ISSN No.

2349-7165
Sound Financials is a key to Growth in Banking: A Case
Study of HDFC Bank

Punjika Rathi
Assistant Professor, IMS Engineering College Ghaziabad

Meenu Baliyan
Assistant Professor, IMS Engineering College Ghaziabad

ABSTRACT

This case was prepared by the author for the sole purpose of aiding classroom
discussion. Cases are not intended to serve as endorsements, or sources of data,
or illustrations of effective or ineffective management. Certain names and
information could have been disguised to maintain confidentiality.

INTRODUCTION
The Indian banking system consists of 12 public sector banks, 22 private sector
banks, 44 foreign banks, 56 regional rural banks, 1,542 urban cooperative banks
and 94,384 rural cooperative banks. In FY 17-18, total lending amplified at a
CAGR of 10.94 per cent and total deposits amplified at a CAGR of 11.66 per
cent. In April 2019,Vijaya Bank and Dena Bank were merged with Bank of
Baroda. On 30 August 2019, Union Finance Minister Nirmala Sitaraman
announced merger of six public sector banks (PSBs) to accelerate their operation
and size, two banks were amalgamated to strengthen national presence and four
were amalgamated to strengthen regional focuses.
New private sector banks began with full enthusiasm in the early 1990s with less
than a handful turning successful. While some of them chose to merge, from the
others, some are now facing governance issues .Older private banks are
struggling under various types of stress. Urban cooperatives are primarily meant
to be local, but management lapses are hurting their sustained growth. Day after
market regulator .Due to tighter disclosure norms, Lakshmi Vilas Bank and
Indian Bank have reported divergence in their bad loans for the last fiscal ended
March 2019. Domestically, India faced issues related to financial health of the
NBFC sector, high NPA levels in the banking space, slowing consumption
demand and some concerns on the fiscal side.
Public sector banks reported 5,743 cases of fraud in the first half of the 2019-20 ,
involving Rs 95,760 crore,. State Bank of India reported 2,939 fraud cases,
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involving Rs 25,417 crore, between April 1 and September 30 – of these, 550
cases involving Rs 11 crore took place this year. Punjab National Bank reported
225 cases of fraud worth Rs 10,822 crore, while Bank of Baroda had 180 cases
worth Rs 8,273 crore.(source: Business Standard). PMC Bank, a large
commercial bank with 1.6 million depositors .
Long term Survival of Banks depend on its strong financial position since it deals
with money which is very risky. Sound financials acts as a cushion to firms
specially banks .The performance of banks can be indicated by study of
following:
 Credit to deposit ratio
 Capital adequacy ratio
 Non-performing asset ratio
 Provision coverage ratio
 Return on assets ratio
 Asset Liability Management
 Risk Management.
This case has attempted to provide the example of HDFC Bank for sound
financial performance which leads to its victory in present scenario.HDFC bank
has emerged as a market leader. This can be taken as an example to mitigate the
problems of public sector banks.
BODY
The Housing Development Finance Corporation Limited(HDFC) was established
as part of the RBI's liberalization policy of the Indian Banking Industry in 1994,
with its registered office in Mumbai, India. HDFC Bank started its operations as a
Scheduled Commercial Bank in January 1995. HDFC has well positioned itself
as a World-Class Indian Bank with its business philosophy based on four core
values – Operational excellence, Customer Focus, Product Leadership and
People.
As of June 30, 2019, the Bank's distribution network has reached at 5,130
branches across 2,764 cities. HDFC Bank provides an array of financial products
and services including wholesale banking, retail banking, treasury, auto loans,
two wheeler loans, personal loans, loans against property, consumer durable loan,
lifestyle loan, digital products such as Payzapp and Smart BUY. HDFC Bank
merged with Times Bank in February 2000 leading to the first merger of two
private banks. In 2008, Centurion Bank was acquired by HDFC Bank. Equity

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shares of HDFC Bank are listed on both the Bombay Stock Exchange and the
National Stock Exchange of India. Its American Depository Shares are listed on
NYSE and the global depository receipt are listed on the Luxembourg Stock
Exchange where two GDRs represent one equity share of HDFC Bank.
HDFC Bank's is the third largest CSR spender in Indiaas its Parivartan initiative
has spent ₹443.8 crore towards CSR in 2018-19.
As on31 March 2019the authorized share capital of the Bank is Rs. 650 crore.
The paid-up share capital is Rs 519,01,80,534which is comprising of
259,50,90,267 equity shares of the face value of Rs 2/- each. The HDFC Group
holds 20.93 % of the Bank's equity and about 18.23 % of the equity is held by the
ADS / GDR Depositories (inrespect of the bank's American Depository Shares
(ADS) and Global Depository Receipts (GDR) Issues). 33.06% of the equity is
held by Foreign Institutional Investors (FIIs) and the Bank has 5,32,368
shareholders. HDFC bank has emerged as a most promising brand in Indian
banking industry.
It earns over 90% of net revenues from customer segments. It offers a well-
balanced loan mix between wholesale and retail segments. It has a large retail
deposits which is a source of stable funding. There is a healthy proportion of
CASA (current & savings) deposit. HDFC bank is one among the lowest deposit
costs in the industry. HDFC Bank operates in a highly automated environment in
terms of information technology and communication systems. All the bank's
branches have online connectivity, which enables the bank to offer speedy funds
transfer facilities to its customers. Multi-branch access is also provided to users.
It is the most valuable bank of India (LIVEMINT)

Achievements
 Ranked 1st in 2019 BrandZ Top 75 Most Valuable Indian Brands HDFC
Bank for the 6th consecutive year.

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 Among The Most Honored Company List,Institutional Investor All-Asia
(ex-Japan) Executive Team 2019 survey
 India’s Best Bank, Euromoney Awards for Excellence 2019
 Bank of the Year and Best Large Bank, Business Today – Money Today
Financial Awards 2019.
 Best Bank in India 2019, by Global magazine FinanceAsia.
 Ranked 60th in 2019 BrandZ Top 100 Most Valuable Global Brands
 The Bank's brand value has increased from $20.87 billion in 2018 to
$22.70 billion in 2019.
 Best Large Bank&Fastest Growing Large Bank in 2019, by Business
World Magna Awards.
JOURNEY FROM ZERO TO HERO
 1994 - The Bank was Incorporated on 30th August, Certificate of
Commencement of Business was received on 10th October 1994 from
RBI in both traditional commercial banking as well as investment
banking.
 1996 –HDFC entered the banking consortia of over 50 corporates,
including some leading multinational companies, flagship companies of
local business houses and strong public sector companies.
 1997- It became one of the largest mobilisers of retail deposits through its
network of 20 branches. Its credit deposits ratio was 53.8%.
HDFC Bank entered into strategic alliances with 10 overseas banks to
provide customers with a wide range of derivatives including interest rate
and foreign currency swaps. HDFC Bank launched its debit card by April
1998.
 2000- HDFC Bank signed a memorandum of understanding with
Singapore Telecom's e-commerce arm Sesami.Com Pvt Ltd. to offer e-
commerce solutions for the Indian market. HDFC Bank tied up with
financial portals, e-brokerages and the National Stock Exchange to enable
broker payments for e-broking ventures. HDFC Bank launched wireless
application protocol-based mobile-banking in Coimbatore and Trichy in
association with Aircel.
 2001- HDFC Standard Life Insurance entered into a memorandum of
understanding with the Chennai-based Indian Bank and launched the
international Maestro debit card as well as credit card. HDFC Bank

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applied to US regulators to list more than 11 million American Depositary
Shares on the New York Stock Exchange.
 2002 - Orange JV with HDFC Bank.
 2003 -JV with HDFC Bank for its pension distribution. HDFC Bank
launched India's first mobile payment solution. Mumbai
 2004- HDFC Bank entered into an alliance with Clearing Corporation of
India Ltd (CCIL- HDFC) and won Asiamoney award for Best Domestic
Bank
 2005- HDFC Bank inaugurated first ATM in Hotel and tied up with the
International Bank of Qatar (IBQ) to launch banking services in Qatar
 2007- HDFC Bank signed an agreement with Tata Pipes to offer credit
facilities to farmers across the country.
 2008 - HDFC Bank Tied Up With Postal Department, Extends Rural
Reach , won Nasscom IT User Award The Year', opened its First
Overseas Branch In Bahrain. HDFC Bank and Centurion Bank of Punjab
merger at share swap ratio of 1:29 .HDFC Bank launched India’s First
Rural Banking BPO At Tirupathi
 2009 - HDFC Bank got Asiamoney Award for the "Best Domestic Bank"
.The Asian Banker declared HDFC Bank the Best Retail Bank.
 2010- HDFC Bank replaced ICICI as Number 1 private retail bank in
India. HDFC tied up with UAE bank for online remittances.
 2011- The Asian Banker magazine declared that the strongest bank in
Asia Pacific region is HDFC. Face value of Shares split from Rs10 to
Rs2
 2012- The third-largest US lender by assets, Citigroup Inc sold its
complete 9.85 per cent stake in Housing Development Finance
Corporation Ltd (HDFC) for USD 1.9 billion. HDFC Bank launched its
mobile banking application in Hindi on targeting about 560-million
Hindi-speaking population of India.
 2013 -HDFC Bank named Organisation of the Year at Skoch Financial
Inclusion Awards -Times Card launched in association with HDFC Bank
-Jet Airways and HDFC Bank joined hands to launch 'Jet Privilege -
HDFC Bank World Debit Card' -Analysts vote HDFC Bank as Best Bank
in Asia, Mr Aditya Puri, Best CEO -HDFC Bank launched rural Financial
Literacy Initiative in Goa .

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 2014 -HDFC Bank set GUINNESS WORLD RECORD -HDFC Bank
achieves 200th branch milestone in Tamil Nadu .HDFC Bank launched
'Bank Aapki Muththi Mein'
 2015 - -HDFC Bank launched 'Har Zaroorat Poori Ho Chutki Mein, Bank
Aapki Mutthi Mein' -HDFC Bank reached out to 42000 dairy farmers in
Rajasthan under 'Milk-to-Money' programme HDFC Bank wins Best
Private Banking Services for Super affluent clients for 5 years in a row at
Euromoney Awards -HDFC Bank voted India's Best Managed Company -
HDFC Bank launched Medical Benefits Prepaid Card -HDFC Bank
launches PayZapp, Indiaâ€s first 1-click mobile-pay solution –
 2016 -HDFC Bank launched a digital bank for its small and medium
enterprises (SME) customers. HDFC Bank topped in Institutional
Investor magazine ranking.
 2017 -HDFC Bank alloted 1793900 equity shares Bank, launched Smart
Up zone to cater startups, allotted 3909200 equity share and replaced TCS
to become 2nd most valued company .
 2018- Net profit up by 21.0% to 55.68 Bn, Net NPA / net advances at
0.4% Capital Adequacy Ratio (CAR)* - Total 16.9% of which Tier I at
15.6%, Gross NPA / gross advances at 1.40%
PUBLIC SECTOR VS PRIVATE SECTOR BANKS
Financial performance of private sector banks in India is improving in the last
few years due to better asset quality, better risk management techniques,
improved customer services even in times of economic slowdown. This can be
visible by the following tables:
Bank Name Revenues Total Assets
Axis Bank ₹414.093 billion (US$6.0 billion) ₹10,600 billion (US$150 billion)
Bandhan Bank ₹43.20 billion (US$620 million) ₹302.36 billion (US$4.4 billion)
Bank of Baroda ₹422 billion (US$6.1 billion) ₹16,130 billion (US$230 billion)
Bank of India ₹418 billion (US$6.0 billion) ₹9,030 billion (US$130 billion)
Bank of Maharashtra ₹130.53 billion (US$1.9 billion) ₹2,340 billion (US$34 billion)
Canara Bank ₹558.30 billion (US$8.1 billion) ₹15,203 billion (US$220 billion)
Catholic Syrian Bank ₹16.17 billion (US$230 million) ₹162.2324 billion (US$2.3 billion)
Central Bank of India ₹259 billion (US$3.7 billion) ₹4,680 billion (US$68 billion)
City Union Bank ₹29.4421 billion (US$430 million) ₹352.71 billion (US$5.1 billion)
DCB Bank ₹20.76 billion (US$300 million) ₹240.46 billion (US$3.5 billion)
Dhanlaxmi Bank ₹11.16 billion (US$160 million) ₹122.86 billion (US$1.8 billion)
Federal Bank ₹97.5920 billion (US$1.4 billion) ₹1,149.8 billion (US$17 billion)
HDFC Bank ₹816.02 billion (US$12 billion) ₹8,638 billion (US$120 billion)

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ICICI Bank ₹736.60 billion (US$11 billion) ₹12,720 billion (US$180 billion)
IDFC First Bank ₹85.327 billion (US$1.2 billion) ₹1,121.6 billion (US$16 billion)
Indian Bank ₹405.74 billion (US$5.9 billion) ₹8,080 billion (US$120 billion)
Indian Overseas Bank ₹235.2 billion (US$3.4 billion) ₹3,750 billion (US$54 billion)
IndusInd Bank ₹185.77 billion (US$2.7 billion) ₹1,786 billion (US$26 billion)
Jammu & Kashmir
₹71.66 billion (US$1.0 billion) ₹820.18 billion (US$12 billion)
Bank
Karnataka Bank ₹51.85 billion (US$750 million) ₹641.26 billion (US$9.3 billion)
Karur Vysya Bank ₹54.43 billion (US$790 million) ₹576.63 billion (US$8.3 billion)
Kotak Mahindra
₹211.76 billion (US$3.1 billion) ₹2,146 billion (US$31 billion)
Bank
Lakshmi Vilas Bank ₹25.68 billion (US$370 million) ₹287.32 billion (US$4.2 billion)
Nainital Bank ₹6.12 billion (US$89 million) ₹7.7 billion (US$110 million)
Punjab and Sind
₹87.44 billion (US$1.3 billion) ₹1,710 billion (US$25 billion)
Bank
Punjab National Bank ₹774.22 billion (US$11 billion) ₹17,940 billion (US$260 billion)
RBL Bank ₹44.68 billion (US$650 million) ₹486.74 billion (US$7.0 billion)
South Indian Bank ₹65.62 billion (US$950 million) ₹743.12 billion (US$11 billion)
State Bank of India ₹2,110.00 billion (US$31 billion) ₹52,050 billion (US$750 billion)
Tamilnad Mercantile
₹38.11 billion (US$550 million) ₹322.4 billion (US$4.7 billion)
Bank Limited
UCO Bank ₹185.61 billion (US$2.7 billion) ₹3,170 billion (US$46 billion)
Union Bank of India ₹696.39 billion (US$10 billion) ₹14,594 billion (US$210 billion)
Yes Bank ₹205.81 billion (US$3.0 billion) ₹2,150 billion (US$31 billion)

Fig. Comparison of cost of deposits, cost of funds and return on investments

Cost of deposits and spread of private sector banks is higher than that of public
sector banks.

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Fig (Credit risk adjusted ratio)

Private sector banks have lesser volume of risky assets and better provision
for risky assets .
Fig Comparison of return on assets and return on equity

Fig Comparison of Assets

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Fig. Comparison of NPA

The top players from private sector banks are compared for 2018-19 to know the
comparative financial position of HDFC bank. HDFC bank has strong financial
position as compared to its competetors as shown from the table given below:

COMPARATIVE FINANCIAL ANALYSIS OF PRIVATE SECTOR BANKS

DURING 2018-19
KOTAK
FINANCIAL ICICI
HDFC AXIS BANK MAHINDRA
RATIOS BANK
BANK BANK
FACE VALUE 2 2 2 5
Dividend Per
15 1 1 0.8
Share
Operating Profit
85.43 15.05 25.6 21.54
Per Share (Rs)
Net Operating
Profit Per Share 363.43 98.35 213.82 125.44
(Rs)

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Interest Spread 7.2 6.36 6.37 6.73
Adjusted Cash
19.05 5.31 7.9 18.32
Margin(%)
Net Profit Margin 21.29 5.3 8.5 20.32
Return on Net
14.12 3.19 7.01 11.47
Worth(%)
Adjusted Return
14.12 3.19 7.01 11.47
on Net Worth(%)
Interest Income /
8.57 6.9 7.37 8.3
Total Funds
Net Interest
Income / Total 4.18 2.94 2.91 3.9
Funds
Profit Before
Provisions / Total 3.44 2.55 2.55 2.89
Funds
Loans Turnover 0.13 0.12 0.12 0.13
Total Income /
Capital 10.1 8.48 9.13 9.89
Employed(%)
Asset Turnover
0.09 0.07 0.08 0.09
Ratio
Capital Adequacy
17.11 16.89 15.84 17.45
Ratio
Advances / Loans
83.95 75.11 75.95 86.44
Funds(%)
Credit Deposit
86.32 90.54 93.25 89.7
Ratio
Investment
31.12 33.84 32.82 32.44
Deposit Ratio
Cash Deposit
8.85 5.85 7.04 4.73
Ratio
Total Debt to
6.97 7.77 10.52 6.09
Owners Fund
Financial Charges
1.81 1.67 1.59 1.69
Coverage Ratio
Financial Charges
Coverage Ratio 1.44 1.11 1.16 1.41
Post Tax
Earning Retention
80.78 71.31 100 96.71
Ratio
Cash Earning
81.77 76.69 100 96.94
Retention Ratio

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Fig Trends of Cost of Deposits, Net Interest margin, Net Profit, CAR,
Return of HDFC Bank

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RISK MANAGEMENT PROCESS AT HDFC BANK

The Bank has a process for identifying its overall capital adequacy in relation to
the Bank's risk profile and then for maintaining its capital levels. The process
assures that the Bank has adequate capital to support all risks integral to its
business and a proper capital buffer based on its business risk. The Bank
identifies, assesses and manages broadly all risks through sound governanceand
control practices, robust risk management framework. HDFC Bank has a
comprehensive Internal Capital Adequacy Assessment Process (ICAAP) to cover
the capital management policy of the Banks for assessment of the adequacy of
capital to support current and future activities for risks and prepare a report on the
capital projections for a period of 3 years.
The Bank considers all material risks in the course of its business such as Credit
Risk, Credit Concentration Risk,Market Risk Business RiskOperational Risk,
Strategic Risk, Interest Rate Risk in the Banking Book, Compliance Risk,
Liquidity Risk, Credit Risk.
The variations in the levels of credit risk, Market risk, Liquidity Risk and Interest
Rate Risk in the Banking Book (IRRBB) and the changes in the on and off
balance sheet positions of the Bank are assessed under assumed “stress” scenarios
and sensitivity factors. Typically,these relate, inter alia, to the impact on the
Bank’s profitability and capital adequacy. Stress tests are conducted on a
quarterly basis at consolidated level including subsidiaries (HDB Financial
Services Limited and HDFC Securities Limited) in order to assess the impact on
capital adequacy of the Group.
CREDIT RISK MANAGEMENT
The Bank has an elaborate credit risk management process. The Board of
Directors of the Bank endorses the credit risk strategy and approves the credit
risk policies of the Bank by considering the Bank’s risk appetite, derived from

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perceived risks in the business, balanced by the targeted profitability level for the
risks assumed. The Board analyses the credit risk management functions of the
Bank. The Risk Policy & Monitoring Committee (RPMC), which is a committee
of the Board, guides the development of policies, procedures and systems for
managing credit risk, towards implementing the credit risk strategy of the Bank.
There are two different credit management models within which the credit
process operates - the Retail Credit Model and the Wholesale Credit Model. It
uses the Standardised Approach under the RBI‟s Basel III capital regulations for
its credit portfolio.
For computation of capital requirement for Credit Risk, the Bank recognises only
those collaterals that are considered as eligible for risk mitigation in the RBI
Basel III guidelines on standardised approach ie. Cash deposit with the Bank,
Gold, including bullion and jewelry, Securities issued by Central and State
Government, Kisan Vikas Patra and National Savings , Life insurance policies
with a declared surrender value of an insurance company which is regulated by
the insurance sector regulator, Debt securities rated at least BBB (-
)/PR3/P3/F3/A3, Units of Mutual Funds, where the investment is in instruments
mentioned above. The Bank undertakes both purchase and sale transactions
through both securitisation and loan assignment routes and has Board approved
policies for both.
ASSET LIABILITY MANAGEMENT
The ALM risk management process of the Bank operates in the following
hierarchical manner:
1. Board of Directors
The Board has the overall responsibility for management of liquidity and interest
rate risks. The Board decides the strategy, policies and procedures of the Bank to
manage liquidity and interest rate risk including setting of risk tolerance/limits.
2. Risk Policy & Monitoring Committee (‘RPMC’) of the Board
RPMC is a Board level committee, which supports the Board by supervising the
implementation of the risk strategy. It guides the development of policies,
procedures and systems for managing risk. It ensures that these are adequate and
appropriate to changing business conditions, the structure and needs of the Bank
and the risk
appetite of the Bank. It ensures that frameworks are established for assessing and
managing liquidity and interest rate risks faced by the Bank.

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3. Asset Liability Committee (‘ALCO’)
ALCO is a decision-making unit responsible for ensuring adherence to the risk
tolerance/limits set by the Board as well as implementing the liquidity and
interest rate risk management strategy of the Bank in line with the Bank‟s risk
management objectives and risk tolerance. The ALCO is also responsible for
balance sheet planning
from risk-return perspective including strategic management of liquidity and
interest rate risks. The role of the ALCO includes the following:
i. Product pricing for deposits and advances
ii. Deciding the desired maturity profile and mix of incremental assets and
liabilities
iii. Articulating interest rate view of the Bank and deciding on the future business
strategy
iv. Reviewing funding strategy
v. Ensuring the adherence to the liquidity and interest rate risk limits set by the
Board of Directors
vi. Determining the structure, responsibilities and controls for managing liquidity
and interest rate risk
vii. Ensuring operational independence of risk management function
viii. Reviewing stress test results
ix. Deciding on the transfer pricing policy of the Bank
4. ALM Support Groups
ALM support group is responsible for analysing, monitoring, and reporting the
relevant risk profiles to senior management and relevant committees.
CAPITAL ADEQUACY
The Bank’s capital to risk-weighted assets ratio (‘Capital Adequacy Ratio’) as at
March 31, 2019 is calculated in accordance with the RBI guidelines on Basel III
capital regulations (‘Basel III’). The phasing-in of the minimum capital ratio
requirement under Basel III is as follows:
(% of RWAs)
2018 2019 2020
Common equity tier 1 (CET1) 7.375 7.525 8.200
Tier I capital 8.875 9.025 9.700
Total capital 10.875 11.025 11.700

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The above minimum CET1, tier I and total capital ratio requirements include
capital conservation buffer (CCB) and additional capital applicable to us as
Domestic-Systemically Important Bank (D-SIB).The Bank’s capital adequacy
ratio computed under Basel III is given below:
(Rs. Crore)
Particulars March 31, 2019 March 31, 2018
Tier I capital 147,022.76 106,004.9
Of which CET1 capital 139,172.76 98,004.90
Tier II capital 12,434.88 12,535.47
Total capital 159,457.64 118,540.37
Total risk weighted assets 931,929.87 800,125.98
Capital adequacy ratios under Basel III
Tier I 15.78% 13.25%
Of which CET1 14.93% 12.25%
Tier II 1.33% 1.57%
Total 17.11% 14.82%
POVISIONS TAKEN :
 Provision for standard assets is made @ 0.25% for direct advances to
agriculture and Small and Micro Enterprises (SMEs)sectors, @ 1% for
advances to commercial real estate sector, @ 0.75% for advances to
commercial real estate – residential housing sector, @ 5% on restructured
standard advances, @ 2% until after one year from the date on which the
rates are reset at higher rates for housing loans offered at a comparatively
lower rate of interest in the first few years and @ 2% on all exposures to
the wholly owned step down subsidiaries of the overseas subsidiaries of
Indian companies, sanctioned / renewed after December 31, 2015.
 Provision is maintained at rates higher than the regulatory minimum, on
standard advances based on evaluation of the risk and stress in various
sectors as per the policy approved by the Board of the Bank.
 In accordance with regulatory guidelines and based on the information
made available by its customers to the HDFC Bank, for exposures to
customers who have not hedged their foreign currency exposures,
provision for standard assets is made at levels ranging up to 0.80%
depending on the likely loss the entities could incur on account of
exchange rate movements.
 Provision for standard assets of overseas branches is made at higher of
rates prescribed by the overseas regulator or RBI.

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 Pursuant to a recent RBI guideline issued in January 2019, additional 5%
provision is maintained in respect of Micro, Small and Medium
Enterprises (MSME) sector standards accounts which have got
restructured.
 For all other loans and advances including credit exposures computed as
per the current marked to market values of interest rate and foreign
exchange derivative contracts, provision for standard assets is made @
0.40%.
 In accordance with RBI guidelines, an additional provision is made @ 3%
on the incremental exposure to the “Specified Borrowers” (except NBFCs
/ HFCs) beyond normally permitted lending limit (‘NPLL’) as defined by
RBI.
EXCHANGE RISK MANAGEMENT
HDFC bank maintains a policy and process for managing currency induced credit
risk. The credit appraisal memorandum is prepared inbeginning and review of a
credit facility is required to discuss the exchange risk that the customer is
exposed to from all sources, including trade related, foreign currency borrowings
and external commercial borrowings. It could cover the natural hedge available to
the customer as well as other hedging methods adopted by the customer to
mitigate exchange risk.
QUESTIONS:
1. Analyse the factors affecting Indian Banking Industry and compare the
position of Public vs private banks.
2. What is Asset Liabilty Management? Discuss the Policies related to ALM
for banking industry.
3. Explain the Basel Norms for CAR. How Performance of banks is
correlated to its CAR?
4. Suggest the measures to improve the competitive position of Indian public
sector banks.
5. Do you HDFC would be able to sustain its position and will be able to
surpass SBI in long term? Explain measures as well.
TEACHING NOTES
Overview
This case is a very good example of how the understanding of the financial
soundness of banks can lead to survival in times of recession. The case also
articulates how proper risk management lead to growth of HDFC bank. The case
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reiterates the principles and provides an opportunity to analyse various concepts
e.g. Basel Framework, ratio analysis, Asset management, risk management to
evaluate HDFC and its current situation in the banking industry.
Application
This case is appropriate for a class of students studying in a graduate
management program
(i.e. PGDBM or MBA) as part of their Management of Financial institutions and
Services/Banking course. The pre-requisite on the part of students, before they
attempt this case are:
• A good understanding of the Financial services will greatly help the reader to
understand role of banks.
They should have nearly completed their syllabus on banking course
• They should have a good understanding of the Financial analysis of banks.
• They should have studied the topics like asset laibilty management, NPA,
Capital adequacy ratios
OBJECTIVES OF THE CASE
Type of Case: Complex
The objective of this case is to enable students to appreciate the concept of risk
management to understand its correlation with survival of financial institutions.
The students are advised tobe familiar with the concepts of types of risk, structure
of banks, assets and liabilities of banks, Basel accord, financial ratios of banks,
risk adjusted assets and liabilities etc. They should know the current scenario of
Indian banking sector to forecast the future of banks.
Post this case discussion; students should be able to answer the following key
questions:
1. How well HDFC is prepared to move from “ZERO” business to “HERO”?
2. Moving from Investment company to banking would need significant changes
in financial policies. How has HDFC been able to align into the shoes of a
banking organization?
3. Has globalization and corporate governance issues deteriorated the asset
quality of HDFC?
4. What is your recommendation for public sector banks to strengthen their
position as a strong banking organization?
Teaching Suggestions
The class should be given a good backgrounder of the Banking industry
landscape and the how is has reshaped over the last decade or so. The case needs
222 UNNAYAN | Volume-XIV | Issue – II | July 2022
 ISSN No.2349-7165
to be studied in the class as a single group. The student after going through the
case can reflect upon their understanding of Risk Management process and tools
of financial institutions.
REFERENCES
 https://economictimes.indiatimes.com/industry/banking/finance/banking/three
-banks-report-npa-divergence-a-day-after-sebi-
directive/articleshow/71862261.cms
 www. hdfc. com
 www. rbi.com
 www.money control.com
 Srivastava R. “Management of Financial Institutions and services, Himalaya
Publications”, Page 110-195.

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