ANALYSIS OF ANNUAL REPORT OF

ICICI BANK Ltd. (2008-2009)

HDFC BANK Ltd. (2008-2009)

Submitted to- Dr. N.K. Puri

Submitted on- 7 t h September, 2009-09-06

Submitted by- Suman Patra

Roll No- 33/09

Section A

PGDM (General)
I) Contents Of Annual Report :

For ICICI Bank

 Directors and Auditors- Names of all the directors and senior

management, board committees and names of the statutory
auditors.
 Directors’ Report- Contains an overview of performance of
the bank along with financial highlights, appropriations,
various committees and the directors’ responsibility statement.
It is a summation of the banks activities as disclosed by the
directors to the statutory auditors. It is mandatory under
Section 217 of the Companies Act, 1956.
 Auditors’ Report- The statutory auditors then check the
financial statements, other related statements, compliance with
accounting standards and state their opinion of the same in this
report. They also state disclaimers, if any, in this report.
Auditors’ Report is dictated by Section 216 of the Companies
Act, 1956.
 Balance Sheet- It is a quantitative summary of the Bank’s
financial position as on 31 s t March, 2009. The first part shows
all the productive assets of the bank and the second part shows
all the financing methods i.e., liabilities and owner’s equity
 Profit and Loss Account- It presents the result of operations of
the bank for the accounting year ended 31 s t March, 2009.
 Cash Flow Statement- Solely deals with the movement of cash
i.e., generation and usage, for the accounting year 1 s t April,
2008 to 31 s t March, 2009.
 Schedules- Contain additional information about various items
in the balance sheet and income statement. Schedules along
with Notes form an integral part of financial statements.
 Statement pursuant to Section 212 of the Companies Act,
1956- Contains information related to subsidiaries. ICICI has
17 subsidiaries.
  Consolidated Financial Statements of ICICI Bank Limited
and its subsidiaries- The financial statements of ICICI Bank
are consolidated with the financial statements of all its
subsidiaries, associates and joint ventures and presented here.
It also contains the auditors’ report as to its correctness and
adherence to compliance requirements.
 BASEL II- Pillar 3 Disclosures- BASEL Accords are
recommendations on banking laws and regulations issued by
Basel Committee on Banking Supervision. BASEL II as the
name suggests is the second of such accords which specifies
rigorous risk and capital management requirements. Pillar 3
reinforces transparency requirements by stipulating enhanced
disclosures to ensure market discipline.

For HDFC Bank

All the above stated contents also form part of Contents for
HDFC Bank Ltd. The additional items that could be found in the
annual reports for HDFC Bank Ltd are as follows:

 Key Comparatives between U.S. and Indian Corporate

Governance Practices- HDFC Bank is a NYSE listed company
and is on the Indian Stock Exchange. Therefore here it
enumerates the differences between NYSE Corporate
Governance Standards and the Corporate Governance Rules as
per the listing agreement with ISE. This helps in increasing the
Bank’s credibility and trust worthiness.
 Auditors’ Certificate on Corporate Governance - The
auditors express their opinion on the compliance and
implementation of corporate governance procedures by HDFC
Bank.
 Corporate Governance- Enumerates and explains all the
mandatory and non-mandatory Corporate governance
procedures followed by HDFC Bank.

II) Disclosures:

a) Disclosure Techniques
ICICI Bank and HDFC Bank have to adhere to the norms of both The
Indian Companies Act, 1956 and the RBI guidelines while disclosing
pertinent information.

The disclosure policies adopted by the companies are prescribed under Schedule
VI of the Indian Companies Act. They are:

 Disclosure of Share Capital (Part III)

 Disclosure of Reserves and Surplus (Part III)
 Disclosure of Secured Loans
 Disclosure of Unsecured Loans
 Disclosure of Current Liabilities and Provisions (Part I)
 Disclosure of Fixed Assets (Part I)
 Disclosure of Investments
 Disclosure of Current Assets, Loans & Advances
 Disclosure Requirements of Miscellaneous Expenses (Part I)
 Disclosure of Contingent Liabilities
 Disclosure of Expenses (Part II)
 Disclosure of Income
 Disclosure of Managerial Remuneration
 Disclosure of Expenditure during construction period, if any
 Disclosure Requirements via Cash Flow Statements
 Disclosure Requirements under Accounting Standards (AS 1-15)
 Profit & Loss Account (Part II)
 Related Party Disclosures (Part 1)

ICICI Bank and HDFC Bank: Being in the same industry and
being governed by the same laws, both banks follow similar
disclosure policies and format. Wherever there are any differences
they have been incorporated.

The following disclosures have been made in the annual reports:

1. Complete set of Financial Statements -

 Balance Sheet
 Income Statement
 Cash Flow Statement
 Schedules
 Significant Accounting Policies
 Explanatory Notes
  Capital adequacy ratio and business information ratio as
per RBI guidelines.
 Business and geographical segments as required to be
reported under AS 17- The various segments reported are:

i. Retail Banking- Includes exposure which

satisfies the 4 criteria of orientation, product,
granularity and low value of individual
exposure.
ii. Wholesale Banking- Includes all advances to
trusts, partnership firms, companies and
statutory bodies, which are not included in retail
banking.
iii. Treasury- Includes the entire investment
portfolio of the bank.
iv. Other Banking- Includes hire purchase and
leasing operations and other items not
attributable to any particular business segment.

Earnings per Share as per AS- 20 and maturity pattern of assets and
liabilities.

 Related party disclosures as per AS- 18- Bank

transactions with subsidiaries, associates and joint
ventures, other related entities, key management
personnel, relatives of key management personnel etc.

2. External Audit Report

3. Board of Directors’ Report
4. Management’s discussion and analysis - Its function is to
complement the financial statements and vice versa so as to
present a fair picture of the economic effects on the enterprise
of developments in the period and of the state of affairs at the
end.

5. Corporate Governance -
ICICI Bank’s corporate governance philosophy encompasses not only
regulatory and legal requirements, such as the terms of listing agreements with
stock exchanges, but also several voluntary practices aimed at a high level of
business ethics, effective supervision and enhancement of value for all
stakeholders.

i. Whistle Blower Policy

ii. ICICI Bank Code of Conduct for Prevention of Insider Trading

iii. Group Code of Business Conduct and Ethics

iv. CEO/CFO Certification

v. Board of Directors

HDFC Bank follows corporate governance requirements of both NYSE listed

companies and rules governing listing agreements with Indian Stock Exchange.
The following are some of the policies:

i. Board of Directors- The Composition of the Board of Directors of the Bank is

governed by the Companies Act, 1956, the Banking Regulation Act, 1949 and
the listing requirements of the Indian Stock Exchanges where the securities
issued by the Bank are listed. The Board has the strength of eleven (11)
Directors as on March 31, 2009.

ii. Committees for monitoring of fraudulent and non compliance activities and
for addressing and redressal of grievances.

iii. Non-Mandatory Requirements-

a. Remuneration Committee: The Bank has set-up a Compensation Committee

of Directors to determine the Bank’s policy on remuneration packages for all
employees.

b. Mechanism for evaluating non-executive Board Members: The Nomination

Committee evaluates the non-executive Board members every year.

c. Shareholder’s Rights: The Bank publishes its results on its website at

www.hdfcbank.com which is accessible to the public at large.

d. Whistle Blower Policy: The Bank has adopted the Whistle Blower Policy
pursuant to which employees of the Bank can raise their concerns relating to the
fraud, malpractice or any other activity or event which is against the interest of
the Bank or society as a whole.

6. Voluntary Disclosures - These banks disclose some information

voluntarily without any legal obligation. This is done to increase
credibility and to give more information to investors. For example
disclosure of complaints, penalties and strictures imposed on the
bank etc.

7. Basel Accords - Being a financial institution ICICI Bank and

HDFC Bank have to abide by the disclosure requirements of
BASELII, pillar 3 Accords which calls for enhanced disclosure
for increased transparency and to maintain market discipline.

b) Disclosure of Contingent Liabilities and Contingent Assets:

For ICICI Bank

Contingent Liabilities are off balance sheet items; hence they are
first disclosed as footnotes to the balance sheet. Then enumerated
and explained in detail in schedule 12.
SCHEDULE 12 – CONTINGENT LIABILITIES
I. Claims against the Bank not acknowledged as debts ..................................... 32,824,550
II. Liability for partly paid investments ............................................................. 128,126
III. Liability on account of outstanding forward exchange contracts .......... 2,583,670,864
IV. Guarantees given on behalf of constituents
a) In India ...................................................................................................... 453,001,349
b) Outside India ............................................................................................ 127,880,113
V. Acceptances, endorsements and other obligations ....................................306,782,689
VI. Currency swaps ........................................................................................ 569,648,391
VII. Interest rate swaps, currency options and interest rate futures .............4,146,346,015
VIII. Other items for which the Bank is contingently liable ......................... 126,547,930
TOTAL CONTINGENT LIABILITIES ................................................. 8,346,830,027

Contingent Assets: ICICI Bank as per the accounting policy followed

by them does not account for or disclose contingent assets, if any.
This is to comply with conservatism concept of accounting.
For HDFC Bank

Contingent Liabilities as disclosed in schedules.

SCHEDULE 12 - CONTINGENT LIABILITIES
I. Claims against the Group not acknowledged as debts – Taxation…….. 5,703,080
II. Claims against the Group not acknowledged as debts – Others………... 481,405
III. Liability on account of outstanding forward exchange contracts.. 2,338,927,663
1,929,955,520
IV. Liability on account of outstanding derivative contracts………... 1,533,722,300
V. Guarantees given on behalf of constituents - in India……………….. 76,353,601
VI. Acceptances, endorsements and other obligations………………….. 93,873,829
VII. Other items for which the Group is contingently liable……………. 11,211,722
Total ………………………………………………………………… 4,060,273,600

Contingent Assets, if any, are not recognised in the financial statements since
this may result in the recognition of income that may never be realized.

III) Significant Accounting Policies:

Followed by ICICI Bank

1. Revenue Recognition - Interest income is recognised in the profit

and loss account as it accrues except in the case of non-
performing assets, where it is recognised upon realisation.
2. Fixed Assets and Depreciation - Premises and other fixed assets are
carried at cost less accumulated depreciation. Cost includes freight, duties,
taxes and incidental expenses related to the acquisition and installation of the
asset. Depreciation is charged over the estimated useful life of a fixed asset
on a straight-line basis. The rates of depreciation for fixed assets, which are
not lower than the rates prescribed in Schedule XIV of the Companies Act,
1956.
3. Investments- All investments are classified into ‘Held to Maturity’,
‘Available for Sale’ and ‘Held for Trading’. Under each classification, the
investments are further categorised as (a) government securities, (b) other
approved securities, (c) shares, (d) bonds and debentures, (e) subsidiaries and
joint ventures and (f) others. ‘Held to Maturity’ securities are carried at their
 acquisition cost or at amortised cost. ‘Available for Sale’ and ‘Held for
Trading’ securities are valued periodically as per RBI guidelines.
4. Income Taxes- Income tax expense is the aggregate amount of current tax,
deferred tax and fringe benefit tax borne by the Bank. The income tax
provision is determined in accordance with the provisions of the Income Tax
Act, 1961. Deferred tax adjustments comprise of changes in the deferred tax
assets or liabilities during the year.
5. Transactions Involving Foreign Exchange - Foreign currency income
and expenditure items of domestic operations are translated at the exchange
rates prevailing on the date of the transaction. Income and expenditure items
of integral foreign operations (representative offices) are translated at weekly
average closing rates, and income and expenditure of non-integral foreign
operations (foreign branches and offshore banking units) are translated at
quarterly average closing rates.
Followed by HDFC Bank

1. Advances- Advances are classified as performing and non-performing

based on the Reserve Bank of India guidelines and are stated net of bills
rediscounted, specific provisions, floating provisions, interest in suspense for
non-performing advances and claims received from Export Credit Guarantee
Corporation. Interest on non - performing advances is transferred to an
interest suspense account and not recognised in the Profit and Loss Account
until received.

2. Fixed Assets and Depreciation- Fixed assets are stated at cost less
accumulated depreciation as adjusted for impairment, if any. Cost includes
cost of purchase and all expenditure like site preparation, installation costs
and professional fees incurred on the asset before it is ready to use.
Subsequent expenditure incurred on assets put to use is capitalized only when
it increases the futures benefit/functioning capability from/of such assets.
Depreciation is charged over the estimated useful life of the fixed asset on
a straight-line basis. The rates of depreciation for certain key fixed assets,
which are not lower than the rates prescribed in Schedule XIV of the
Companies Act, 1956 are given below:
􀂃 Owned Premises at 1.63% per annum.
􀂃 Improvements to lease hold premises are charged off over the remaining
primary period of lease.
􀂃 VSATs at 10% per annum
 􀂃 ATMs at 10% per annum
􀂃 Office equipment at 16.21% per annum
􀂃 Computers at 33.33% per annum
􀂃 Motor cars at 25% per annum
􀂃 Software and System development expenditure at 20% per annum
􀂃 Point of sale terminals at 20% per annum
􀂃 Assets at residences of executives of the Bank at 25% per annum
􀂃 Items (excluding staff assets) costing less than Rs. 5,000/- are fully
depreciated in the year of purchase
􀂃 All other assets are depreciated as per the rates specified in Schedule
XIV of the Companies Act, 1956.

For assets purchased and sold during the year, depreciation is provided on
prorata basis by the Bank.

3. Revenue and Expense Recognition- Interest income is recognised in the

Profit and Loss Account on an accrual basis, except in the case of non-
performing assets where it is recognized upon realization as per RBI norms.
Income on non coupon bearing discounted instruments and instruments which
carry a premia on redemption is recognised over the tenor of the instrument on
a constant yield basis.
Dividend on equity shares, preference shares and on mutual fund units is
recognised as income when the right to receive the dividend is established.
Interest income is net of commission paid to sales agents (net of non volume
based subvented income from dealers, agents and manufacturers) – (hereafter
called “net commission”) for originating fixed tenor retail loans.
Net commission paid to sales agents for originating retail loans is expensed in
the year in which it is incurred.
Fees and commission income is recognised when due, except for guarantee
commission and annual fees for credit cards which are recognised on a straight
line basis over the period of service.

4. Bullion- The Bank imports bullion including precious metal bars on a

consignment basis for selling to its wholesale and retail customers. The
imports are typically on a back-to-back basis and are priced to the customer
based on an estimated price quoted by the supplier. The Bank earns a fee on
such wholesale bullion transactions. The fee is classified under commission
income. The Bank sells bullion to its retail customers. The difference between
the sale price to customers and actual price quoted by supplier is also reflected
under commission income. The Bank also borrows and lends gold, which is
treated as borrowing/lending as the case may be with the interest paid/received
classified as interest expense/income.

5. Accounting for Provisions, Contingent Liabilities and Contingent Assets-

In accordance with AS - 29, Provisions, Contingent Liabilities and
Contingent Assets, issued by the Institute of Chartered
Accountants of India, the Bank recognises provisions when it has a present
obligation as a result of a past event, it is probable that an outflow of
resources embodying economic benefits will be required to settle the
obligation and when a reliable estimate of the amount of the obligation can
be made.
Provisions are determined based on management estimate required to settle
the obligation at the balance sheet date, supplemented by experience of
similar transactions. These are reviewed at each balance sheet date and
adjusted to reflect the current management estimates. In cases where the
available information indicates that the loss on the contingency is reasonably
possible but the amount of loss cannot be reasonably estimated, a disclosure
is made in the financial statements.
Contingent Assets, if any, are not recognised in the financial statements since
this may result in the recognition of income that may never be realized.

IV) Ratios:
Liquidity Ratios measure the availability of cash to pay debts.

Liquidity Ratios
Ratio Formula ICICI HDFC
Current Ratio Current Assets/Current Liabilities 0.78 0.27
Acid Test Current Assets-Inventories/Current 5.94 5.23
Ratio Liabilities
The higher the liquidity ratios the better is the financial position of the company.
These figures clearly state that ICICI Bank is in a far better position to pay
debts than HDFC.

Profitability Ratios measure the firm's use of its assets and control of its
expenses to generate an acceptable rate of return.

Profitability Ratios
Ratio Formula ICICI HDFC
Operating Margin (%) Operating Income / Net sales 14.13 19.87
Profit Margin (%) Net Income / Net Sales 9.74 11.35
A higher profitability ratio indicates better rate of return and better utilisation of
resources. Therefore on this parameter HDFC exhibits far better performance.

Activity Ratios measure the effectiveness of the firm’s use of resources.

Activity Ratios

Formula ICICI HDFC

Fixed Assets Net sales/Total Fixed Assets 5.14 5.00

Turnover Ratio
Inventory Cost of Goods Sold/Average NA NA
Turnover Ratio Inventory

Higher the activity ratios, better it is for an organisation. The difference

between the ratios for ICICI Bank and HDFC Bank are minimal, therefore
we can interpret that both are doing fairly well in terms of usage of
resources.
Banks do not have any inventory, hence Inventory turnover ratio cannot be
calculated.

Capital Structure Ratios measure the financial solvency of a company.

Capital structure Ratios

Formula ICICI HDFC

Debt Ratio Total Debt / Total Equity 4.42 9.75
Capital Adequacy Ratio (%) Capital / Risk 15.5 15.7

IV) To Calculate

Earnings per share

The portion of a company's profit allocated to each outstanding share of
common stock. Earnings per share serve as an indicator of a company's
profitability.
Formula:

PROFIT AFTER TAX / TOTAL SHARES OUTSTANDING

When calculating, it is more accurate to use a weighted average number of

shares outstanding over the reporting term, because the number of shares
outstanding can change over time. However, data sources sometimes simplify
the calculation by using the number of shares outstanding at the end of the
period.

For ICICI Bank:

Profit after Tax (Rs. In million) = 37,581.3

Weighted Average Number Of Equity Shares Outstanding = 1,113,129,213

Earnings per Share = 33.76

For HDFC Bank:

Profit after Tax (Rs. In Million) = 22449.3

Average Number Of Equity Shares Outstanding = 4253841

Earnings per Share = 52.85

Price Earnings Ratio

A valuation ratio of a company's current share price compared to its per-share

earnings. EPS is usually from the last four quarters (trailing P/E), but sometimes
it can be taken from the estimates of earnings expected in the next four quarters
(projected or forward P/E).
Formula:

For ICICI Bank

Price Earnings ratio = 13.18

For HDFC Bank

Price Earnings Ratio = 18.42

Book Value per Share

Formula =

(Stockholders Equity-Preferred Stock) / Average outstanding Shares

For ICICI Bank

Book Value per Share (as on 31st March, 2009) = 445.17

For HDFC Bank

Book Value per Share (as on 31st March, 2009) = 344.31