was the acquirer as its affiliate, the

State Bank of Travancore, already had an extensive network in Kerala.

There has been a proposal to merge all the associate banks into SBI to create a "mega

bank" and streamline the group's operations.

The first step towards unification occurred on 13 August 2008 when State Bank of

Saurashtra merged with SBI, reducing the number of associate state banks from seven

to six. On 19 June 2009, the SBI board approved the absorption of State Bank of

Indore. SBI holds 98.3% in State Bank of Indore. (Individuals who held the shares

prior to its takeover by the government hold the balance of 1.7%.).

The acquisition of State Bank of Indore added 470 branches to SBI's existing network

of branches. Also, following the acquisition, SBI's total assets will approach ₹10

trillion. The total assets of SBI and the State Bank of Indore were ₹9,981,190 million

46
as of March 2009. The process of merging of State Bank of Indore was completed by

April 2010, and the SBI Indore branches started functioning as SBI branches on 26

August 2010.On 7 October 2013, Arundhati Bhattacharya became the first woman to

be appointed Chairperson of the bank.

47
Objectives of
The Study

48
 OBJECTIVES OF THE STUDY

 To study the present financial condition of HDFC BANK AND SBI BANK.

 To study the market shares in banking sector of HDFC BANK AND SBI

BANK.

 To study the credit worthiness of the banks.

 To study the solvency of the banks.

49
 Research
Methodology

50
RESEARCH METHODOLOGY

RESEARCH DESIGN: Descriptive research design

Sampling Technique Used:

This research has used convenience sampling technique.

Convenience sampling technique:

Convenience sampling is used in exploratory research where the researcher is
interested in getting an inexpensive approximation of the truth. As the name implies,
the sample is selected because they are convenient.

Data Collection:
There is two types of data collection methods-

1). Primary Data

In primary data collection, the data is collected using methods such as interviews and
questionnaires. It is important to prepare a tabulation plan and based on it design the
questionnaire to make sure that no table will be left out. There are cases when tables
cannot be produced because questionnaires were designed without having a tabulation
plan in place. There are many methods of collecting primary data (observed or
collected directly from first-hand experience.). The main methods of primary data
collection include:
• Questionnaires
• Interviews
• Focus group interviews
• Observation
• Case studies
• Diaries
• Critical incidents
• Portfolios.

51
2). Secondary Data:
Published data and the data collected in the past or by other parties is called secondary
data.
Secondary data will consist of different literatures like books which are published,
articles, internet, the company manuals and websites of company-.
In order to reach relevant conclusion, research work needed to be designed in a proper
way.

While doing a financial analysis of SBI and HDFC the methods of data collection is
Secondary Data.

This research methodology also includes:-

 Familiarization with the concept of finance and its various merits, demerits.
 Thorough study of the information collected.
 Conclusions based on findings.

Statistical Tools Used

The main statistical tools used for the collection and analyses of data in this project
are:
 Pie Charts
 Bar Diagrams
 Line Charts
Source of data
The data is collected from the following sources.
 annual report of Banks

 Interaction with the related finance department.

52
Data Analysis

53
 DATA ANALYSIS AND INTERPRETATION

(1) RETURN ON EQUITY (ROE)

Return on Equity is seen as a measure of how well a company used reinvested

earnings to generate additional earnings. This is computed using the following
formula and expressed in percentage terms:

RETURN ON EQUITY (%)

YEAR SBI HDFC
2017 8.95 16.05
2016 12.79 19.40
2015 11.44 17.47
2014 15.97 20.44
AVEARGE 12.29 18.34

Interpretation

Among all the three banks, HDFC could make the highest RoE of 20.44% in 2013,

followed by SBI (15.97%) in 2013. The average RoE of HDFC were (18.34%

54
respectively) while that of SBI was a bit lower (12.29%). Thus, HDFC were more

efficient in generating additional earnings by using invested earnings than SBI.

(2) EARNINGS PER SHARE (EPS)

Earnings per Share is the measure of company's ability to generate after tax profits per
share held by the investors. This ratio is computed with the help of the following
formula and expressed in rupee terms:

EPS (in Rupees)

YEAR SBI HDFC

2016 39.39 46.22
2015 34.84 36.29
2014 32.5 27.92
2013 27.6 22.92
AVERAGE 33.58 33.34

Interpretation

From the above table, the EPS of SBI and HDFC showed an increasing trend from

year to year during the study period. The average EPS of SBI is greater than that of

55
HDFC during the entire study period. Thus, the analysis reveals that SBI was the most

efficient bank in terms of generating earnings per share.

56
(3) PRICE EARNINGS (P/E) RATIO

The Price Earnings ratio highlights the connection between the price and recent
company's performance. This ratio moves either side only when price and profits get
disconnected. This ratio is calculated using the following equation and expressed in
terms of times:

P/E RATIO
YEAR SBI HDFC
2017 19.22 28.80
2016 23.26 26.29
2015 27.12 27.74
2014 13.48 25.03
AVERAGE 20.77 26.96

Interpretation

It reveal that only HDFC to achieved the highest price earnings ratio in every year

during the study period, followed by SBI;. Even the four year average price earnings

ratio of HDFC was significantly higher (26.96 times) than that of SBI (20.77 times).

Thus, it is inferred that there was more responsiveness between the earnings capacity

and the share price in case of HDFC than that of SBI and it reveals that HDFC did

better in share market when compared to other banks. However, there was a declining

trend in price earnings position of HDFC.

57
(4) DIVIDEND PER SHARE (DPS)

Though Dividends per Share is similar to Earnings per share, DPS shows how much
the shareholders were actually paid by way of dividends. The DPS found out by the
following formula and expressed in rupee terms:

DPS (in Rupees)

YEAR SBI HDFC
2017 11.00 8.50
2016 10.00 7.00
2015 8.50 5.50
2014 8.50 4.50
AVERAGE 9.5 6.37

Interpretation

It reveals that DPS position of all the banks increased from year to year during the

period under review. On an average, SBI paid out more dividends (Rs.9.5) than that of

HDFC Bank Rs. 6.37, respectively. Thus, it is concluded that it was SBI, which was

more efficient in terms of dividends payment to the shareholders.

58
59
(5) DIVIDENDS PAYOUT RATIO (DPR)

The Dividends Payout Ratio (DPR) is a model for cash flow measurement used by the
investor to determine if a company is generating a sufficient level of cash flow to
assure a continued stream of dividends to them. It is also a measurement of the
amount of current net income paid out in dividends rather than retained by the
business. This ratio is computed by the following formula and expressed in
percentage terms:

DIVIDEND PAYOUT RATIO (in %)

YEAR SBI HDFC
2017 27.92 18.39
2016 28.70 19.28
2015 26.15 19.69
2014 30.79 19.63
AVERAGE 28.39 19.24

Interpretation

An insight into the data reveals that there was a mixed trend in the distribution of

payout ratio of sample companies during the study period. Contrary to the DPS

position, on an average, SBI paid out 28.39% of its earnings as the dividends to the

shareholders, whereas HDFC paid out 19.24%, the lowest. Thus, SBI was more

efficient in generating more cash inflows to the shareholders by paying the highest

60
ratio of earnings as the dividends than HDFC, which paid relatively a lower

percentage.

(6) NET PROFIT MARGIN (NPM)

Net Profit Margin indicates how much a company is able to earn after all direct and
indirect expenses to every rupee of revenue. This ratio is calculated using the
following formula and expressed in percentage terms:

NET PROFIT MARGIN (in %)

YEAR SBI HDFC
2017 10.49 21.17
2016 10.75 22.89
2015 13.53 25.43
2014 15.6 29.69
AVERAGE 12.59 24.79

Interpretation

The above data reveal that it was HDFC, which has outperformed SBI in terms of Net

Profit Margin. However, the data also reveal there was stagnation in the NPM

position of HDFC whereas SBI could increase the net profit from year to year during
61
the study period. On an aggregate basis, mean NPM of HDFC was 24.79, the highest,

followed by SBI (12.59%), the lowest among three sample companies. Thus, it found

that it was HDFC to be the most efficient company in controlling indirect expenses

when compared to SBI.

(7) OPERATING PROFIT MARGIN (OPM)

Operating Profit Margin indicates how effective a company is at controlling the costs
and expenses associated with their normal business operations. This ratio is found out
using the following formulae and expressed in percentage terms:

OPERATING PROFIT MARGIN (%)

YEAR SBI HDFC
2017 20.10 50.13
2016 20.31 51.43
2015 24.99 50.6
2014 23.04 51.57
AVERAGE 22.11 50.93

62
Interpretation

HDFC sustained the highest operating profit margin in every year during the study

period followed by SBI, which has registered a reasonably higher margin during the

period under review. On an aggregate basis, HDFC was highly successful in

controlling the expenses by registering an average OPM of 50.93%, followed by SBI

which could make average OPM of 22.11% respectively.

(8) RETURN ON ASSETS (ROA)

It is used to measure the profitability of the bank in terms of assets employed in the
bank. It is also an yardstick of measuring managerial efficiency in rel the utilization of
assets.

(Net profit after tax but before interest*100)/total assets

Net profit after tax but before interest is nothing but operating profit

RETURN ON ASSETS (in %)

YEAR SBI HDFC
2017 1.12 1.32
2016 1.09 1.33
2015 1.30 1.38
2014 1.48 1.47
AVERAGE 1.25 1.37

63
Interpretation

A higher return on total assets is an indicator of high profitability and a good overall

efficiency. Reversely a low return on total assets indicates low profitability on assets

employed and poor managerial efficiency. The ROA of HDFC bank is better than the

SBI . In 2016 HDFC ROA is 1.32% followed by SBI (1.12%).

64
Findings

65
 FINDINGS

 On the basis of return on equity it is analyzed that HDFC bank reinvested their

earnings much better than SBI Banks to get the additional profits. So in ROE,

HDFC is best.

 On the basis of earning per share it is analyzed that SBI is the most efficient

bank in terms of generating earnings. there are SBI and HDFC banks with a

little difference of 0.24 in their average EPS.

 From dividend per share it is analyzed that both banks shows an increasing

trend from 2011 to 2016. But the performance of SBI is better than HDFC

banks

 From dividend payout ratio it is analyzed that SBI pays out the more dividend

than HDFC.

 On the net profit margin basis it is seen that after all direct and indirect

expenses HDFC earns more from its revenue and after it there is SBI Bank.

 From operating profit margin it is analyzed that HDFC controls its cost better

than SBI.

66
  On the basis of capital adequacy ratio it is analyzed that there is an increasing

trend in all the three banks but the average CAR of SBI Bank is better than

HDFC.

 On the basis of return on assets it is analyzed that HDFC’s profitability and

overall efficiency is better than SBI.

Thus from the entire ratio analysis it is concluded that performance of HDFC is best

in return on assets, operating profit margin, net profit margin, and return on equity.

Whereas performance of of SBI is best in dividend payout ratio and capital adequacy

ratio.

67
Recommendation

68
 RECOMMENDATION

 The time duration for the analysis should be at least 6-8 months for the sake of

better picture of analysis but due to the data availability issues the present study is

restricted up to last four years.

 The present study suggests the companies where they are lacking in their financial

growth. Also it gives knowledge to a company how to increase its efficiency in

comparison with other competitive companies.

 Along with the present findings of the study, the investors also has to keep in

mind about the future contracts of the companies and their future plans so as to get

maximum profit out of them.

69
Conclusion

70
 CONCLUSION

Banks are the most common institutions and media for transfer of funds and

investments. The banking business is becoming more and more complex as a result of

liberalization and globalization. The present study is an attempt to examine and

compare the performance of the two largest banks of India,SBI and HDFC a Private

Sector banks. The analysis is based on the ratio analysis. The various ratios which is

used in study are Operating Profit Margin (OPM), Net Profit Margin (NPM), Return

on Equity (RoE), Earnings per Share (EPS), Price Earnings Ratio (PER), Dividends

per Share (DPS) , Dividends Payout Ratio (DPR) and etc The brief study of all the

two banks is done and it is found that that SBI is largest bank and then the HDFC.

71
Limitations

72
 LIMITATIONS
 The study has lack of contact with company personnel acted as hindrance in the

study.

 The study is based on the limited knowledge & information provided by the

websites and software available on internet.

 The basis of selection of sample for the study was vague. Randomly individuals

were picked up to provide their responses.

 There are only five parameters taken for study however there are certain other

parameters on the basis of which accurate inference can be drawn.

 The ratings given are on the basis of data available on internet however the future

efficiency of the low performing company can be better.

73
Annexure

74
Balance Sheet of State Bank of ------------------- in Rs. Cr. ----------------
---
India

Mar '17 Mar '16 Mar '15 Mar '14 Mar '13
12 mths 12 mths 12 mths 12 mths 12 mths
Capital and Liabilities:
Total Share
797.35 776.28 746.57 746.57 684.03
Capital
Equity Share
797.35 776.28 746.57 746.57 684.03
Capital
Reserves 155,903.06 143,498.16 127,691.65 117,535.68 98,199.65
Net Worth 156,700.41 144,274.44 128,438.22 118,282.25 98,883.68
Deposits 2,044,751.39 1,730,722.44 1,576,793.24 1,394,408.51 1,202,739.57
Borrowings 317,693.66 224,190.59 205,150.29 183,130.88 169,182.71
Total Debt 2,362,445.05 1,954,913.03 1,781,943.53 1,577,539.39 1,371,922.28
Other Liabilities
155,235.19 159,875.57 137,698.05 96,412.96 95,455.07
& Provisions
Total Liabilities 2,674,380.65 2,259,063.04 2,048,079.80 1,792,234.60 1,566,261.03
Mar '17 Mar '16 Mar '15 Mar '14 Mar '13
12 mths 12 mths 12 mths 12 mths 12 mths
Assets
Cash & Balances
127,997.62 129,629.33 115,883.84 84,955.66 65,830.41
with RBI
Balance with
Banks, Money at 43,974.03 37,838.33 58,977.46 47,593.97 48,989.75
Call
Advances 1,571,078.38 1,463,700.42 1,300,026.39 1,209,828.72 1,045,616.55
Investments 765,989.63 477,097.28 495,027.40 398,308.19 350,927.27
Gross Block 42,344.99 9,819.16 9,329.16 8,002.16 6,595.71
Revaluation
31,585.65 0.00 0.00 0.00 0.00
Reserves
Net Block 10,759.34 9,819.16 9,329.16 8,002.16 6,595.71
Capital Work In
573.93 570.12 0.00 0.00 409.31
Progress
Other Assets 154,007.72 140,408.41 68,835.55 43,545.90 47,892.03
Total Assets 2,674,380.65 2,259,063.05 2,048,079.80 1,792,234.60 1,566,261.03
Contingent
1,112,081.35 1,064,167.65 225,244.99 203,619.38 993,018.45
Liabilities
Book Value (Rs) 196.53 185.85 172.04 1,584.34 1,445.60

75
Balance Sheet of HDFC Bank ------------------- in Rs. Cr. -------------------

Mar '17 Mar '16 Mar '15 Mar '14 Mar '13
12 mths 12 mths 12 mths 12 mths 12 mths
Capital and Liabilities:
Total Share Capital 512.51 505.64 501.30 479.81 475.88
Equity Share Capital 512.51 505.64 501.30 479.81 475.88
Reserves 88,949.84 72,172.13 61,508.12 42,998.82 35,738.26
Net Worth 89,462.35 72,677.77 62,009.42 43,478.63 36,214.14
Deposits 643,639.66 546,424.19 450,795.64 367,337.48 296,246.98
Borrowings 74,028.87 53,018.47 45,213.56 39,438.99 33,006.60
Total Debt 717,668.53 599,442.66 496,009.20 406,776.47 329,253.58
Other Liabilities &
56,709.32 36,725.13 32,484.46 41,344.40 34,864.17
Provisions
Total Liabilities 863,840.20 708,845.56 590,503.08 491,599.50 400,331.89
Mar '17 Mar '16 Mar '15 Mar '14 Mar '13
12 mths 12 mths 12 mths 12 mths 12 mths
Assets
Cash & Balances with
37,896.88 30,058.31 27,510.45 25,345.63 14,627.40
RBI
Balance with Banks,
11,055.22 8,860.53 8,821.00 14,238.01 12,652.77
Money at Call
Advances 554,568.20 464,593.96 365,495.03 303,000.27 239,720.64
Investments 214,463.34 163,885.77 166,459.95 120,951.07 111,613.60
Gross Block 3,626.74 3,343.16 3,121.73 2,939.92 2,703.08
Net Block 3,626.74 3,343.16 3,121.73 2,939.92 2,703.08
Other Assets 42,229.82 38,103.84 19,094.91 25,124.60 19,014.41
Total Assets 863,840.20 708,845.57 590,503.07 491,599.50 400,331.90
Contingent Liabilities 848,717.62 876,808.11 997,538.88 744,097.98 746,226.39
Book Value (Rs) 349.12 287.47 247.39 181.23 152.20

76
Bibliography

77
 BIBLIOGRAPHY
 Clemens, J.H. and Dyer, L.S., Balance - sheets and the lending Banker,I

London: Europe Publications, 1977. jI lj

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Delhi.

 Dholakia, B.H. (1983). “Performance Evaluation of Public Enterprises: Some

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78