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INDEX

S.No: CONTENTS PAGE NO.

1. INTRODUCTION 1-4 Scope of the Study Objectives of the StudyMethodology of the Study Limitations of the Study

2. REVIEW OF THE LITERATURE 5-203. COMPANY PROFILE 21-304. DATA ANALYSIS &

INTERPRETATION 31-65

5. FINDINGS 666. SUGGESTION 677. BIBLIOGRAPHY 68

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INTRODUCTION

Asset Liability Management(ALM) is a strategic approach of managing the balance sheet

dynamics in such a way that the net earnings are maximized. This approach is concerned with

management of net interest margin to ensure that its level and riskiness are compatible with the

risk return objectives of the .

If one has to define Asset and Liability management without going into detail about its

need and utility, it can be defined as simply management of money which carries value and

can change its shape very quickly and has an ability to come back to its original shape with or

without an additional growth. The art of proper management of healthy money is ASSET AND

LIABILITY MANAGEMENT (ALM).

The Liberalization measures initiated in the country resulted in revolutionary changes in

the sector. There was a shift in the policy approach of from the traditionally administered market

regime to a free market driven regime. This has put pressure on the earning capacity of co-

operative s, which forced them to foray into new operational areas thereby exposing themselves

to new risks.

As major part of funds at the disposal of come from outside sources, the management are

concerned about RISKarising out of shrinkage in the value of asset, and managing such risks

became critically important to them. Although co-operative are able to mobilize deposits, major

portions of it are high cost fixed deposits. Maturities of these fixed deposits were not properly

matched with the maturities of assets created out of them. The tool called ASSET AND

LIABILITY MANAGEMENTprovides a better solution for this.

ASSET LIABILITY MANAGEMENT (ALM) is a portfolio management of assets and

liability of an organization. This is a method of matching various assets with liabilities on the

basis of expected rates of return and expected maturity patter

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In the context of ,ALM is defined as a process of adjusting liability to meet loan

demands, liquidity needs and safety requirements. This will result in optimum value of the , at

the same time reducing the risks faced by them and managing the different types of risks by

keeping it within acceptable levels.

NEED OF THE STUDY:

The need of the study is to concentrates on the growth and performance of The Housing

Development Finance Corporation Limited (HDFC) and to calculate the growth and

performance by using asset and liability management. And to know the management of

nonperforming assets.

y To know financial position of The Housing Development Finance Corporation Limited(HDFC)

y To analyze existing situation of The Housing Development Finance Corporation Limited(HDFC)

y To improve the performance of The Housing Development Finance Corporation Limited(HDFC)

y To analyze competition between The Housing Development Finance CorporationLimited (HDFC) with other cooperative s.

SCOPE OF THE STUDY:

In this study the analysis based on ratios to know asset and liabilities management under The

Housing Development Finance Corporation Limited (HDFC) And to analyze the growth and

performance of The Housing Development Finance Corporation Limited (HDFC) by using the

calculations under asset and liability management based on ratio.

y Ratio analysisy Comparative statementy Common size balance sheet.

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OBJECTIVES OF THE STUDY

o To study the concept of ASSET & LIABLITY MANAGEMENT in The HousingDevelopment Finance Corporation Limited (HDFC)

o To study process of CASH INFIOWS and OUTFLOWS in The HousingDevelopment Finance Corporation Limited (HDFC)

o To study RISK MANAGEMENT under The Housing Development FinanceCorporation Limited (HDFC)

o To study RESERVES CYCLE of ALM under The Housing Development FinanceCorporation Limited (HDFC)

o To study FUNCTIONS AND OBJECTIVES ofALM committee.

METHODOLOGY OF THE STUDY

The study ofALM Management is based on two factors.

1. Primary data collection.

2. Secondary data collection

PRIMARY DATA COLLECTION:

The sources of primary data were

The chief manager ALM cell

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Department Sr. manager financing & Accounting

System manager- ALM cell

Gathering the information from other managers and other officials of the

SECONDARY DATA COLLECTION:

Collected from books regarding, journal, and management containing relevant information

about ALM and Other main sources were

Annual report of the Housing Development Finance Corporation Limited (HDFC) Published report of the RBI guidelines forALM.

LIMITATION OF THE STUDY:

1. This subject is based on past data of The Housing Development Finance CorporationLimited (HDFC)

2. The analysis is based on structural liquidity statement and gap analysis.3. The study is mainly based on secondary data.

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Review ofLitureature

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ASSET LIABILITY MANAGEMENT (ALM) SYSTEM:

Introduction:

In the normal course, the are exposed to credit and market risks in view of the asset

liability transformation. With the liberalization in the

Indian financial markets over the last few years and growing integration of domestic

markets and with external markets the risks associated with operations have become complex,

large, requiring stragic management. are now operating in a fairly deregulated environment and

are required to determine on their own, interest rates on deposits and advance in both domestic

and foreign currencies on a dynamic basis. The interest rates on investments in government and

other securities are also now market related. Intense competition for business involving both the

assets and liabilities, together with increasing volatility in the domestic interest rates, has brought

pressure on the management of to maintain a good balance among spreads, profitability and

long-term viability. Impudent liquidity management can put earnings an reputation at great risk.

These pressures call for structured and comprehensive measuresand not just adahoc action. The

management of has to base their business decisions on a dynamic and integrated risk

management system and process, driven by corporate strategy. are exposed to several major risks

in course of their business-credit risk, interest rate and operational risk therefore important than

introduce effective risk management systems that address the issues related to interest rate,

currency and liquidity risks.

s need to address these risks in a structured manner by upgrading their risk management

and adopting more comprehensive Asset-Liability management (ALM) practices than has been

done hitherto. ALM among other functions, is also concerned with risk management and

provides a comprehensive and dynamic framework for measuring, monitoring and managing

liquidity interest rate, foreign exchange and equity and commodity price risk of a that needs to

be closely integrated with the business strategy. It involves assement of various types of risks

altering the asset liability portfolio in a dynamic way in order to manage risks.

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The initial focus of the ALM function would be to enforce the risk management

discipline, viz., managing business after assessing the risks involved.

In addition, the managing the spread and riskiness, the ALM function is more

appropriately viewed as an integrated approach which requires simultaneous decisions about

asset/liability mix and maturity structure.

RISK MANAGEMENT IN ALM

Risk management is a dynamic process, which needs constant focus and attention. The

idea of risk management is a well-known investment principle that the largest potential returns

are associated with the riskiest ventures. There can be no single prescription for all times,

decisions have to be reversed at short notice. Risk, which is often used to mean uncertainty,

creates both opportunities and problems for business and individuals in nearly every walk of life.

Risk sometimes is consciously analyzed and managed; other times risk is simply ignored,

perhaps out of lack of knowledge of its consequences. If loss regarding risk is certain to occur, it

may be planned for in advance and treated as to definite, known expense. Businesses and

individuals may try to avoid risk of loss as much as possible or reduce its negative consequences.

Several types of risks that affect individuals and businesses were introduced, together

with ways to measure the amount of risk. The process used to systematically manage risk

exposure is known as RISK MANAGEMENT. Whether the concern is with a business or an

individual situation, the same general steps can be used to systematically analyze and deal with

risk.

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STEPS IN RISK MANAGEMENT:

Risk identification Risk evaluation Risk management technique Risk measurement Risk review decisions

Integrated or enterprise risk management is an emerging view that recognizes the importance

of risk, regardless of its source, in affecting a firms ability to realize its strategic objectives. The

detailed risk management process is as follows;

Risk identification:

The first step in the risk management process is to identify relevant exposures to risk.

This step is important not only for traditional risk management, which focuses on uncertainty of

risks, but also for enterprise risk management, where much of the focus is on identifying the

firms exposures from a variety of sources, including operational, financial, and strategic

activities.

Risk evaluation:

For each source of risk that is identified, an evaluation should be performed. At

this stage, uncertainty of risks can be categorized as to how often associated losses are

likely to occur. In addition to this evaluation of loss frequency, an analysis of the size, or

severity, of the loss is helpful. Consideration should be given both to the most probable

size of any losses that may occur and to the maximum possible losses that might happen.

Risk management techniques:

The results of the analyses in secondstep are used as the basis for decisions regarding

ways to handle existing risks. In some situations, the best plan may be to do nothing. In other

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cases, sophisticated ways to finance potential losses may be arranged. The available techniques

for managing risks are GAP Analysis, VAR Analysis, Heinrich Domino theory etc., with

consideration of when each technique is appropriate.

Risk measurement:

Once risk sources have been identified it is often helpful to measure the extent of the risk

that exists. As pert of the overall risk evaluation, in some situations it may be possible to

measure the degree of risk in a meaningful way. In other cases, especially those involving

individuals computation of the degree of risk may not yield helpful information.

Risk review decisions:

Following a decision about the optimal methods for handling identified risks, the

business or individual must implement the techniques selected. However, risk management

should be an ongoing process in which prior decisions are reviewed regularly. Sometimes new

risk exposures arise or significant changes in expected loss frequency or severity occur. The

dynamic nature of many risks requires a continual scrutiny of past analysis and decisions.

DIMENSIONS OF RISK

Specifically two broad categories of risk are the basis for classifying financial services risk.

(1)Product market Risk.

(2)Capital market Risk.

Economists have long classified management problems as relating to either The

Product Markets Risks or The Capital Markets Risks.

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TOTAL FINANCIAL SERVICES FIRMS RISK.

Total Risk

(Responsibility of CEO)

Business Risk Financial Risk

Product Market Risk Capital Market Risk

(Responsibility of the (Responsibility of the

Chief Operating Officer) Chief Financial Officer)

Credit Interest rate

Strategic Liquidity

Regulatory currency

Operating Settlement

Human resources Basis

Legal

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assessed and priced; (B) Diversifying across borrowers so that credit losses are not concentrated

in time; (C)purchasing third party guarantees so that default risk is entirely or partially shifted

away from lenders.

(2). STRATEGIC RISK:

This is the risk that entire lines of business may succumb to competition or obsolescence.

In the language of strategic planner, commercial paperis a substitute product for large corporate

loans. Strategic risk occurs when a is not ready or able to compete in a newly developing line of

business. Early entrants enjoyed a unique advantage over newer entrants. The seemingly

conservative act of waiting for the market to develop posed a risk in itself. Business risk accrues

from jumping into lines of business but also from staying out too long.

(3). COMMODITY RISK:

Commodity prices affect and other lenders in complex and often unpredictable ways. The

macro effect of energy price increases on inflation also contributed to a rise in interest rates,

which adversely affected the value of many fixed rate financial assets. The subsequent crash in

oil prices sent the process in reverse with nearly equally devastating effects.

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(4). OPERATING RISK:

Machine-based system offer essential competitive advantage in reducing costs and

improving quality while expanding service and speed. No element of management process has

more potential for surprise than systems malfunctions. Complex, machine-based systems

produce what is known as the blackbox effect. The inner working of system can become

opaque to their users. Because developers do not use the system and users often have not

constitutes a significant Product Market Risk. No financial service firm can small management

challenge in the modern financial services company.

(5). HUMAN RESOURCES RISK:

Few risks are more complex and difficult to measure than those of personnel policy; they are

Recruitment, Training, Motivation andRetention. Risk to the value of the Non-Financial Assets

as represented by the work force represents a much more subtle of risk. Concurrent with the loss

of key personal is the risk of inadequate or misplaced motivation among management personal.

This human redundancy is conceptually equivalent to safety redundancy in operating systems. It

is not inexpensive, but it may well be cheaper than the risk of loss. The risk and rewards of

increased attention to the human resources dimension of management are immense.

(6). LEGAL RISK:

This is the risk that the legal system will expropriate value from the shareholders of

financial services firms. The legal landscape today is full of risks that were simply unimaginable

even a few years ago. More over these risks are very hard to anticipate because they are often

unrelated to prior events which are difficult and impossible to designate but the management of a

financial services firm today must have these risks at least in view. They can cost millions.

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(II). CAPITAL MARKET RISK:

In the Capital Market Risk decision relate to the financing and financial support of

Product Market activities. The result of product market decisions must be compared to the

required rate of return that results from capital market decision to determine if management is

creating value. Capital market decisions affect the risk tolerance of product market decisions

related to variations in value associated with different financial instruments and required rate of

return in the economy.

1. LIQUIDITY RISK2. INTEREST RATE RISK

3. CURRENCY RISK

4. SETTLEMENT RISK

5. BASIS RISK

1. LIQUIDITY RISK:

For experienced financial services professionals, the foremost capital market risk is that of

inadequate liquidity to meet financial obligations. The obvious form is an inability to pay desired

withdrawals. Depositors react desperately to the mere prospect of this situation.

They can drive a financial intermediary to collapse by withdrawing funds at a rate that

exceeds its capacity to pay. For most of this century, individual depositors who lost faith in

ability to repay them caused failures from liquidity. Funds are deposited primarily as afinancial

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of rate. Such funds are called purchased money or headset funds as they are frequently

bought by employees who work on the money desk quoting rates to institutions that shop for the

highest return. To check liquidity risk, firms must keep the maturity profile of the liabilities

compatible with that of the assets. This balance must be close enough that a reasonable shift in

interest rates across the yield curve does not threaten the safety and soundness of the entire firm.

2. INTEREST RATE RISK:

In extreme conditions, Interest Rate fluctuations can create a liquidity crisis. The fluctuation

in the prices of financial assets due to changes in interest rates can be large enough to make

default risk a major threat to a financial services firms viability. Theres a function of both the

magnitude of change in the rate and the maturity of the asset. This inadequacy of assessment and

consequent mispricing of assets, combined with an accounting system that did not record

unrecognized gains and losses in asset values, created a financial crisis. Risk based capital rules

pertaining to have done little to mitigate the interest rate risk management problem. The decision

to pass it of, however is not without large cost, so the cost benefit tradeoff becomes complex.

3. CURRENCY RISK:

The risk of exchange rate volatility can be described as a form of basis risk among

currencies instead of basis risk among interest rates on different securities. Balance sheets

comprised of numerous separate currencies contain large camouflaged risks through financial

reporting systems that do not require assets to be marked to market. Exchange rate risk affects

both the Product Markets and The Capital Markets. Ways to contain currency risk have

developed in todays derivative market through the use of swaps and forward contracts. Thus,

this risk is manageable only after the most sophisticated and modern risk management technique

is employed

4. SETTLEMENT RISK:

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Settlement Risk is a particular form of default risk, which involves the competitors.

Amounts settle obligations having to do with money transfer, check clearing, loan disbursement

and repayment, and all other inter- transfers within the worldwide monetary system. A single

payment is made at the end of the day instead of multiple payments for individual transactions.

5. BASIS RISK :

Basis risk is a variation on the interest rate risk theme, yet it creates risks that are less

easy to observe and understand. To guard against interest rate risk, somewhat non comparable

securities may be used as a hedge. However, the success of this hedging depends on a steady and

predictable relationship between the two no identical securities. Basis can negate the hedge

partially or entirely, which vastly increases the Capital Market Risk exposure of the firm.

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Industry Profile

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

in India is the State Bank ofIndia, 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 ofIndia, which in 1935 formally took over these responsibilities from the

then Imperial Bank ofIndia, relegating it to commercial banking functions. AfterIndia'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 96 scheduled commercial banks (SCBs) - 27 public sector banks (that is

with the Government ofIndia 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

Early history

Banking in India originated in the last decades of the 18th century. The first banks were The

General Bank ofIndia which started in 1786, and the Bank of Hindustan, both of which are now

defunct. The oldest bank in existence in India is the State Bank ofIndia, which originated in the

Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was

one of the three presidency banks, the other two being the Bank of Bombay and the Bank of

Madras, all three of which were established under charters from the British East India Company.

For many years the Presidency banks acted as quasi-central banks, as did their successors. The

three banks merged in 1921 to form the Imperial Bank ofIndia, which, upon India's

independence, became the State Bank ofIndia.

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Indian merchants in Calcutta established the Union Bank in 1839, but it failed in 1848 as a

consequence of the economic crisis of 1848-49. The Allahabad Bank, established in 1865 and

still functioning today, is the oldest Joint Stock bank in India. It was not the first though. That

honor belongs to the Bank of UpperIndia, which was established in 1863, and which survived

until 1913, when it failed, with some of its assets and liabilities being transferred to the Alliance

Bank of Simla.

When the American Civil War stopped the supply of cotton to Lancashire from the Confederate

States, promoters opened banks to finance trading in Indian cotton. With large exposure to

speculative ventures, most of the banks opened in India during that period failed. The depositors

lost money and lost interest in keeping deposits with banks. Subsequently, banking in India

remained the exclusive domain of Europeans for next several decades until the beginning of the

20th century.

Foreign banks too started to arrive, particularly in Calcutta, in the 1860s. The Comptoire

d'Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862;

branches in Madras and Pondichery, then a French colony, followed. HSBC established itself in

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

British Empire, and so became a banking center.

The Bank of Bengal, which later became the State Bank ofIndia.

The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in 1881 in

Faizabad. It failed in 1958. The next was the Punjab National Bank, established in Lahore in

1895, which has survived to the present and is now one of the largest banks in India.

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

of stability. Around five decades had elapsed since the Indian Mutiny, and the social, industrial

and other infrastructure had improved. Indians had established small banks, most of which

served particular ethnic and religious communities.

The presidency banks dominated banking in India but there were also some exchange banks and

a number ofIndian joint stock banks. All these banks operated in different segments of the

economy. The exchange banks, mostly owned by Europeans, concentrated on financing foreign

trade. Indian joint stock banks were generally under capitalized and lacked the experience and

maturity to compete with the presidency and exchange banks. This segmentation let Lord Curzon

to observe, "In respect of banking it seems we are behind the times. We are like some old

fashioned sailing ship, divided by solid wooden bulkheads into separate and cumbersome

compartments."

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

movement. The Swadeshi movement inspired local businessmen and political figures to found

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

present such as Bank ofIndia, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank

and Central Bank ofIndia.

The fervour of Swadeshi movement lead to establishing of many private banks in Dakshina

Kannada and Udupi district which were unified earlier and known by the name South Canara (

South Kanara ) district. Four nationalised banks started in this district and also a leading private

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

Banking".

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Company Profile

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PROFILE OF THE INDUSTRY

The Housing Development Finance Corporation Limited (HDFC) was amongst the first to

receive an 'in principle' approval from the Reserve Bank ofIndia (RBI) to set up a bank in the

private sector, as part of the RBI's liberalization of the Indian Banking Industry in 1994. The

bank was incorporated in August 1994 in the name of 'HDFC BankLimited', with its registered

office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank

in January 1995.

OVERVIEW OF THE INDUSTRY

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.

As on 31st December, 2009 the authorized share capital of the Bank is Rs. 550 crore. The paid-

up capital as on said date is Rs. 455,23,65,640/- (45,52,36,564 equity shares of Rs. 10/- each).

The HDFC Group holds 23.87 % of the Bank's equity and about 16.94 % of the equity is held by

the ADS Depository (in respect of the bank's American Depository Shares (ADS)Issue). 27.46

% of the equity is held by Foreign Institutional Investors (FIIs) and the Bank has about 4,58,683

shareholders.

The shares are listed on the Bombay Stock Exchange Limited and The National Stock Exchange

of India Limited. The Bank's American Depository Shares (ADS) are listed on the New York

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

(GDRs) are listed on Luxembourg Stock Exchange underISIN No US40415F2002.

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Mr. Jagdish Capoor took over as the bank's Chairman in July 2001. Prior to this, Mr. Capoor was

Deputy Governor of the RBI

MANAGEMENT

The Managing Director, Mr. Aditya Puri, has been a professional banker for over 25 years, and

before joining HDFC Bank in 1994 was heading Citibank's operations in Malaysia.

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

in public policy, administration, industry and commercial banking. Senior executives

representing HDFC are also on the Board.

Senior banking professionals with substantial experience in India and abroad head various

businesses and functions and report to the Managing Director. Given the professional expertise

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

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

BOARD OF DIRECTORS

Mr. Jagdish Capoor, Chairman

Mr. Keki Mistry

Mrs. Renu Karnad

Mr. Arvind Pande

Mr. Ashim Samanta

Mr. ChanderMohan Vasudev

Mr. Gautam Divan

Dr. Pandit Palande

Mr. Aditya Puri, Managing Director

Mr. Harish Engineer, Executive Director

Mr. Paresh Sukthankar, Executive Director

Mr. Vineet Jain (upto 27.12.2008)

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REGISTERED OFFICE

HDFC Bank House,

Senapati Bapat Marg,

Lower Parel,

Website: www.hdfcbank.com

HDFC Bank offers a wide range of commercial and transactional banking services and treasury

products to wholesale and retail customers. The bank has three key business segments

Wholesale Banking Services

The Bank's target market ranges from large, blue-chip manufacturing companies in the Indian

corporate to small & mid-sized 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.

Retail Banking Services

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

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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. ByMarch 2009, the bank had a total card base (debit and

credit cards) of over 13 million. The Bank is also one of the leading players in the merchant

acquiring business with over 70,000 Point-of-sale (POS) terminals for debit / credit cards

acceptance at merchant establishments. The Bank is well positioned as a leader in various net

based B2C opportunities including a wide range of internet banking services for Fixed Deposits,

Loans, Bill Payments, etc.

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

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

responsible for managing the returns and market risk on this investment portfolio

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Awards and Achievements - Banking Services

2010

Global Finance

Award

Best Trade Finance Provider in India for 2010

2 Banking

Technology

Awards 2009

1) Best Risk Management Initiative and 2) Best Use of Business

Intelligence.

SPJIMR

Marketing Impact

Awards (SMIA)

2010

2nd Prize

Business Today

Best Employer

Survey

Listed in top 10 Best Employers in the country

2009

Business India

Businessman of the

Year Award for

2009.

Mr. Aditya Puri, MD, HDFC Bank

Businessworld Best

Bank Awards 2009

Most Tech-savvy Bank

OutlookMoney

NDTV Profit

Awards 2009

Best Bank

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Forbes Asia Fab 50 Companies in Asia Pacific

GQIndia's Man of

the Year (Business)

Mr. Aditya Puri, MD, HDFC Bank

UTIMF-CNBC

TV18 Financial

Advisor Awards

2009

Best Performing Bank

Business Standard

Best Banker Award

Mr. Aditya Puri, MD, HDFC Bank

Fe Best Bank

Awards 2009

- Best Innovator of the year award for our MD Mr. Aditya Puri

- Second Best Private Bank in India

- Best in Strength and Soundness Award

Euromoney Awards

2009

Best Bank in India

Economic Times

Brand Equity &

Nielsen Research

annual survey 2009

Most Trusted Brand - Runner Up

Asia Money 2009

Awards

Best Domestic Bank in India

IBA Banking

Technology

Awards 2009

Best IT Governance Award - Runner up

Global Finance

Award

Best Trade Finance Bank in India for 2009

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IDRBT Banking

Technology

Excellence Award

2008

Best IT Governance and Value Delivery

Asian Banker

Excellence in Retail

Financial Services

Asian Banker Best Retail Bank in India Award 2009

Corporate Governance:

The bank was among the first four companies, which subjected itself to a Corporate

Governance and Value Creation (GVC) rating by the rating agency, The Credit

Rating Information Services ofIndia Limited (CRISIL).

The rating provides an independent assessment of an entity's current performance and

an expectation on its "balanced value creation and corporate governance practices" in

future. The bank has been assigned a 'CRISIL GVC Level 1' rating, which indicates

that the bank's capability with respect to wealth creation for all its stakeholders while

adopting sound corporate governance practices is the highest.

We are aware that all these awards are mere milestones in the continuing, never-

ending journey of providing excellent service to our customers. We are confident,

however, that with your feedback and support, we will be able to maintain and

improve our services.

Technology:

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

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customers. Multi-branch access is also provided to retail customers through the

branch network and Automated TellerMachines (ATMs).

The Bank has made substantial efforts and investments in acquiring the best

technology available internationally, to build the infrastructure for a world class bank.

The Bank's business is supported by scalable and robust systems which ensure that

our clients always get the finest services we offer.

The Bank has prioritised its engagement in technology and the internet as one of its

key goals and has already made significant progress in web-enabling its core

businesses. In each of its businesses, the Bank has succeeded in leveraging its market

position, expertise and technology to create a competitive advantage and build market

share.

Mission and Business Strategy:

Our mission is to be "a World Class Indian Bank", benchmarking ourselves 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. We are committed to do this while ensuring the highest levels of ethical

standards, professional integrity, corporate governance and regulatory compliance.

Our business strategy emphasizes the following :

Increase our market share in Indias expanding banking and financial services industry by

following a disciplined growth strategy focusing on quality and not on quantity and

delivering high quality customer service.

Leverage our technology platform and open scaleable systems to deliver more products to

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more customers and to control operating costs.

Maintain our current high standards for asset quality through disciplined credit risk

management.

Develop innovative products and services that attract our targeted customers and address

inefficiencies in the Indian financial sector.

Continue to develop products and services that reduce our cost of funds.

Focus on high earnings growth with low volatility.

HDFC Bank is headquartered in Mumbai. The Bank at present has an enviable

network of 1,725 branches spread in 771 cities across India. All branches are linked

on an online real-time basis. Customers in over 500 locations are also serviced

through Telephone Banking. The Bank's 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 the centres where the NSE/BSE have a

strong and active member base.

The Bank also has 3,898 networked ATMs across these cities. Moreover, HDFC

Bank's ATM network can be accessed by all domestic and international

Visa/MasterCard, Visa Electron/Maestro, Plus/Cirrus and American Express

Credit/Charge cardholders.

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DATA ANALYSIS

&

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RISK MANAGEMENT SYSTEM :

Assuming and managing risk is the essence of business decision-making. Investing in a

new technology, hiring a new employee, or launching a marketing campaign is all decisions with

uncertain outcomes. As a result all the major management decisions of how much risk to take

and how to manage the risk.

The implementation of risk management varies from business to business, from one

management style to another and from one time to another. Risk management in the financial

services industry is different from others. Circumstances, Institutions and Managements are

different. On the other hand, an investment decision is no recent history of legal and political

stability, insights into the potential hazards and opportunities.

Many risks are managed quantitatively. Risk exposure is measured by some numerical

index. Risk cost tradeoff many tools are described by numerical valuation formulas.

Risk management can be integrated into a risk management system. Such a system can

be utilized to manage the trading position of a small-specialized division or an entire financial

institution. The modules of the system can be implemented with different degrees of accuracy

and sophistication.

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RISK MANAGEMENT SYSTEM

Dynamics of risk factors

Cash flows Arbitrage

Generator Pricing Model

Price and Risk

Profile Of Contingent Claims

Dynamic Risk Target

Trading Rules Optimizer Risk Profile

1.2 RISKMANAGEMENT SYSTEM

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Arbitrage pricing models range from simple equations to large scale

numerically sophisticated algorithms. Cash flow generators also vary from a single

formula to a simulator that accounts for the dependence of cash flows on the history of

the risk factors.

Financial engineers are continuously incorporating advances in econometric

techniques, asset pricing models, simulation techniques and optimization algorithms to

produce better risk management systems.

The important ingredient of the risk management approach is the treatment of risk

factors and securities as an integrated portfolio. Analyzing the correlation among the real,

financial and strategic assets of an organization leads to clear understanding of risk

exposure. Special attention is paid to risk factors, which translate to correlation among

the values of securities. Identifying the correlation among the basic risk factors leads to

more effective risk management.

CONCLUSION

The burden of the Risk and its Costs are both manageable and transferable. Financial

service firms, in the addition to managing their own risk, also sell financial risk management to

others. They sell their services by bearing customers financial risks through the products they

provide. A financial firm can offer a fixed-rate loan to a borrower with the risk of interest rate

movements transferred from the borrower to the . Financial innovations have been concerned

with risk reduction then any other subject. With the possibility of managing risk near zero, the

challenge becomes not how much risk can be removed.

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Financial services involve theprocess of intermediationbetween those who have financial

resources and those who need them, either as a principal or as an agent. Thus, value breaks into

several distinct functions, and it includes the intermediation of the following :

Maturity Preference mismatch, Default, Currency Preference mis-match, Size of

transaction and Market access and information.

RISK MANAGEMENT IN ICICI

The were required by the to introduce effective risk management systems to cover Credit

risk, market risk and Operations risk on priority.

Narasimham committee II , advised to address market risk in a structured manner by

adopting Asset and Liability Managementpractices with effect from April 1st

1989.

Asset and liability management (ALM) is the Art and Science of choosing the best mix

of assets for the firms asset portfolio and the best mix of liabilities for the firms liability

portfolio. It is particularly critical for Financial Institutions.

For a long time it was taken for granted that the liability portfolio of financial firms was

beyond the control of the firm and so management concentrated its efforts on choosing the asset

mix. Institutions treasury department used the funds provided by deposits to structure an asset

portfolio that was appropriate for the given liability portfolio.

With the advent of Certificate Of Deposits (CDs), had a tool by which to manipulate the

mix of liabilities that supported their Asset portfolios, which has been one of the active

management of assets and liabilities.

Asset and liability management program evolve into a strategic tool for management, the

main elements of the ALM system are :

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ALMINFORMATION.

ALM ORGANISATION.

ALM FUNCTION.

ALM INFORMATION :

ALM is a risk management tool through which Market risk associated with business are

identified, measured and monitored to maintain profits by restructuring Assets and Liabilities.

The ALM framework needs to be built on sound methodology with necessary information

system as back up. Thus the information is key element to the ALM process.

There are various methods prevalent worldwide for measuring risks. These range from the

simple Gap statement to extremely sophisticate and data intensive Risk adjusted profitability

measurement (RAPM) methods. The central element for the entire ALM exercise is the

availability of adequate and accurate information.

However, the existing systems in many Indian do not generate information in manner

required for the ALM. Collecting accurate data is the biggest challenge before the s, particularly

those having wide network of branches, but lacking full-scale computerization.

Therefore the introduction of these information systems for risk measurement and

monitoring has to be addressed urgently.

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The large network of branches and the lack of support system to collect information

required for the ALM which analysis information on the basis of residual maturity and

behavioral pattern, it would take time for in the present state to get the requisite information.

ALM ORGANISATION :

Successful implementation of the risk management process requires strong commitment on

the part of senior management in the to integrate basic operations and strategic decision making

with risk management.

The Board of Directors should have overall responsibility for management of risk and

should decide the risk management policy of the , setting limits for liquidity, interest rate, foreign

exchange and equity / price risk.

The Asset Liability Management Committee (HDFC) consisting of the senior management,

including CEO/CMD should be responsible for ensuring adherence to the limits set by the Board

of Directors as well as for deciding the business strategy of the (on the assets and liabilities

sides) in line with the budget and decided risk management objective.

The ALM support group consisting of operation staff should be responsible for analyzing,

monitoring and reporting the risk profiles to the HDFC. The staff should also prepare forecasts

(simulations) showing the effects of various possible changes in market condition related to the

balance sheet and recommend the action needed to adhere to internal limits,

The HDFC is a decision-making unit responsible for balance sheet planning from a risk-

return perspective including the strategic management of interest rate and liquidity risks. Each

has to decide on the role of its HDFC, its responsibility as also the decision to be taken by it. The

business and risk management strategy of the should ensure that the operates within the limits /

parameters set by the Board. The business issues that an HDFC would consider, inter alia, will

include product pricing for deposits and advances, desired maturity profile and mix of the

incremental Assets and Liabilities, etc. in addition to monitoring the risk levels of the , the

HDFC should review the results of and progress in implementation of the decisions made in the

previous meetings. The HDFC would also articulate the current interest rate view of the and

base its decisions for future business strategy on this view. In respect of this funding policy, for

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instance, its responsibility would be to decide on source and mix of liabilities or sale of assets.

Towards this end, it will have to develop a view on future direction of interest rate movements

and decide on funding mixes between fixed vs. floating rate funds, wholesale vs. retail deposits,

Money markets vs. Capital market funding, domestic vs. foreign currency funding etc. Individual

will have to decide the frequency for holding their HDFC meetings.

TYPICAL BUSINESS OF HDFC

y Reviewing of the impact of the regulatory changes on the industry.

y Overseeing the budgetary process;

y Reviewing the interest rate outlook for pricing of assets and liabilities (Loans andDeposits)

y Deciding on the introduction of any new loan / deposit product and their impact oninterest rate / exchange rate and other market risks;

yReviewing the asset and liability portfolios and the risk limits and thereby, assessing thecapital adequacy;

y Deciding on the desired maturity profile of incremental assets and liabilities and therebyassessing the liquidity risk; and

y Reviewing the variances in actual and projected performances with regard to Net InterestMargin(NIM), spreads and other balance sheet ratios.

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COMPOSITION OF HDFC

The size ( number of members) of HDFC would depend on the size of each institution,

business mix and organizational complexity, To ensure commitment of the Top management and

timely response to market dynamics, the CEO/MD or the GM should head the committee. The

chiefs ofInvestment, Credit, Resources Management or Planning, Funds Management / Treasury

(domestic), etc., can be members of the committee. In addition, the head of the computer

(technology) Division should also be an invitee for building up of

MIS and related computerization. Some may even have Sub-Committee and Support

Groups.

ALM ORGANIZATION consists of following categories :

ALM BOARD

HDFC

ALM CELL

COMMITTEE OF DIREC

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ALM BOARD

The Board of management should have overall responsibility for management of risk

and should decide the risk management policy of the and set limits for liquidity and

interest rate risks.

HDFC

The has constituted an Asset- Liability committee (HDFC). The committee may consists of

the following members.

i) General Manager / Head of Committee

ii) General Manager (Loans & Advances) Member

iii) General Manager (CMI & AD) Member

iv) AGM / Head of the ALM Cell Member

The HDFC is a decision making unit responsible for ensuring adherence to the limits set by

board as well as for balance sheet planning from risk return perspective including the strategic

management of interest rate and liquidity risks, in line with the budget and decided risk

management objectives.

The Business issues that an HDFC would considerinterlaidwill include fixation of interest

rates for both deposits and advances, desired maturity profile of the incremental assets and

liabilities etc.

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The HDFC would also articulate the current interest rate due of the and base its decisions

for future business strategy on this view. In respect of funding policy, for instance, its

responsibility would be decided on source and mix of liability.

Individual will have to decide the frequency for their HDFC meetings. However, it is

advised that HDFC should meet at least once in a fortnight. The HDFC should review results of

and process in implementation of the decisions made in the previous meetings

ALM CELL

The ALM desk / cell consisting of operating staff should be responsible for analyzing,

monitoring and reporting the profiles to the HDFC. The staff should also prepare forecasts

(simulations) showing the effects of various possible changes in market conditions related to the

balance sheet and recommend the action needed to adhere to internal limits.

COMMITTEE OF DIRECTORS

They should also constitute professional, management and supervisory committee,

consisting of three to four directors, which will oversee the implementation of the ALM system,

and review its functioning periodically.

ALM PROCESS

The scope of ALM function can be described as follows:

1. Liquidity RiskManagement2. Interest Rate RiskManagement

3. Currency RiskManagement

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4. Settlement RiskManagement

5. Basis RiskManagement

The RBI guidelines mainly address Liquidity RiskManagement and Interest Rate Risk

Management.

The following are the concepts discussed for analysis of s Asset-Liability Management

under above mentioned risks.

Liquidity Risk

Maturity profiles

Interest rate risk

Gap analysis

1. Liquidity Risk Management :

Measuring and managing liquidity needs are vital activities of the s. By assuring a ability

to meet its liability as they become due, liquidity management can reduce the probability of an

adverse situation development. The importance of liquidity transcends individual institutions, as

liquidity shortfall in one institution can have repercussions on the entire system.

Liquidity risk management refers to the risk of maturing liability not finding enough

maturing assets to meet these liabilities. It is the potential inability to meet the s liability as they

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became due. This risk arises because borrows funds for different maturities in the form of

deposits, market operations etc. and lock them into assets of different maturities.

Liquidity Gap also arises due to unpredictability of deposit withdrawals, changes in loan

demands. Hence measuring and managing liquidity needs are vital for effective and viable

operations of the .

Liquidity measurement is quite a difficult task and usually the stock or cash flow

approaches are used for its measurement. The stock approach used certain liquidity ratios.

The liquidity ratios are the ideal indicators of liquidity of operating in developed financial

markets, the ratio do not reveal the real liquidity profile of which are operating generally

in a fairly illiquid market. The assets, which are commonly considered as liquid like

Government securities, have limited liquidity when the market and players are in one

direction. Thus analysis of liquidity involves tracking of cash flow mismatches.

The statement of structural liquidity may be prepared by placing all cash inflows and

outflows in the maturity ladder according to the expected timing of cash flows.

The MATURITY PROFILE could be used for measuring the future cash flows in different

time bands.

The position of Assets and Liabilities are classified according to the maturity patterns a

maturing liability will be a cash outflow while a maturing asset will be a cash inflows. The

measuring of the future cash flows of is done in different time buckets.

The time buckets, given the statutory Reserve cycle of 14 days may be distributed as under:

1. 1 to 14 days

2. 15 to 28 days

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3. 29 days and upto 3 months

4. Over 3 months and upto 6 months

5. Over 6 months and upto 1 year

6. Over 1 year and upto 3 years

7. Over 3 years and upto 5 years

8. Over 5 years.MATURITY PROFILE LIQUIDITY

HEAD OF ACCOUNTS

A.OUTFLOWS

Classification into time buckets

1.Capital, Reserves and Surplus Over 5 years bucket.

2.Demand Deposits (Current &

Savings Deposits)

Demand Deposits may be classified

into volatile and core portions, 25 % of

deposits are generally withdraw able

on demand. This portion may be

treated as volatile. While volatile

portion may be placed in the first time

bucket i.e., 1-14 days, the core portion

may be placed in 1-2 years, bucket.

3. Term Deposits Respective maturity buckets.

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4. Borrowings Respective maturity buckets.

5. Other liabilities and provisions

(i) Bills Payable

(ii) Inter-office Adjustment

(iii) Provisions for NAPs

a) sub-standardb) doubtful and Loss

(iv) provisions for depreciation

in Investments

(v) provisions for NAPs in

investment

(vi) provisions for other purposes

(i) 1-14 days bucket

(ii) Items not representing cash

payable may be placed in over 5

years bucket

(iii)

a) 2-5 years bucket.

b) Over 5 years bucket

.

(iv) Over 5 years bucket.

(v)

a) 2-5 years bucket.

b) Over 5 years bucket

(vi) Respective buckets depending on

the purpose.

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B. INFLOWS

1. Cash 1-14 days bucket.

2. Balance with other s

(i) Current Account

(ii) Money at call and short Notice,

Term Deposits and other

Placements

(i) Non-withdraw able portion on

account of stipulations of

minimum balances may be shown

Less than 1-14 days bucket.

(ii) Respective maturity buckets.

3. Investments

(i) Approved securities

(ii) CorporateDebentures and

bonds, CDs and CPs,

redeemable

preference shares,

units of Mutual

Funds (close ended).

Etc.

(iii) Share / Units ofMutual

Funds

(open ended)

(iii) Investment insubsidiaries /

Joint Ventures.

(i) Respective maturity buckets

excluding the amount required to

be reinvested to maintain SLR

(ii) Respective Maturity buckets.

Investments classified as NPAs

Should be shown under 2-5 years

bucket (sub-standard) or over 5

years bucket (doubtful and loss).

(iii) Over 5 years bucket.

(iv) Over 5 years bucket.

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4. Advances (performing / standard)

(i) Bills Purchased and

Discounted

(including bills under

DUPN)

(iii) Cash Credit / Overdraft(including TOD) and

Demand Loan component of

Working Capital.

(iii) Term Loans

(i) Respective Maturity buckets.

(ii) should undertake a styud

of behavioral and seasonal pattern

of a ailments based on outstanding

and the core and volatile portion

should be identified. While the

volatile portion could be shown in

the respective maturity bucket. The

core portion may be shown under

1-2 years bucket.

(iii) Interim cash flows may be

shown under respective maturity

buckets.

5. NPAs

b. Sub-standardc. Doubtful and Loss

(I) 2-5 years bucket.

(ii) Over 5 years bucket.

6. Fixed Assets Over 5 years bucket.

7. Other-office Adjustment

(i) Inter-office Adjustment (i) As per trend analysis,Intangible items or items

not representing cash

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(ii) Others

receivables may be shown

in over 5 years bucket.

(i) Respective maturitybuckets. Intangible assets

and assets not representing

cash receivables may be

shown in over 5 years

bucket.

Terms used:

CDs: Certificate of Deposits.

CPs: Commercial Papers.

DTL PROFILE: Demand and Time Liabilities.

Inter office adjustment:

Outflows:Net Credit Balances

Inflows: Net Debit Balances

Other Liabilities: Cash payables, Income received in advance, Loan Loss and

Depreciation in Investments.

Other assets: Cash Receivable, Intangible Assets and Leased Assets.

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2.Interest Rate Risk :

Interest Rate Risk refers to the risk of changes in interest rates subsequent to the creation

of the assets and liabilities at fixed rates. The phased deregulations of interest rates and the

operational flexibility given to in pricing most of the assets and liabilities imply the need for

system to hedge the interest rate risk. This is a risk where changes in the market interest rates

might adversely affect a s financial conditions.

The changes in interest rates affect in large way. The immediate impact of change in

interest rates is on s earnings by changing its Net Interest Income (NII). A long term impact of

changing interest rates is on s Market Value of Equity (MVE) or net worth as the economic

value of s assets, liabilities and off-balance sheet positions get affected due to variation in

market interest rates.

The risk from the earnings perspective can be measured as changes in the Net Interest

Income (NII) OR Net Interest Margin (NIM).

There are many analytical techniques for measurement and management of interest rate

risk. In MIS of ALM, slow pace of computerization in and the absence of total deregulation, the

traditional GAP ANALYSIS is considered as a suitable method to measure the interest rate risk.

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COMPARATIVE ASSET LIABILITY SHEET OF THE YEARENDING 31ST

MARCH 2006-07

TOTAL FIXED ASSETS 8,95,42,436 10,50,01,624 1,54,59,187 17.26MISCELLANEOUS

EXPENDITURESPRELIMINARYEXPENSES

3,66,900 2,44,600 -1,22,300 33.33

WRIT TERN OF TOTALMETOTALASSETS 21,13,29,674 29,45,97,711 -8,32,68,037 39.40LIABILITIES

PAID UP EQUITYSHARES CAPITAL

2,71,11,890 2,71,11,890 - -

RESERVES& SURPLUS 37,22,163 1,11,61,236 74,39,073 199.85TOTAL CAPITAL

&RESERVE3,08,34,053 3,82,73,126 74,39,073 199.85

LONGTERMLIABILITES

SECURED LOANS 69,14,784 43,69,20,357 2,54,55,579 36.81UNSECURED LOANS 16,56,76,746 17,84,72,806 1,27,96,060 7.72

PARTICULARS 2006 2007ABSOLUTEINC

REASE/CHANGE

%

ASSETSCURRENT ASSETS

CASH & BANKBALANCE

2,88,272 14,70,425 11,82,152 410.08

SUNDRY DEBTORS 1,53,226 63,467 -89,759 58.58DEPOSITS 2,64,600 4,07,046 1,42,446 53.83INVENTORIES 9,39,57,410 14,71,99,579 5,32,42,169 568.98TOTAL 9,48,83,080 15,05,13,360 5,56,30,280 58.63LOANS &GROUP

CONCERNS (INTERCORPORATE BODIES)

1,47,40,135 2,59,27,598 1,11,87,463 75.89

ADVANCE TO CANE

GROWERS 1,07,85,042 1,19,58,868 11,73,826 18.88STAFF ADVANCE 2,72,023 2,21,082 -50,941 18.72OTHER ADVANCE 7,40,058 7,30,579 -9,474 1.28TOTAL 2,65,37,258 3,88,38,127 1,23,00,869 46.35TOTAL CURRENT

ASSETS12,14,20,338 18,93,51,487 -2,69,51,931 12.46

FIXED ASSETSLAND 67,28,750 1,33,5,275 66,21,525 98.41FACTORY BUILDINGS 2,48,18,492 2,29,32,318 -18,86,174 70.59

NON FACTORY

BUILDINGS99,56,491 94,58,666 -4,97,825 5.00

PLANT & MACHINERY 4,63,31,692 5,77,53,189 1,14,21,497 24.65FURNITURES &FIXTURES

5,66,109 8,24,981 2,58,872 45.72

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TOTAL CAPITAL

&RESERVES

3,08,34,053 3,82,73,126 74,39,073 199.85

LONGTERM

LIABILLTES

SECURED LOANS 69,14,784 43,69,20,357 2,54,55,579 36.81UNSECURED LOANS 16,56,76,746 17,84,72,806 1,27,96,060 7.72TOTALLONG TERMLIABILITIES

17,25,91,530 2,22,16,4841 4,95,73,311 28.72

CURRENT LIABILITY

&PROVISONSUNDRY CREDITORSFORMATERIALS

62,35,100 2,70,29,530 2,07,94,430 333.51

PROVISION FOR TAX - - - -TOTAL CURRENT

LIABILITIES79,04,091 3,41,59,744 2,62,55,653 -332.18

TOTALLIABILITIES 21,13,29,674 29,45,97,711 8,32,68,037 39.40

INTERPRETATION:

The comparative balance sheet of the co-reveals that during the year 2006 fixed assetsincreased by RS 1,54,59,187 I.e 17.26%while long term liability from outsides (loans) has

increased by 4,95,73,311 i.e.28.72% and there is neither increase nor decrease in sharecapital. The pattern of investment towards Fixed Assets reveals that long term sources of

funds are utilized for fixed assets.

The current assets has been decreased by 2, 69, 51,931by 12.46%. the current liabilities haveincreased by 79,04,091 to 3,41,59,744 by Rs.2,62,55,653 i.e.332.18%. The deviation of the

current assets of liabilities is very low. In this year the co-working capital positions it notgood.

Reserves and surplus have increased from 37, 22,163 to 1, 11, 61,236 the amount of RS. 74,39,073. It shows that the companys profitability position of the company is good.

The overall Asset position of the HDFC. During the period of study is satisfactory.

.

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COMPARATIVE ASSET LIABILITY SHEET OF THE YEAR ENDING 31ST

MARCH 2007-08

PARTICULARS 2007 2008ABSOLUTE

INCREASE/DECREASECHANG

IN%ASSETS

CURRENT ASSETSCAST& BANKBALANCE

14,70,425 14,121,860 1,26,51,435 860.39

SUNDRYDEBTORS

63,467 65,10,948 64,47,491 10,158,8

DEPOSITS 4,07,046 2,91,926 -1,16,020 28.44INVENTORIES 14,71,99,579 11,75,48,402 -102,82,84,45 -698.56

TOTAL 15,05,13,360 14,25,96,956 -79,16,404 5.265LOANS &ADVANCSSTAFF ADVANCE 2,21,082 1,73,317 -47,765 21.61OTHER ADVANCE 7,30,579 8,59,690 1,29,111 54.46TOTAL 3,88,38,127 5,99,92,347 2,11,54,220 54.46TOTALCURRENTASSETS

18,93,51,487 20,25,89,303 1,32,37,816 6.99

FIXED ASSETS

LAND 1,33,50,275 1,33,50,275 - -FACTORY

BUILDINGS2,29,32,318 2,06,71,981 -22,60,337 9.86

NON FACTORYBUILDINGS

94,58,666 89,85,733 -4,72939 4.99

PLANT &MACHINERY

5,77,53,189 7,16,13,335 -50,5,05,91,854 87.6

FURNITURES& FIXTURES 8,24,981 9,07,913 82,932 10.05

TOTAL FIXEDASSETS

10,50,01,624 11,78,44,260 1,28,42,638 12.23

PRELIMINARYEXPENSES

2,44,600 1,22,300 1,22,300 50.00

WRITTEN OF

TOTALME

TOTALASSETS

29,45,97,711 32,05,55,863 2,59,58,152 8.81

LIABILITES

PAID UPEQUITYSHARES

CAPITAL

2,71,11,890 2,71,11,890 - -

RESERVES &

SURPLUS1,11,61,236 3,46,30,113 2,34,68,877 210.27

TOTAL

CAPITAL

3,82,73,126 6,17,42,003 2,34,68,877 61.32

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&RESERVESLONGTERMLIABILITESSECURED

LOANS

43,69,20,357 19,10,18,611 1,25,45,805 7.03

UNSECURED

LOANS17,84,72,806 1,94,57,888 -4,17,46,247 95.55

TOTALLONG

TERM

LIABILITIES

2,22,16,4841 27,22,18,502 -1,16,88,342 5026

SUNDRYCREDITORSFOR

MATERIALS

2,70,29,530 3,00,94,997 30,65,467 11.34

SUNDRYCREDITORS

FOREXPENSES

65,39,347 2,68,009 -38,59,338 59.02

OTHER

LIABILITIES &

PROVISIONS

5,90,867 48,81,795 42,90.928 726.21

TOTALCURRENT

LIABILITIES

3,41,59,744 4,83,37,361 14,177,617 41.50

TOTALLIABILITIES

29,45,97,711 32,05,55,863 2,59,58,152 8.81

INTERPRETATION:

The comparative balance sheet of the co-reveals that during the year 2007 fixed assets

increased by RS 1,28,42,638 i.e,12.23%.while long term liability from outsides (loans) hasdecreased by 1,16,88,342 i.e.50.26% and there is neither increase nor decrease in share

capital. The pattern of investment towards Fixed Assets reveals that long term sources offunds are utilized for fixed assets.

The current assets have been increased by 1, 32, 37,816 by 6.99%. the current liabilities haveincreased by 3,41,59,744 to 4,83,37,361by Rs.1,41,77,617 i.e.41.50%. The deviation of the

current assets of liabilities is very low. In this year the co-working capital positions it notgood.

Reserves and surplus have increased from 1,11,61,236 to 3,43,30,113 the amount ofRS.2,34,68,877. It shows that the companys profitability position of the company is good.

The overall Asset position of the HDFC. During the period of study is satisfactory.

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.

COMPARATIVE ASSET LIABILITY SHEET AS ON 31ST

MARCH 2008-09

PARTICULARS 2008 2009ABSOLUTEINCREASE/

DECREAES

CHANGE

IN %

ASSETS

CURRENT ASSETSCASH &BANKBALANCE

14,121,860 15,11,751 -1,26,10,109 89.29

SUNDRY DEBTORS 65,10,948 16,22,803 -48,88,145 75.07DEPOSITS 2,91,926 8,27,407 5,35,544 183.45CENVANT 24,03,543 64,25,816 40,22,273 167.34INCOME TAX 2,49,757 6,14,801 3,65,044 146.15

ADVANCE TAX 12,58,000 19,50,000 6,92,000 55.00INVENTORIES 11,75,48,402 21,16,88,390 94,13,99,88 80.88EXCISE DUTY PAID IN

ADVANCE1,52,682 5,44,356 3,91,674 256.52

TAX DETECTED AT

SOURCE59,838 - -59,838 100

TOTAL 14,25,96,956 22,51,85,387 -8,25,88,431 57.99LOANS& ADVANCSLOANS & GROUP

CONCERNS (INTERCORPORATE BODIES)

4,09,11,9312,09,12,69813,34,70,060

-199,99,233 48.88

ADVANCE TO CANE

GROWERS1,80,47,409 80,04,767

STAFF ADVANCE 1,73,317 3,99,273 2,25,956 130.37OTHER ADVANCE 8,59,690 6,41,023 -21,86,67 25.43TOTAL 5,99,92,347 16,34,27,821 10,34,35,474 172.41TOTALCURRENT

ASSETS20,25,89,303 55,20,41,029 34,94,51,726 172.49

TOTAL FIXED

ASSETS

11,78,44,260 11,29,58,523 -48,85,737 4.14

MISCELLANIOUS

EXPENDITURESPRELIMINARY

EXPENSES122,300 19,57,834 18,35,534 15,00.82

WRITTEN OF TOTALME

TOTAL ASSETS 32,05,55,863 50,35,29,565 18,29,73,702 57.08LIABILITES

SHARE CAPITAL &

RESULTS & SURPLUSPAID UP EQUITYSHARES CAPITAL

2,71,11,890 2,71,11,890 - -

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RESERVES &

SURPLUS3,46,30,113 5,08,12,447 1,61,82,334 46.72

TOTAL CAPITAL&RESERVES

6,17,42,003 7,79,24,337 1,61,82,334 26.20

LONGTERMLIABILITES 58.35

SECURED LOANS 19,10,18,611 7,95,55,940 -11,14,62,671 1384.47UNSECURED LOANS 1,94,57,888 28,88,46,517 26,93,88,621 63.95TOTALLONG TERM

LIABILITIES

27,22,18,502 44,63,26,794 17,41,08,292 63.95

CURRENT LIABILTY& PROVISONSUNDRY CREDITORSFORMATERIALS

3,00,94,997 5,54,93,648 2,53,98,471 84.39

SUNDRY CREDITORSFOR EXPENSES

2,68,009 14,12,857 11,44,848 427.16

OTHERLIABILITIES& PROVISIONS

48,81,795 2,96,446 -45,85,349 93.92

PROVISION FOR TAX 1,06,80,560 - -1,06,80,560 100TOTAL CURRENT

LIABILITIES

4,83,37,361 5,72,02,771 88,65,410 183.40

TOTALLIABILITIES 32,05,55,863 50,35,29,565 18,29,73,702 5.08

INTERPRETATION:

The comparative balance sheet of the co-reveals that during the year 2008 fixed assetsdecreased by RS 48,85,737 I.e 4.14%while long term liability from outsides (loans) has

increased by 17,41,08,292 i.e, 4.14%and there is neither increase nor decrease in share capital.

The pattern of investment towards Fixed Assets reveals that long term sources of funds areutilized for fixed assets.

The current assets has been increased by 34,94,51,726i.e,172.49% the current liabilities have

increased by 4,83,37,361 to 5,72,62,771 by Rs 88,65,410i.e.183.40%. The deviation of thecurrent assets of liabilities is very low. In this year the co-working capital positions it not

good.

Reserves and surplus have increased from 3,46,30,113 to 5,08,12,447 by rs 1,61,82,334 . It

shows that the companys profitability position of the company is good.

The overall Asset position of the HDFC. During the period of study is satisfactory.

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COMPARTIVE ASSET LIABILITY SHEET OF YEAR ENDING 31ST

MARCH2010

PARTICULARS 2009 2010 ABSOULTINCRESE/DECRESE

CHANGE

IN%

ASSETSCASH &BANKBALANCE

15,11,751 1,99,36,365 18,42,46,614 1218.75

SUNDRY

DEBTORY16,22,803 16,50,832 28,209 1.73

DEPOSITS 8,27,407 8,71,404 43,997 5.32CENVANT 64,25,816 10,63,21,121 9,98,95,305 1554.59TAX DEDUCTEDSOURCE

- 3,647 3,647 -

ADVANCE TAX 19,50,000 16,23,415 -3,26,585 16.75INVENTORIES 21,16,88,390 15,01,52,853 61,535537 29.07INCOME TAX 61,48,01 - -6,14,801 100

TOTAL 22,51,85,387 29,63,15,752 7,11,30,365 31.59OTHERADVANCES

85,96,90 10,07,589 147,899 17.20

TOTAL 16,34,27,821 10,66,4695 -15,27,63,126 93.47TOTAL

CURRENTASSETS

38,86,13,208, 30,69,80,447 -8,16,32761 21.00

FIXED ASSETS 11,29,58,523 1,50,86,98113 13,95,73,9590 1235.62TOTAL ASSETS 50,35,29,565 1,8,56,78,560 1,31,21,48,995 260.59PAID UP EQUITYSHARE CAPITAL

2,71,11,890 2,71,11,890 - -

RESERVES &

SURPLUS

5,08,12,447 35,39,1549 -1,54,20,898 30.35

TOTAL CAPITAL& RESERVES

7,79,24,337 14,25,03,439 6,45,79,102 82.87

LONGTERMLIABILITES

SECURED LOANS 7,95,55,940 1,02,34,73,851 94,3917911 1186.48

UNSECURED LOANS 28,88,46517 61,83,41,930 32,9495,413 114.07

TOTALLONG TERM

LIABILITIES

44,63,26794 1,78,43,19,220 13,37,99,2426 299.78

SUNDRY CREDITORS

FORMATERIALS

5,54,93,648 24,77,0016 -30,72,3632 55.36

SUNDRY CREDITORS

FOR EXPENSES14,12,857 48,11,183 33,98,326 240.52

OTHERLIABILITIES &

PROVISIONS2,96,446 14,37,208 11,40,762 384.81

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INTERPRETATION:

The comparative balance sheet of the co-reveals that during the year 2010 fixed assets

increased by RS 1,39,57,590 by1235.62%while long term liability from outsides (loans) hasincreased by 13,37,79,92,426 i.e.299.78% and there is neither increase nor decrease in share

capital. The pattern of investment towards Fixed Assets reveals that long term sources offunds are utilized for fixed assets.

The current assets has been increased by 7, 11, 30,365 i.e, 31.59%. the current liabilities have

decreased by 5,72,02,771 to 3,13,59,340by Rs2,58,43,431. i.e.45.18%. The deviation of thecurrent assets of liabilities is very low. In this year the co-working capital positions it notgood.

Reserves and surplus have increased from 37, 22,163 to 5, 08, 12,447the amount of RS.1, 54,20,898. It shows that the companys profitability position of the company is good.

The overall Asset position of the HDFC. During the period of study is satisfactory.

LIQUIDITY RATIOS

CURRENT RATIO:

This is the most widely used ratio. It is the ratio of current assets and current liabilities. It shows

a firms ability to cover its current liabilities with its current assets. Generally 2:1 is considered

ideal for concern i.e. current assets should be twice of the current liabilities. If the current assets

are two times of the current liabilities, there will be no adverse effect on business operations

when the payment of current liabilities is made. If the ratio is less than 2, difficulty may be

experienced in the payment of current liabilities and day-to-day operation of the business may

suffer. If the ratio is higher than 2, it is comfortable for the creditor but, for the business

TOTAL CURRENT

LIABILITIES

5,72,02,771 31,35,9340 -25,84,3431 45.18

TOTALLIABILITIES 50,35,29,365 18,15,678,560 13,12,14,8995 260.59

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concern, it is indicator of idle funds and a lack of enthusiasm for work. It is calculated as

follows:

CURRENT RATIO = CURRENT ASSETS / CURRENT LIABILITIES

For the calculation this ratio

y Current assets include inventories, sundry debtors, cash and bank balances and loans andadvances.

y Currentliabilities includecurrentliabilities and provisions.(RUPEES IN LAKHS)

YEARS CURRENT

ASSETS

CURRENT

LIABILITIES

CURRENT

RATIOS

2006-2007 234274 340710 0.687

2007-2008 589973 401302 1.470

2008-2009 263114 196578 1.338

2009-2010 256922 233971 1.098

INTERPRETATION:

0

100000

200000

300000

400000

500000

600000

700000

2006-2007 2007-2008 2008-2009 2009-2010

CURRENT ASSETS

CURRENT LIABILITIES

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The current ratio the significance is 2:1 whereas the company is not able to reach in this 4 years

it is recommended to increase the current ratio.

QUICK RATIO (OR) ACID TEST RATIO:

This is the ratio of liquid assets to current liabilities. Is shows a firms ability to meet

current liabilities with its most liquid or quick assets. The standard ratio 1:1 is considered ideal

ratio for a concern. Liquid assets are those, which can be converted into cash within a short

period of time without loss of value. This can be calculated by using the formula.

QUICK RATIO = QUICK ASSETS / CURRENT LIABILITIES

For the calculation of this ratio

y Liquid assets of quick asset includes Sundry debtors, cash and bank balance and loan andadvance.

y Currentliabilities includecurrentliabilities and provisions.(RUPEES IN LAKHS)

YEARS QUICK

ASSETS

CURRENT

LIABILITIES

CURRENT

RATIOS

2006-2007 188182 340710 0.55

2007-2008 536531 395877 1.35

2008-2009 214366 196578 1.09

2009-2010 195500 233972 0.83

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INTERPRETATION:

The significance of this ratio is 1:1 whereas the company is able to reach this in the year 2006-

07, 2007-08, all other years it is below.

1. LEVERAGE RATIOS

DEBT EQUITY RATIO:

This ratio examines the relationship between borrowed funds and owners funds of a firm. In

other words, it measures the relative claims of creditors and owners against the assets of a firm.

This ratio is also known as debt to net worth ratio. It is calculated as follows:

DEBT EQUITY RATIO = LONG TERMLIABILITIES

SHARE HOLDERS FUNDS

For the calculation of this ratio

0

100000

200000

300000

400000

500000

600000

2006-2007 2007-2008 2008-2009 2009-2010

LIQUID ASSETS

CURRENT LIABILITIES

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y Long termliabilities included securedloans, unsecuredloans anddeferredcredits.y Shareholder s funds include sharecapital andreserves and surplus.

(RUPEES IN LAKHS)YEARS LONG TERM

LIABILITIES

SHARE HOLDERS

FUNDS

DEBT EQUITY

RATIOS

2006-2007 662910 350000 1.89

2007-2008 79700 350000 0.23

2008-2009 8248 164512 0.05

2009-2010 54743449 49093096 1.11

INTERPRETATION:

Explains the relationship between long term debts to share holders funds which is gradually

decreasing from 2006-09.

0

10000000

20000000

30000000

40000000

50000000

60000000

2006-2007 2007-2008 2008-2009 2009-2010

LONG TERM LIABILITIES

SHARE HOLDER S FUNDS

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FIXED ASSETS RATIO:

This ratio shows the relationship between fixed assets and capital employed.

Fixed assets ratio explains whether the firm has raised adequate long term funds to meet its fixed

assets requirements and it gives an idea as to what part of the capital employed has been used in

purchasing fixed assets for the concern. If the ratio is less than one it is good for the concern.

The ideal ratio is 0.67 and it is calculated as under.

FIXED ASSETS RATIO = FIXED ASSETS / CAPITAL EMPLOYED

(RUPEES IN LAKHS)

YEARS Fixed Assets Capital Employed Fixed Asset ratio

2006-2007 45379 1900277 0.023

2007-2008 77378 493131 0.156

2008-2009 85938 263114 0.326

2009-2010 80886283 256921819 0.314

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INTERPRETATION:

In case of fixed assets ratio, it is a showing a trend of fluctuation i.e. increase and decrease trend.

CURRENT ASSETS TO FIXED ASSETS RATIO:

This ratio will differ from industry to industry and, therefore no standard can be laid down. A

decrease in the ratio may mean that trading is slack or more mechanization has been put through.

An increasing in the ratio may reveal that inventories and debtors have unduly increased or fixed

assets have been intensively used.

RATIO OF CURRENT ASSETS TO FIXED ASSETS = CURRENT ASSETS / FIXED ASSETS

(RUPEES IN LAKHS)

YEARS CURRENT

ASSTES

FIXED ASSETS CURRENT

ASSETS/ FIXED

ASSETS

2006-2007 234274 45379 5.16

2007-2008 589973 77378 7.62

2008-2009 263114 85938 3.06

0

50000000

10000000

15000000

20000000

25000000

30000000

2006-2007 2007-2008 2008-2009 2009-2010

SHAREHOLDER S FUNDS

TOTAL ASSETS

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2009-2010 256922 80886283 0.003

INTERPRETATION :

2009-10 this ration is decreased and thereafter it has decreased to the maximum existent.

2. TURNOVER RATIO

INVENTORY TURNOVER RATIO:

This ratio, also known as stock turnover ratio, establishes relationship between cost of goods sold

during a given period and the average amount of inventory held during that period. This ratio

reveals the number of items finished stock is turned over during a given accounting period.

Higher the ratio the better it is because it shows that finished stock rapidly turned over. On the

other hand, a low stock turnover ratio is not desirable because it reveals the accumulation of

obsolete stock, or the carrying of too much stock. This ratio is calculated as follows :

STOCK TURNOVER RATIO = COST OF GOODS SOLD / AVERAGE STOCK

For the calculation of this ratio

0

100000

200000

300000

400000

500000

600000

700000

800000

900000

2006-20072007-20082008-20092009-2010

CURRENT ASSTES

FIXED ASSETS

CURRENT ASSETS/ FIXED

ASSETS

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y COST OF GOODS SOLD = OPENING STOCK + PURCHASES + MANUFACTURING EXPENSES CLOSING STOCK

y AVERAGE STOCK = OPENING STOCK + CLOSING STOCK / 2(RUPEES IN LAKHS)

YEARS COST OF

GOODS SOLD

AVERAGE STOCK STOCK

TUNROVER

RATIO

2006-2007 13008 4157 3.12 TIMES

2007-2008 20255 4561 4.44 TIMES

2008-2009 18080 3521 5.13 TIMES

2009-2010 202967 35146 5.77 TIMES

INTERPRETATION:

This ratio will explain the relationship between cost of goods sold to average stock the inventory

turnover ratio is gradually decreasing and thereafter increased in a year 2009-10.

0

50000

100000

150000

200000

250000

2006-2007 2007-2008 2008-2009 2009-2010

Series1

Series2

Series3

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FINDINGS

1. ALM technique is aimed to tackle the market risks. Its objective is to stabilize andimprove Net interest Income (NII).

2. Implementation of ALM as a RiskManagement tool is done using maturity profiles andGAP analysis.

3. ALM presents a disciplined decision making framework for while at the same time guardingthe risk levels.

4. Turnover ratio is gradually decreasing and thereafter increased in a year 2009-10.5. 2009-10 this ration is decreased and thereafter it has decreased to the maximum existent.

6. The current ratio the significance is 2:1 whereas the company is not able to reach in this 4years it is recommended to increase the current ratio.

7. The significance of this ratio is 1:1 whereas the company is able to reach this in the year2006-07, 2007-08, all other years it is below.

8. The relationship between long term debts to share holders funds which is graduallydecreasing from 2006-09.

9. fixed assets ratio, it is a showing a trend of fluctuation i.e. increase and decrease trend

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Suggestions

1. They should strengthen its management information system (MIS) and computerprocessing capabilities for accurate measurement of liquidity and interest rate Risks

in their Books.

1. In the short term the Net interest income or Net interest margins (NIM) createseconomic value of the which involves up gradation of existing systems &

Application software to attain better & improvised levels.

2.It is essential that remain alert to the events that effect its operating environment &react accordingly in order to avoid any undesirable risks.

3. HDFC requires efficient human and technological infrastructure which will futurelead to smooth integration of the risk management process with effective business

strategies.

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BIBILIOGRAPHY

Title of the Books Author

1. Riskmanagement Gustavson hoyt

2. Management Research magazine P.M.Dileep Kumar

3. India financial system M.Y. Khan

4. Web sites

WWW.HDFC.IN

www.googlefinance.com

www.assectindia.com