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A project report on
HDFC
The Indian Banking Sector
CONTENTS
4 HDFC BANK
5 Technology used
6 Company Profile
8 Business Strategies
SWOT Analyses
HDFC
The Indian Banking Sector
The banking system in India is significantly different from that of other Asian
nations because of the country’s unique geographic, social, and economic
characteristics. India has a large population and land size, a diverse culture, and
extreme disparities in income, which are marked among its regions. There are high
levels of illiteracy among a large percentage of its population but, at the same time,
the country has a large reservoir of managerial and technologically advanced
talents. Between about 30 and 35 percent of the population resides in metro and
urban cities and the rest is spread in several semi-urban and rural centers.
The banking system’s international isolation was also due to strict branch licensing
controls on foreign banks already operating in the country as well as entry
restrictions facing new foreign banks. A criterion of reciprocity is required for any
Indian bank to open an office abroad. These features have left the Indian banking
sector with weaknesses and strengths. A big challenge facing Indian banks is how,
under the current ownership structure, to attain operational efficiency suitable for
modern financial intermediation.
HDFC
The Indian Banking Sector
Financial Structure
1. Commercial banks
a) Public sector
b) Private sector
c) Foreign banks
d) Cooperative institutions
i. Urban cooperative banks
ii. State cooperative banks
iii. Central cooperative banks
2. Financial institutions
a. All-India financial institutions (AIFIs)
b. State financial corporation’s (SFCs)
c. State industrial development corporations (SIDCs)
The Indian system of governance (in the public and private sectors) has long
fostered a climate of resistance to bankruptcy and also a tendency to provide
bailouts that distort the risk. As such, the reform process will be a long haul. The
sequencing may not be perfect and will necessitate adjustments.
Restructuring will also be required separately for institutions remaining in
difficulty. Real sector reforms, especially in terms of international auditing
standards, accounting, timely and accurate information to markets, and good
governance practices, must be aggressively pursued to support improvements in
the soundness of the financial system.
HDFC
The Indian Banking Sector
The Narasimham Committee (II) suggested that the “Basic Core Principles of
Effective Bank Supervision” be regarded as the minimum to be attained. Banks
must be obligated to take into account market risk weights to foster a sound and
stable system. For RBI to effectively carry out its monetary policy, delineation of
supervision/regulation from monetary policy is required. The executive associated
with monetary authority should not be in the supervision board, to avoid
weakening of monetary policy, or banking regulation and supervision. The
separation of the Board of Financial Supervision (BFS) from RBI has to be
initiated to supervise the activities of banks, FIs, and NBFCs. A new agency, the
Board for Financial Regulation and Supervision (BFRS), would have to be formed.
To bring about integrated supervision of the financial system, the Narasimham
Committee (II) recommended putting urban cooperative banks (UCBs) within the
ambit of BFS and proposed prudential and regulatory standards besides new capital
norms for UCBs. The Narasimham Committee (II) recommended amendments to
the RBI Act and Banking Regulation Act with regard to the formation of BFRS.
SEPARATING SUPERVISION
The likely conflict between monetary policy and supervisory concerns can be taken
as the basis and the rationale for combining the two functions. Separate authority
structures for the two functions have more likelihood of coming into conflict with
each other. The regulatory and supervisory systems have to take into account
peculiarities of the banking and financial structures. For instance, India’s RRB
structure is vast, its cooperative movement quite strong, but banks in this sector are
generally quite weak.
HDFC
The Indian Banking Sector
Creating equal opportunities for banks and FIs has been slow. As a result, financial
packaging and closure of projects (term loans and working capital) suffer. Progress
on this structural reform has to be constantly monitored. IDBI, ICICI, and IFCI
should move toward acquiring banking licenses to provide one-stop services. Since
the 1960s, there has existed an unnatural divide between term-lending functions
and working-capital finance. The solution lies in putting in place stringent credit
monitoring in which banks and FIs should share their expertise and information.
Capital Adequacy
Measures should not be implemented in isolation. If the capital adequacy levels are
being brought to international levels, then the concept of a tier-3 capital should
also be introduced, i.e., as a subordinated debt instrument (of shorter maturity of
two years) much like the bonds issued towards tier-2 capital (of five years
maturity). Other measures to strengthen banks should seek to eliminate the
management dilemma. This can be done if banks themselves internalize a culture
of self evaluation under the CAMELS model by undertaking periodical
management audits. The core message of capital adequacy and prudential norms is
self regulation.
Measures to be taken in the second phase of banking reforms should be based upon
a study of the impact of reforms initiated in the first phase. But as the reforms were
introduced in stages, it is too early to assess their impact. What has been achieved
is transparency with respect to banks’ financial statements, bringing Indian
accounting standards closer to internationally accepted norms. One discernible
impact has been that all but two PSBs (Indian Bank and United Commercial
Bank), had met by 31 May 1997 the capital adequacy norm of 8 percent and some
are already well above that threshold. For instance, that for SBI is 14.58 percent;
UBI, 10.86 percent; BOI, 9.11 percent; DenaBank, 11.88 percent; and IDBI, 13.7
percent. The weaknesses that have emerged in the banking system are in fact
weaknesses of the pre-reform period. The issues to be tackled in the second phase
of reforms are large and cannot be delayed because the adjustment process would
become increasingly difficult. As far back as 1961, RBI advised banks to aim for a
CAR of 6 percent (of paid-up capital and reserves to deposits) because they had
been increasing their assets without a corresponding augmentation in the capital
base. This ratio declined from 9 percent in 1950 to 4 percent in 1960 and 1.5
percent in 1978.
HDFC
The Indian Banking Sector
The Narasimham Committee recommended that after the activities of DFIs and
banks have converged for a period, the DFIs should be converted into banks,
leaving only two types of intermediaries—banks and nonbanks. While mergers
between strong financial institutions would make sense, the weak banks in the
system would have to be given revival packages. The licensing of new private
sector banks needs to be reviewed, while foreign banks will have to be encouraged
to extend their operations.
The importance of the tasks ahead is underlined by the fact that Government
recapitalization of nationalized banks has cost Rs200 billion. SBI has been an
exception particularly because it has addressed (since 1974) the task of reflecting
its financial strength through the building of reserves. This is due to the
requirement to raise lines of credit in the international market for itself and for
Indian corporate. SBI has done this regularly for some years since 1972. It was late
in establishing offices overseas but quickly caught up with international standards
of management. One factor that has helped SBI has been the private shareholdings
held in it even after 1955 when RBI acquired a majority share. As a result, SBI has
been required to hold annual general meetings of shareholders and has benefited
from the system of checks and balances, disclosure disciplines, and dividend
expectations of shareholders.
HDFC
The Indian Banking Sector
Human resources are not merely an asset but the real capital of a bank. Banking in
the future will require knowledgeable workers. A bank should have a group of
chief officers in a variety of fields so that the collective wisdom of their
organization is at the fingertips of every employee. An integrated body of
knowledge and professionalism in banking has to be in place to ensure continued
financial viability. Staff morale plays a crucial role in developing good
organizational culture. In that context, training is going to be an important factor.
There are several institutes and colleges that provide skills- and management-
oriented training programs to staff every year. Some are dedicated to individual
banks, while a few institutes cater to the needs of all Indian banks and FIs.
However, there is only one institute that conducts professional examinations— the
Indian Institute of Bankers, which has completed 70 years of service to the banking
industry in the country. It develops professionally qualified and competent bankers
through examinations and continuing professional development programs.
Factoring Services
Factoring services have not taken off even though they improve velocity of
receivables, thus affording better credit control. Only three important factoring
systems have been established, namely, SBI, Canara Bank, and SIDBI. Experience
of existing factoring companies in India is that average credit period of receivables
is cut by more than 25 percent resulting in cost reduction of working capital. The
rigorous follow-up by factoring companies also decreases debt delinquency.
External Sector
If export performance does not improve, the consequences for the banking and
financial sectors might be serious. External assistance to the export sector should
be extended by multilateral agencies through the Indian banks and FIs. During
1989/90, the World Bank extended loans to Indian banks to finance export projects
and to allow repayments to be retained as equity for banks. This should be
undertaken again in the current and future financing activities of multilateral loan
institutions.
Money Market
The Narasimham Committee recommended that banks and primary dealers alone
should be allowed in the interbank call and notice money market. NBFCs would
get access to other forms of instruments in the money market such as bill
rediscounting, commercial papers, and T-bills. It also suggested opening the T-bill
market to FIIs to broaden its base. The imperfections of money market lie in the
traditional nomenclature used; for instance, the “call money market,” which,
instead of allowing clearance only of temporary surpluses and deficits, is actually
treated as a source of regular funding by banks (particularly foreign banks). The
need is to remove the word “call” from various reports and publications of RBI and
define it clearly as a composite money market for call funds and term funds. There
is little activity in the term funds market even though the liability structure of
banks and DFIs has undergone a considerable transformation.
HDFC
The Indian Banking Sector
Here we more concerned about private sector banks and competition among them.
Today, there are 27 private sector banks in the banking sector: 19 old private sector
banks and 8 new private sector banks. These new banks have brought in state-of-
the-art technology and aggressively marketed their products. The Public sector
banks are facing a stiff competition from the new private sector banks. The banks
which have been setup in the 1990s under the guidelines of the Narasimham
Committee are referred to as NEW PRIVATE SECTOR BANKS.
HDFC
The Indian Banking Sector
Greater efficiency
The country’s middle class accounts for over 320 million people. In correlation
with the growth of the economy, rising income levels, increased standard of living,
and affordability of banking products are promising factors for continued
expansion.
HDFC
The Indian Banking Sector
“Indian banking industry assets are expected to reach US$1 trillion by 2010 and
are poised to receive a greater infusion of foreign capital,” says Prathima Rajan,
analyst in Celent's banking group and author of the report. “The banking industry
should focus on having a small number of large players that can compete globally
rather than having a large number of fragmented players."
By 2010 few more names is going to be added in the list of foreign banks in India.
This is as an aftermath of the sudden interest shown by Reserve Bank of India
paving roadmap for foreign banks in India greater freedom in India. Among them
is the world's best private bank by Euro Money magazine, Switzerland's UBS.
The following are the list of foreign banks going to set up business in India :-
Switzerland's UBS
US-based GE Capital
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, a strong market reputation, large shareholder base and unique consumer
franchise, HDFC was ideally positioned to promote a bank in the Indian
environment.
COMPANY PROFILE
As of March 31, 2008, the Bank’s distribution network was at 761 Branches and
1977 ATMs in 327 cities as against 684 branches and 1,605 ATMs in 320 cities as
of March 31, 2007. March 2006 March 2007 March 2008 Citied 228 316 327
Branches 535 684 761 ATMs 1323 1605 1977.
Against the regulatory approvals for new branches in hand, the Bank expects to
further expand the branch network by around 150 branches by June 30, 2008.
During the year, the Bank stepped up retail customer acquisition with deposit
accounts increasing from 6.2 million to 8.7 million and total cards issued (debit
and credit cards) increasing from 7 million to 9.2 million.
Whilst credit growth in the banking system slowed down to about 22% for the year
ended 2007-08, the Bank’s net advances grew by 35.1% with retail advances
growing by 38.6% and wholesale advances growing by 30%, implying a higher
market share in both segments. The transactional banking business also registered
healthy growth With cash management volumes increased by around 80% and
trade services volumes by around 40% over the previous year. Portfolio quality as
of March 31, 2008 remained healthy with gross nonperforming assets at 1.3% and
net non-performing assets at 0.4% of total customer assets. The Bank’s
provisioning policies for specific loan loss provisions remained higher than
regulatory requirements.
HDFC
The Indian Banking Sector
In the era of globalization each and every sector faced the stiff competition from
their rivals. And world also converted into the flat from the globe. After the policy
of liberalization and RBI initiatives to take the step for the private sector banks,
more and more changes are taking the part into it. And there are create competition
between the private sector banks and public sector bank.
Private sector banks are today used the latest technology for the different
transaction of day to day banking life. As we know that Information Technology
plays the vital role in the each and every industry and gives the optimum return
from the limited resources.
Banks are service industries and today IT gives the innovative Technology
application to Banking industries. HDFC BANK is the leader in the industries and
today IT and HDFC BANK together combined they reached the sky. New
technology changed the mind of the customers and changed the queue concept
from the history banking transaction. Today there are different channels are
available for the banking transactions.
We can see that the how technology gives the best results in the below diagram.
There are drastically changes seen in the use of Internet banking, in a year 2001
(2%) and in the year 2008 (25%). This type of technology gives the freedom to
retail customers.
HDFC
The Indian Banking Sector
HDFC BANK is the very consistent player in the new private sector banks. New
private sector banks to withstand the competition from public sector banks came
up with innovative products and superior service.
2001
2008
HDFC
The Indian Banking Sector
BUSINESS STRETEGY
HDFC BANK mission is to be "a World Class Indian Bank", benchmarking
themselves against international standards and best practices in terms of product
offerings, technology, service levels, risk management and audit & compliance.
The objective is to build sound customer franchises across distinct businesses so as
to be a preferred provider of banking services for target retail and wholesale
customer segments, and to achieve a healthy growth in profitability, consistent
with the Bank's risk appetite. Bank is committed to do this while ensuring the
highest levels of ethical standards, professional integrity, corporate governance and
regulatory compliance. Continue to develop new product and technology is the
main business strategy of the bank. Maintain good relation with the customers is
the main and prime objective of the bank.
Leverage our technology platform and open saleable systems to deliver more
products to more customers and to control operating costs.
Maintain current high standards for asset quality through disciplined credit
risk management.
Develop innovative products and services that attract the targeted customers
and address inefficiencies in the Indian financial sector.
Continue to develop products and services that reduce bank’s cost of funds.
HUMAN RESOURCES
HDFC
The Indian Banking Sector
The Bank’s staffing needs continued to increase during the year particularly in the
retail banking businesses in line with the business growth. Total number of
employees increased from 14878 as of March31, 2006 to 21477 as of March 31,
2007. The Bank continues to focus on training its employees on a continuing basis,
both on the job and through training programs conducted by internal and external
faculty.
The Bank has consistently believed that broader employee ownership of its shares
has a positive impact on its performance and employee motivation. The Bank’s
employee stock option scheme so far covers around 9000 employees.
It is more important for every organization to know about from where and where to
spent money. And balanced between these two things rupee earned and rupee spent
are required for smooth running of business and financial soundness. This type of
watch can control and eliminate the unnecessary spending of business. In this
diagram it includes both things from where Bank earned Rupee and where to
spend.
HDFC BANK earned from the ‘Interest from Advances’ 51.14%, ‘Interest from
Investment’ 27.12 %, bank earned commission exchange and brokerage of 15.25
%. These are the major earning sources of the bank. Bank also earned from the
Forex and Derivatives and some other Interest Income.
Bank spent 39.75 % on Interest Expense, 30.27 % on Operating Expense and 14.58
% on Provision. Bank also spent Dividend and Tax on dividend, Loss on
Investment, Tax. As we discuss above that balancing is must between these two for
every organization especially in the era of globalization where there are stiff
competition among various market players.
RECENT DEVELOPMENT
HDFC
The Indian Banking Sector
On March 27, 2008, the shareholders of the Bank accorded their consent to a
scheme of amalgamation of Centurion Bank of Punjab Limited with HDFC Bank
Limited. The shareholders of the Bank approved the issuance of one equity share
of Rs.10/- each of HDFC Bank Limited for every 29 equity shares of Re. 1/- each
held in Centurion Bank of Punjab Limited. This is subject to receipt of Approvals
from the Reserve Bank of India, stock exchanges and other requisite statutory and
regulatory authorities. The shareholders also accorded their consent to issue equity
shares and/or warrants convertible into equity shares at the rate of Rs.1, 530.13
each to
HDFC Limited and/or other promoter group companies on preferential basis,
subject to final regulatory approvals in this regard. The Shareholders of the Bank
have also approved an increase in the authorized capital from Rs.450 crores to
Rs.550 crores.
ACHIEVEMENTS
HDFC
The Indian Banking Sector
Detailed Analysis
I. Strength:
It is well know that ICICI Bank has the largest Authorized Capital Base in the
Banking System in India i.e. having a total capacity to raise Rs. 19,000,000,000
(Non – Premium Value).
Opportunity:
Seeing the present financial & economic development of Indian Economy and also
the tremendous growth of the Indian Companies including the acquisition spree
followed by them, it clearly states the expanding market for finance requirements
and also the growth in surplus disposal income of Indian citizens has given a huge
rise in savings deposits – from the above point it is clear that there is a huge market
expansion possible in banking sector in India.
Strategy:
From the analysis of Strength & Opportunity the simple and straight possible
strategy for ICICI Bank could be - to penetrate into the rural sector of India for
expanding its market share as well as leading all other Pvt. Banks from a great gap.
Strength:
ICICI Bank is not only known for large capital but also for having a low operations
cost though having huge number of branches and services provided.
HDFC
The Indian Banking Sector
Threat:
After showing a significant growth overall, India is able to attract many
international financial & banking institutes, which are known for their state of art
working and keeping low operation costs.
Strategy:
To ensure that ICICI Bank keeps going on with low operation cost & have
continuous business it should simply promote itself well & provide quality service
so as to ensure customer loyalty, therefore guaranteeing continuous business.
Weakness:
Opportunity:
In the present world, India is preferred one of the best places for out – sourcing of
business process works and many more.
Strategy:
Weakness:
Though having an international presence, ICICI Bank has not been able to keep up
the international standards in providing customer service as well as banking works.
Threat:
In recent times, India has witnessed entry of many international banks like CITI
Bank, YES Bank etc which posses an external entrant threat to ICICI Bank – as
this Banks are known for their art of working and maintain high standards of
customer service.
Strategy:
After having new entrants threat, ICICI Bank should come up with more additional
benefits to its customer or may be even reduce some fees for any additional works
of customers.