INTRODUCTION:

Banks are just one part of the world of financial institutions, standing
alongside investment banks, insurance companies, finance companies,
investment managers and other companies that profit from the creation and
flow of money. As financial intermediaries, banks stand between depositors
whos up-ply capital and borrowers who demand capital. A bank is a financial
institution that provides banking and other financial services to their
customers. A bank is generally understood as an institution which provides
fundamental banking services such as accepting deposits and providing
loans. There are also non-banking institutions that provide certain banking
services without meeting the legal definition of a bank. Banks are a subset of
the financial services industry.
The banking system in India should not only be hassle free but it should be
able to meet the new challenges posed by the technology and any other
external and internal factors. For the past three decades, Indias banking
system has several outstanding achievements to its credit. The Banks are
the main participants of the financial system in India. The Banking sector
offers several facilities and opportunities to their customers. All the banks
safeguards the money & valuables and provide loans, credit, and payment
services, such as checking accounts, money orders, and cashiers cheques.
The banks also offer investment and insurance products. As a variety of
models for cooperation and integration among finance industries have
emerged, some of the traditional distinctions between banks, insurance
companies, and securities firms have diminished. In spite of these changes,
banks continue to maintain and perform their primary roleaccepting
deposits and lending funds from these deposits.

NEED OF THE BANKS:

Before the establishment of banks, the financial activities were handled by
money lenders
and individuals. At that time the interest rates were very high. Again there
was no security
of public savings and no uniformity regarding loans. So as to overcome such
problems the organized banking sector was established, which was fully
regulated by the government. The organized banking sector works within the
financial system to provide loans, accept deposits and provide other services
to their customers. The following functions of the bank explain the need of
the bank and its importance:

To provide the security to the savings of customers.

To control the supply of money and credit
To encourage public confidence in the working of the financial system,
increase savings
speedily and efficiently.
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To avoid focus of financial powers in the hands of a few individuals and

institutions.
To set equal norms and conditions (i.e. rate of interest, period of
lending etc) to all
types of customers

HISTORY OF INDIAN BANKING SYSTEM:

The first bank in India, called The General Bank of India was established in
the year 1786. The East India Company established The Bank of
Bengal/Calcutta (1809), Bank of Bombay (1840) and Bank of Madras (1843).
The next bank was Bank of Hindustan which was established in 1870. These
three individual units (Bank of Calcutta, Bank of Bombay, and Bank of
Madras) were called as Presidency Banks. Allahabad Bank which was
established in 1865 was for the first time completely run by Indians. Punjab
National Bank Ltd. was set up in 1894 with head quarters at Lahore. Between
1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara
Bank, Indian Bank, and Bank of Mysore were set up. In 1921, all presidency
banks were amalgamated to form the Imperial Bank of India which was run
by European Shareholders. After that the Reserve Bank of India was
established in April 1935.At the time
of first phase the growth of banking sector was very slow. Between 1913 and
1948 there were approximately 1100 small banks in India. To streamline the
functioning and activities of commercial banks, the Government of India
came up with the Banking Companies Act, 1949 which was later changed to
Banking Regulation Act 1949 as per amending Act of 1965 (Act No.23 of
1965). Reserve Bank of India was vested with extensive powers for the
supervision of banking in India as a Central Banking Authority.
After independence, Government has taken most important steps in regard
of Indian Banking Sector reforms. In 1955, the Imperial Bank of India was
nationalized and was given the name "State Bank of India", to act as the
principal agent of RBI and to handle banking transactions all over the
country. It was established under State Bank of India Act, 1955. Seven banks
forming subsidiary of State Bank of India was nationalized in 1960. On 19th
July, 1969, major process of nationalization was carried out. At the same time
14 major Indian commercial banks of the country were nationalized. In 1980,
another six banks were nationalized, and thus raising the number of
nationalized banks to 20. Seven more banks were nationalized with deposits
over 200 Crores. Till the year1980 approximately 80% of the banking
segment in India was under governments ownership. On the suggestions of
Narsimhan Committee, the Banking Regulation Act was amended in 1993
and thus the gates for the new private sector banks were opened.
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The following are the major steps taken by the Government of India to
Regulate Banking
institutions in the country:-

GOVERNMENT POLICY ON BANKING INDUSTRY:

Banks operating in most of the countries must contend with heavy
regulations, rules
enforced by Federal and State agencies to govern their operations, service
offerings, and
the manner in which they grow and expand their facilities to better serve the
public. A
banker works within the financial system to provide loans, accept deposits,
and provide
other services to their customers. They must do so within a climate of
extensive
regulation, designed primarily to protect the public interests.
The main reasons why the banks are heavily regulated are as follows:

To protect the safety of the publics savings.

To control the supply of money and credit in order to achieve a nations

broad economic goal.
To ensure equal opportunity and fairness in the publics access to
credit and other vital financial services.
To promote public confidence in the financial system, so that savings
are made speedily and efficiently.
To avoid concentrations of financial power in the hands of a few
individuals and institutions.
Provide the Government with credit, tax revenues and other services.
To help sectors of the economy that they have special credit needs for
example Housing, small business and agricultural loans etc.

REGULATIONS FOR INDIAN BANKS:

Currently in most jurisdictions commercial banks are regulated by
government entities
and require a special bank license to operate. Usually the definition of the
business of
banking for the purposes of regulation is extended to include acceptance of
deposits, even
if they are not repayable to the customer's orderalthough money lending,
by itself, is
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generally not included in the definition. Unlike most other regulated

industries, the regulator
is typically also a participant in the market, i.e. a government-owned
(central) bank. Central banks also typically have a monopoly on the business
of issuing banknotes. However, in some countries this is not the case. In UK,
for example, the Financial Services Authority licenses banks, and some
commercial banks (such as the Bank of Scotland) issue their own banknotes
in addition to those issued by the Bank of England, the UK government's
central bank.
Some types of financial institutions, such as building societies and credit
unions, may be
partly or wholly exempted from bank license requirements, and therefore
regulated under
separate rules. The requirements for the issue of a bank license vary
between jurisdictions
but typically include:

Minimum capital
Minimum capital ratio
'Fit and Proper' requirements for the bank's controllers, owners,
directors, and/or senior officers
Approval of the bank's business plan as being sufficiently prudent and
plausible.

CLASSIFICATION OF BANKS:
The Indian banking industry, which is governed by the Banking Regulation
Act of India, 1949can be broadly classified into two major categories, nonscheduled banks and scheduled banks. Scheduled banks comprise
commercial banks and the co-operative banks. In terms of ownership,
commercial banks can be further grouped into nationalized banks, the State
Bank of India and its group banks, regional rural banks and private sector
banks (the old / new domestic and foreign). These banks have over 67,000
branches spread across the country. The Indian banking industry is a mix of
the public sector, private sector and foreign banks. The private sector banks
are again spilt into old banks and new banks.
An outline of the Indian Banking structure may be presented as follows:1. Reserve banks of India.
2. Indian Scheduled Commercial Banks.
a) State Bank of India and its associate banks.
b) Twenty nationalized banks.
c) Regional rural banks.

d) Other scheduled commercial banks.

3. Foreign Banks
4. Non-scheduled banks.
5. Co-operative banks.

RESERVE BANK OF INDIA

The reserve bank of India is a central bank and was established in April 1,
1935 in accordance with the provisions of reserve bank of India act 1934.
The central office of RBI is located at Mumbai since inception. Though
originally the reserve bank of India was privately owned, since
nationalization in 1949, RBI is fully owned by the Government of India. It was
inaugurated with share capital of Rs. 5 Crores divided into shares of Rs. 100
each fully paid up.RBI is governed by a central board (headed by a governor)
appointed by the central government of India. RBI has 22 regional offices
across India. The reserve bank of India was nationalized in the year 1949.
The general superintendence and direction of the bank is entrusted to
central board of directors of 20 members, the Governor and four deputy
Governors, one Governmental official from the ministry of Finance, ten
nominated directors by the government to give representation to important
elements in the economic life of the country, and the four nominated director
by the Central Government to represent the four local boards with the
headquarters at Mumbai, Kolkata, Chennai and New Delhi. Local Board
consists of five members each central government appointed for a term of
four years to represent territorial and economic interests and the interests of
cooperative and indigenous banks.The RBI Act 1934 was commenced on
April 1, 1935. The Act, 1934 provides the statutory basis of the functioning of
the bank.
The bank was constituted for the need of following:

To regulate the issues of banknotes.

To maintain reserves with a view to securing monetary stability
To operate the credit and currency system of the country to its
advantage.

INDIAN SCHEDULED COMMERCIAL BANKS:

The commercial banking structure in India consists of scheduled commercial
banks, and unscheduled banks.
SCHEDULED BANKS: Scheduled Banks in India constitute those banks
which have been included
in the second schedule of RBI act 1934. RBI in turn includes only those
banks in this schedule which satisfy the criteria laid down vide section 42(6a)
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of the Act. Scheduled banks in India means the State Bank of India
constituted under the State Bank of India Act, 1955 (23 of 1955), a
subsidiary bank as defined in the s State Bank of India (subsidiary banks)
Act, 1959 (38 of 1959).For the purpose of assessment of performance of
banks, the Reserve Bank of India categories those banks as public sector
banks, old private sector banks, new private sector banks and foreign banks,
i.e. private sector, public sector, and foreign banks come under the umbrella
of scheduled commercial banks.
UNSCHEDULED BANKS: Unscheduled Bank in India means a banking
company as defined
in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949),
which is not a scheduled bank.

Services provided by banking organizations:

Banking Regulation Act in India, 1949 defines banking as Accepting for the
purpose offending or investment of deposits of money from the public,
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repayable on demand and withdraw able by cheques, drafts, orders etc. as

per the above definition a bank essentially performs the following functions:

Accepting Deposits or savings functions from customers or public by

providing bank account, current account, fixed deposit account,
recurring accounts etc.

The payment transactions like lending money to the public. Bank

provides an effective credit delivery system for loan able transactions.

Provide the facility of transferring of money from one place to another

place. For
performing this operation, bank issues demand drafts, bankers
cheques, money
orders etc. for transferring the money.

A bank also provides the safe custody facility to the money and
valuables of the general public. Bank offers various types of deposit
schemes for security of money. For keeping valuables bank provides
locker facility. The lockers are small compartments with dual locking
system built into strong cupboards. These are stored in the banks
strong room and are fully secured.

Banks act on behalf of the Govt. to accept its tax and non-tax receipt.
Most of the government disbursements like pension payments and tax
refunds also take place
through banks.

There are several types of banks, which differ in the number of services they
provide and the clientele (Customers) they serve. Although some of the
differences between these types of banks have lessened as they have begun
to expand the range of products and services they offer, there are still key
distinguishing traits.
Commercial banks, which dominate this industry, offer a full range of
services for
individuals, businesses, and governments. These banks come in a wide
range of sizes,
from large global banks to regional and community banks.
Global banks are involved in international lending and foreign currency
trading, in
addition to the more typical banking services.

Regional banks have numerous branches and automated teller machine

(ATM) locations
throughout a multi-state area that provide banking services to individuals.
Banks have
become more oriented toward marketing and sales.

CONTRIBUTION OF HDFC BANK IN THE ECONOMY:

HDFC Bank has won award for offering products which are new and
innovative. It thus contributes towards the economy. The bank has also
reduced the poverty by providing more employment opportunities. It
provides better and speedy services to the customers also.

HISTORY OF HDFC BANK:

The Housing Development Finance Corporation Limited (HDFC) was amongst
the first to receive an in principle approval from the Reserve Bank of India
(RBI) to set up a bank in the private sector, as part of RBIs liberalization 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 Indias premier housing finance
company and enjoys an impeccable track record in India as well as in
international markets. Since its inception in 1977, the Corporation has
maintained a consistent and healthy growth in its operations to remain the
market leader in mortgages. Its outstanding loan portfolio covers well over a
million dwelling units. HDFC has developed significant expertise in retail
mortgage loans to different market segments and also has a large corporate
client base for its housing related credit facilities. With its experience in the
financial markets, strong market reputation, large shareholder base and
unique consumer franchise, HDFC was ideally positioned to promote a bank
in the Indian environment. HDFC Banks mission is to be a World Class Indian
Bank. The objective is to build sound customer franchises across distinct
businesses so as to be the preferred provider of banking services for target
retail and wholesale customer segments, and to achieve healthy growth in
profitability, consistent with the banks risk appetite. The bank is committed
to maintain the highest level of ethical standards, professional integrity,
corporate governance and regulatory compliance. HDFC Banks business
philosophy is based on five core values: Operational Excellence, Customer
Focus, Product Leadership, People and Sustainability.
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ORIGIN:
HDFC Bank is headquartered in Mumbai. As of March 31, 2015, the Banks
distribution network was at 4,014 branches in 2,464 cities.All branches are
linked on an online real-time basis. Customers across India are also serviced
through multiple delivery channels such as Phone Banking, Net Banking,
Mobile Banking and SMS based banking. The Banks expansion plans take
into account the need to have a presence in all major industrial and
commercial centres, where its corporate customers are located, as well as
the need to build a strong retail customer base for both deposits and loan
products. Being a clearing / settlement bank to various leading stock
exchanges, the Bank has branches in centers where the NSE / BSE have a
strong and active member base. The Bank also has a network of 11,766
ATMs across India. HDFC Banks ATM network can be accessed by all
domestic and international Visa / MasterCard, Visa Electron / Maestro, Plus /
Cirrus and American Express Credit / Charge cardholders.

BUSINESS PROFILE:
HDFC Bank caters to a wide range of banking services covering commercial
and investment banking on the wholesale side and transactional / branch
banking on the retail side. The bank has three key business segments:
WHOLESALE BANKING:
The Banks target market is primarily large, blue-chip manufacturing
companies in the Indian corporate sector and to a lesser extent, small & midsized corporates and agri-based businesses. For these customers, the Bank
provides a wide range of commercial and transactional banking services,
including working capital finance, trade services, transactional services, cash
management, etc. The bank is also a leading provider of structured solutions,
which combine cash management services with vendor and distributor
finance for facilitating superior supply chain management for its corporate
customers. Based on its superior product delivery / service levels and strong
customer orientation, the Bank has made significant inroads into the banking
consortia of a number of leading Indian corporates including multinationals,
companies from the domestic business houses and prime public sector
companies. It is recognised as a leading provider of cash management and

transactional banking solutions to corporate customers, mutual funds, stock

exchange members and banks.
TREASURY:
Within this business, the bank has three main product areas - Foreign
Exchange and Derivatives, Local Currency Money Market & Debt Securities,
and Equities. With the liberalisation of the financial markets in India,
corporates need more sophisticated risk management information, advice
and product structures. These and fine pricing on various treasury products
are provided through the banks Treasury team. To comply with statutory
reserve requirements, the bank is required to hold 25% of its deposits in
government securities. The Treasury business is responsible for managing
the returns and market risk on this investment portfolio.
RETAIL BANKING:
The objective of the Retail Bank is to provide its target market customers a
full range of financial products and banking services, giving the customer a
one-stop window for all his/her banking requirements. The products are
backed by world-class service and delivered to customers through the
growing branch network, as well as through alternative delivery channels like
ATMs, Phone Banking, NetBanking and Mobile Banking.
The HDFC Bank Preferred program for high net worth individuals, the HDFC
Bank Plus and the Investment Advisory Services programs have been
designed keeping in mind needs of customers who seek distinct financial
solutions, information and advice on various investment avenues. The Bank
also has a wide array of retail loan products including Auto Loans, Loans
against marketable securities, Personal Loans and Loans for Two-wheelers. It
is also a leading provider of Depository Participant (DP) services for retail
customers, providing customers the facility to hold their investments in
electronic form.
HDFC Bank was the first bank in India to launch an International Debit Card
in association with VISA (VISA Electron) and issues the MasterCard Maestro
debit card as well. The Bank launched its credit card business in late 2001.
By March 2015, the bank had a total card base (debit and credit cards) of
over 25 million. The Bank is also one of the leading players in the merchant
acquiring business with over 235,000 Point-of-sale (POS) terminals for
debit / credit cards acceptance at merchant establishments. The Bank is well
positioned as a leader in various net based B2C opportunities including a
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wide range of internet banking services for Fixed Deposits, Loans, Bill
Payments, etc.

FINANCIAL ANALYSIS
Financial analysis is the process of identifying the financial strengths and
weaknesses of the firm and establishing relationship between the items of the
balance sheet and profit & loss account.Financial ratio analysis is the calculation
and comparison of ratios, which are derived from the information in a companys
financial statements. The level and historical trends of these ratios can be used to
make inferences about a companys financial condition, its operations and
attractiveness as an investment. The information in the statements is used by

Trade creditors, to identify the firms ability to meet their claims i.e. liquidity
position of the company.
Investors, to know about the present and future profitability of the company
and its financial structure.
Management, in every aspect of the financial analysis. It is the responsibility
of the management to maintain sound financial condition in the company.

RATIO ANALYSIS
The term Ratio refers to the numerical and quantitative relationship
between two items or variables. This relationship can be exposed as

Percentages
Fractions
Proportion of numbers
Ratio analysis is defined as the systematic use of the ratio to interpret
the financial statements. So that the strengths and weaknesses of a
firm, as well as its historical performance and current financial
condition can be determined. Ratio reflects a quantitative relationship
helps to form a quantitative judgment.

STEPS IN RATIO ANALYSIS

The first task of the financial analysis is to select the information relevant to
the decision under consideration from the statements and calculates
appropriate ratios.

To compare the calculated ratios with the ratios of the same firm relating to
the past
the industry ratios. It facilitates in assessing success or failure of the firm.
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Third step is to interpretation, drawing of inferences and report writing

conclusions are drawn after comparison in the shape of report or
recommended courses of action.

BASIS OR STANDARDS OF COMPARISON

Ratios are relative figures reflecting the relation between variables.

They enable analyst to draw conclusions regarding financial
operations. They use of ratios as a tool of financial analysis involves
the comparison with related facts. This is the basis of ratio analysis.
The basis of ratio analysis is of four types.

Past ratios, calculated from past financial statements of the firm.

Competitors ratio, of the some most progressive and successful

competitor firm at the same point of time.
Industry ratio, the industry ratios to which the firm belongs to Projected
ratios, ratios of the future developed from the projected or pro formal
financial statements

NATURE OF RATIO ANALYSIS

Ratio analysis is a technique of analysis and interpretation of financial
statements. It is the process of establishing and interpreting various
ratios for helping in making certain decisions. It is only a means of
understanding of financial strengths and weaknesses of a firm. There
are a number of ratios which can be calculated from the information
given in the financial statements, but the analyst has to select the
appropriate data and calculate only a few appropriate ratios. The
following are the four steps involved in the ratio analysis.

Selection of relevant data from the financial statements

depending upon the objective of the analysis.

Calculation of appropriate ratios from the above data.

Comparison of the calculated ratios with the ratios of the same

firm in the past, or the ratios developed from projected financial
statements or the ratios of some other firms or the comparison
with ratios of the industry to which the firm belongs.

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INTERPRETATION OF THE RATIOS

The interpretation of ratios is an important factor. The inherent
limitations of ratio analysis should be kept in mind while interpreting
them.The impact of factors such as price level changes, change in
accounting policies, window dressing etc., should also be kept in mind
when attempting to interpret ratios. The interpretation of ratios can be
made in the following ways.
Single absolute ratio

Group of ratios

Historical comparison

Projected ratios

Inter-firm comparison

GUIDELINES OR PRECAUTIONS FOR USE OF RATIOS

The calculation of ratios may not be a difficult task but their use is not
easy. Following guidelines or factors may be kept in mind while
interpreting various ratios are

Accuracy of financial statements

Objective or purpose of analysis

Selection of ratios.

Use of standards Caliber of the analysis

IMPORTANCE OF RATIO ANALYSIS

Aid to measure general efficiency

Aid to measure financial solvency

Aid in forecasting and planning

Facilitate decision making

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Aid in corrective action

Aid in intra-firm comparison

Act as a good communication

Evaluation of efficiency

Effective tool

LIMITATIONS OF RATIO ANALYSIS

Differences in definitions

Limitations of accounting records

Lack of proper standards

No allowances for price level changes

CLASSIFICATIONS OF RATIOS
The use of ratio analysis is not confined to financial manager only. There are
different parties interested in the ratio analysis for knowing the financial
position of a firm for different purposes. Various accounting ratios can be
classified as follows:
1. Traditional Classification
2. Functional Classification
3. Significance ratios

1. Traditional Classification
It includes the following

Balance sheet (or) position statement ratio: They deal with the
relationship between two balance sheet items, e.g. the ratio of current
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assets to current liabilities etc., both the items must, however, pertain
to the same balance sheet.

Profit & loss account (or) revenue statement ratios: These ratios deal
with the relationship between two profit & loss account items, e.g. the
ratio of gross profit to sales etc.,

Composite (or) inter statement ratios: These ratios exhibit the

relation between a profit
& loss account or income statement item
and a balance sheet items, e.g. stock turnover ratio, or the ratio of total
assets to sales.

2. Functional Classification
These include liquidity ratios, long term solvency and leverage ratios, activity ratios
and profitability ratios.
3. Significance ratios
Some ratios are important than others and the firm may classify them as primary
and secondary ratios. The primary ratio is one, which is of the prime importance to
a concern.

IN THE VIEW OF FUNCTIONAL CLASSIFICATION THE RATIOS

ARE
1. Liquidity ratio
2. Leverage ratio
3. Activity ratio
4. Profitability ratio

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