INDEX

S.No: CONTENTS PAGE NO.

1. INTRODUCTION 1-4

 Scope of the Study

 Objectives of the Study
 Methodology of the Study
 Limitations of the Study

2. REVIEW OF THE LITERATURE 5-20

3. COMPANY PROFILE 21-30

4. DATA ANALYSIS &

INTERPRETATION 31-65

5. FINDINGS 66

6. SUGGESTION 67

7. BIBLIOGRAPHY 68
 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 RISK arising 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 MANAGEMENT provides 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
 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.

 To know financial position of The Housing Development Finance Corporation Limited

(HDFC)
 To analyze existing situation of The Housing Development Finance Corporation Limited
(HDFC)
 To improve the performance of The Housing Development Finance Corporation Limited
(HDFC)
 To analyze competition between The Housing Development Finance Corporation
Limited (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.
 Ratio analysis
 Comparative statement
 Common size balance sheet.
 OBJECTIVES OF THE STUDY

o To study the concept of ASSET & LIABLITY MANAGEMENT in The Housing

Development Finance Corporation Limited (HDFC)

o To study process of CASH INFIOWS and OUTFLOWS in The Housing

Development Finance Corporation Limited (HDFC)

o To study RISK MANAGEMENT under The Housing Development Finance

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

o To study FUNCTIONS AND OBJECTIVES of ALM committee.

METHODOLOGY OF THE STUDY

The study of ALM 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

  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 for ALM.

LIMITATION OF THE STUDY:

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

2. The analysis is based on structural liquidity statement and gap analysis.

3. The study is mainly based on secondary data.

Review of
Litureature
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.

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.
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
firm’s 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 second step 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
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.
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
(I).PRODUCT MARKET RISK:

This risk decision relate to the operating revenues and expenses of the form that impact the
operating position of the profit and loss statements which include crisis, marketing, operating
systems, labor cost, technology, channels of distributions at strategic focus. Product Risks relate
to variations in the operating cash flows of the firm, which effect Capital Market, required Rates
Of Return;.

(1) CREDIT RISK

(2) STRATEGIC RISK

(3) COMMODITY RISK

(4) OPERATIVE RISK

(5) HUMAN RESOURCES RISK

(6) LEGAL RISK

Risk in Product Market relate to the operational and strategic aspects of managing
operating revenues and expenses. The above types of Product Risks are explained as follows.

1. CREDIT RISK:

The most basic of all Product Market Risk in a or other financial intermediary is the
erosion of value due to simple default or non-payment by the borrower. Credit risk has been
around for centuries and is thought by many to be the dominant financial services today.
intermediate the risk appetite of lenders and essential risk ness of borrowers. manage this risk
by ; (A) making intelligent lending decisions so that expected risk of borrowers is both
accurately 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 paper is 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.
(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 “black box 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 and Retention. 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.

(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 RISK

2. 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 a financial
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 firm’s viability. There’s 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 today’s 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:

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.
Industry Profile
Banking in India
Banking in India originated in the last decades of the 18th century. The oldest bank in existence
in India is the State Bank of India, 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 of India, which in 1935 formally took over these responsibilities from the
then Imperial Bank of India, relegating it to commercial banking functions. After India'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 of India 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 of India 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 of India, 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 of India, which, upon India's
independence, became the State Bank of India.

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 Upper India, 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 of India.
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.

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 of Indian 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 of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank
and Central Bank of India.

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 of Indian
Banking".
Company Profile
 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 of India (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 Bank Limited', 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 under ISIN No US40415F2002.
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. Chander Mohan 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)
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
through the growing branch network, as well as through alternative delivery channels like
ATMs, Phone Banking, NetBanking and Mobile Banking.
The HDFC Bank Preferred program for high net worth individuals, the HDFC Bank Plus and the
Investment Advisory Services programs have been designed keeping in mind needs of customers
who seek distinct financial solutions, information and advice on various
investment avenues. The Bank also has a wide array of retail loan products including Auto
Loans, Loans against marketable securities, Personal Loans and Loans for Two-wheelers. It is
also a leading provider of Depository Participant (DP) services for retail customers, providing
customers the facility to hold their investments in electronic form.
HDFC Bank was the first bank in India to launch an International Debit Card in association with
VISA (VISA Electron) and issues the Mastercard Maestro debit card as well. The Bank launched
its credit card business in late 2001. By March 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
Awards and Achievements - Banking Services

2010

Global Finance Best Trade Finance Provider in India for 2010

Award
2 Banking 1) Best Risk Management Initiative and 2) Best Use of Business
Technology Intelligence.
Awards 2009
SPJIMR 2nd Prize
Marketing Impact
Awards (SMIA)
2010
Business Today Listed in top 10 Best Employers in the country
Best Employer
Survey
2009

Business India Mr. Aditya Puri, MD, HDFC Bank

Businessman of the
Year Award for
2009.
Businessworld Best Most Tech-savvy Bank
Bank Awards 2009
Outlook Money Best Bank
NDTV Profit
Awards 2009
Forbes Asia Fab 50 Companies in Asia Pacific
GQ India's Man of Mr. Aditya Puri, MD, HDFC Bank
the Year (Business)
UTI MF-CNBC Best Performing Bank
TV18 Financial
Advisor Awards
2009
Business Standard Mr. Aditya Puri, MD, HDFC Bank
Best Banker Award
Fe Best Bank - Best Innovator of the year award for    our MD Mr. Aditya Puri
Awards 2009 - Second Best Private Bank in India
- Best in Strength and Soundness    Award
Euromoney Awards Best Bank in India
2009
Economic Times Most Trusted Brand - Runner Up
Brand Equity &
Nielsen Research
annual survey 2009
Asia Money 2009 Best Domestic Bank in India
Awards
IBA Banking Best IT Governance Award - Runner up
Technology
Awards 2009
Global Finance Best Trade Finance Bank in India for 2009
Award
IDRBT Banking Best IT Governance and Value Delivery
Technology
Excellence Award
2008
Asian Banker Asian Banker Best Retail Bank in India Award 2009
Excellence in Retail
Financial Services
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 of India 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
customers. Multi-branch access is also provided to retail customers through the
branch network and Automated Teller Machines (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 India’s 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
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.

DATA ANALYSIS
&
INTERPRETATION
 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.
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 RISK MANAGEMENT SYSTEM

 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.
 Financial services involve the process of intermediation between 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 Management practices 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 firm’s asset portfolio and the best mix of liabilities for the firm’s 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 :
  ALM INFORMATION.

 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.
 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
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

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

 Overseeing the budgetary process;

 Reviewing the interest rate outlook for pricing of assets and liabilities (Loans and
Deposits)

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

 Reviewing the asset and liability portfolios and the risk limits and thereby, assessing the
capital adequacy;

 Deciding on the desired maturity profile of incremental assets and liabilities and thereby
assessing the liquidity risk; and

 Reviewing the variances in actual and projected performances with regard to Net Interest
Margin(NIM), spreads and other balance sheet ratios.
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 of Investment, 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
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 consider interlaid will include fixation of interest
rates for both deposits and advances, desired maturity profile of the incremental assets and
liabilities etc.
 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 it’s functioning periodically.

ALM PROCESS

The scope of ALM function can be described as follows:

1. Liquidity Risk Management

2. Interest Rate Risk Management

3. Currency Risk Management

 4. Settlement Risk Management

5. Basis Risk Management

The RBI guidelines mainly address Liquidity Risk Management 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
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
 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 Classification into time buckets

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

2.Demand Deposits (Current & Demand Deposits may be classified

Savings Deposits) 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.

4. Borrowings Respective maturity buckets.

5. Other liabilities and provisions
(i) Bills Payable (i) 1-14 days bucket

(ii) Inter-office Adjustment (ii) Items not representing cash

payable may be placed in over 5
years bucket

(iii) Provisions for NAPs (iii)

a) sub-standard a) 2-5 years bucket.

b) doubtful and Loss b) Over 5 years bucket
.
(iv) provisions for depreciation (iv) Over 5 years bucket.
in Investments

(v) provisions for NAPs in (v)

investment
a) 2-5 years bucket.
b) Over 5 years bucket

(vi) provisions for other purposes (vi) Respective buckets depending on

the purpose.
B. INFLOWS

1. Cash 1-14 days bucket.

2. Balance with other s
(i) Current Account (i) Non-withdraw able portion on
account of stipulations of
minimum balances may be shown
Less than 1-14 days bucket.
(ii) Money at call and short Notice, (ii) Respective maturity buckets.
Term Deposits and other
Placements
3. Investments
(i) Approved securities (i) Respective maturity buckets
excluding the amount required to
be reinvested to maintain SLR
(ii) Corporate (ii) Respective Maturity buckets.
Debentures and Investments classified as NPAs
bonds, CDs and CPs, Should be shown under 2-5 years
redeemable bucket (sub-standard) or over 5
preference shares, years bucket (doubtful and loss).
units of Mutual (iii) Over 5 years bucket.
Funds (close ended).
Etc. (iv) Over 5 years bucket.
(iii) Share / Units of Mutual
Funds
(open ended)
(iii) Investment in
subsidiaries /
Joint Ventures.

4. Advances (performing / standard)

 (i) Bills Purchased and (i) Respective Maturity buckets.
Discounted (ii) should undertake a styud
(including bills under of behavioral and seasonal pattern
DUPN) of a ailments based on outstanding
(iii) Cash Credit / Overdraft and the core and volatile portion
(including TOD) and should be identified. While the
Demand Loan component of volatile portion could be shown in
Working Capital. the respective maturity bucket. The
core portion may be shown under
1-2 years bucket.
(iii) Term Loans (iii) Interim cash flows may be
shown under respective maturity
buckets.

5. NPAs
b. Sub-standard (I) 2-5 years bucket.
c. Doubtful and Loss (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
receivables may be shown
in over 5 years bucket.
 (ii) Others (i) Respective maturity
buckets. 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.

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.

COMPARATIVE ASSET LIABILITY SHEET OF THE YEARENDING 31ST MARCH 2006-07

ABSOLUTEINC CHANGEIN
PARTICULARS 2006 2007
REASE/ %
ASSETS
CURRENT ASSETS
CASH & BANK
2,88,272 14,70,425 11,82,152 410.08
BALANCE
SUNDRY DEBTORS 1,53,226 63,467 -89,759 58.58
DEPOSITS 2,64,600 4,07,046 1,42,446 53.83
INVENTORIES 9,39,57,410 14,71,99,579 5,32,42,169 568.98
TOTAL 9,48,83,080 15,05,13,360 5,56,30,280 58.63
LOANS &GROUP
CONCERNS (INTER 1,47,40,135 2,59,27,598 1,11,87,463 75.89
CORPORATE BODIES)
ADVANCE TO CANE
1,07,85,042 1,19,58,868 11,73,826 18.88
GROWERS
STAFF ADVANCE 2,72,023 2,21,082 -50,941 18.72
OTHER ADVANCE 7,40,058 7,30,579 -9,474 1.28
TOTAL 2,65,37,258 3,88,38,127 1,23,00,869 46.35
TOTAL CURRENT
12,14,20,338 18,93,51,487 -2,69,51,931 12.46
ASSETS
FIXED ASSETS
LAND 67,28,750 1,33,5,275 66,21,525 98.41
FACTORY BUILDINGS 2,48,18,492 2,29,32,318 -18,86,174 70.59
NON FACTORY
99,56,491 94,58,666 -4,97,825 5.00
BUILDINGS
PLANT & MACHINERY 4,63,31,692 5,77,53,189 1,14,21,497 24.65
FURNITURE’S &
5,66,109 8,24,981 2,58,872 45.72
FIXTURES
TOTAL FIXED ASSETS 8,95,42,436 10,50,01,624 1,54,59,187 17.26
MISCELLANEOUS
EXPENDITURES
PRELIMINARY 3,66,900 2,44,600 -1,22,300 33.33
EXPENSES
WRIT TERN OF TOTAL
ME
TOTALASSETS 21,13,29,674 29,45,97,711 -8,32,68,037 39.40
LIABILITIES
PAID UP EQUITY 2,71,11,890 2,71,11,890 - -
SHARES CAPITAL
RESERVES& SURPLUS 37,22,163 1,11,61,236 74,39,073 199.85
TOTAL CAPITAL 3,08,34,053 3,82,73,126 74,39,073 199.85
&RESERVE
LONGTERMLIABILITES
SECURED LOANS 69,14,784 43,69,20,357 2,54,55,579 36.81
UNSECURED LOANS 16,56,76,746 17,84,72,806 1,27,96,060 7.72
TOTAL CAPITAL 3,08,34,053 3,82,73,126 74,39,073 199.85
&RESERVES
LONGTERM
LIABILLTES
SECURED LOANS 69,14,784 43,69,20,357 2,54,55,579 36.81
UNSECURED LOANS 16,56,76,746 17,84,72,806 1,27,96,060 7.72
 TOTAL LONG TERM 17,25,91,530 2,22,16,4841 4,95,73,311 28.72
LIABILITIES
CURRENT LIABILITY
&PROVISON
SUNDRY CREDITORS 62,35,100 2,70,29,530 2,07,94,430 333.51
FOR MATERIALS
PROVISION FOR TAX - - - -
TOTAL CURRENT 79,04,091 3,41,59,744 2,62,55,653 -332.18
LIABILITIES
TOTAL LIABILITIES 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 assets
increased 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 share
capital. 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 have
increased 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 not
good.

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 company’s profitability position of the company is good.

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

.
COMPARATIVE ASSET LIABILITY SHEET OF THE YEAR ENDING 31ST MARCH 2007-08
ABSOLUTE CHAN
PARTICULARS 2007 2008 INCREASE/DECRE GE IN
ASE %
ASSETS
CURRENT
ASSETS
CAST& BANK 14,70,425 14,121,86 1,26,51,435 860.39
BALANCE 0
SUNDRY 63,467 65,10,948 64,47,491 10,158,8
DEBTORS 2
DEPOSITS 4,07,046 2,91,926 -1,16,020 28.44
INVENTORIES 14,71,99,5 11,75,48,4 -102,82,84,45 -698.56
79 02
TOTAL 15,05,13,3 14,25,96,9 -79,16,404 5.265
60 56
LOANS &
ADVANCS
STAFF 2,21,082 1,73,317 -47,765 21.61
ADVANCE
OTHER 7,30,579 8,59,690 1,29,111 54.46
ADVANCE
TOTAL 3,88,38,12 5,99,92,34 2,11,54,220 54.46
7 7
TOTALCURREN 18,93,51,4 20,25,89,3 1,32,37,816 6.99
T ASSETS 87 03
FIXED ASSETS
LAND 1,33,50,27 1,33,50,27 - -
5 5
FACTORY 2,29,32,31 2,06,71,98 -22,60,337 9.86
BUILDINGS 8 1
NON FACTORY 94,58,666 89,85,733 -4,72939 4.99
BUILDINGS
PLANT & 5,77,53,18 7,16,13,33 -50,5,05,91,854 87.6
MACHINERY 9 5
FURNITURE 8,24,981 9,07,913 82,932 10.05
’S &
FIXTURES
TOTAL 10,50,01,624 11,78,44,260 1,28,42,638 12.23
FIXED
ASSETS
PRELIMINA 2,44,600 1,22,300 1,22,300 50.00
RY
EXPENSES
WRITTEN
OF TOTAL
ME
TOTAL 29,45,97,711 32,05,55,863 2,59,58,152 8.81
 ASSETS
LIABILITES

PAID UP 2,71,11,890 2,71,11,890 - -

EQUITY
SHARES
CAPITAL
RESERVES 1,11,61,236 3,46,30,113 2,34,68,877 210.27
& SURPLUS
TOTAL 3,82,73,126 6,17,42,003 2,34,68,877 61.32
CAPITAL
&RESERVES
LONGTERM
LIABILITES
SECURED 43,69,20,357 19,10,18,611 1,25,45,805 7.03
LOANS
UNSECURE 17,84,72,806 1,94,57,888 -4,17,46,247 95.55
D LOANS
TOTAL 2,22,16,4841 27,22,18,502 -1,16,88,342 5026
LONG TERM
LIABILITIES
SUNDRY 2,70,29,530 3,00,94,997 30,65,467 11.34
CREDITORS
FOR
MATERIALS
SUNDRY 65,39,347 2,68,009 -38,59,338 59.02
CREDITORS
FOR
EXPENSES
OTHER 5,90,867 48,81,795 42,90.928 726.21
LIABILITIES
&
PROVISION
S
TOTAL 3,41,59,744 4,83,37,361 14,177,617 41.50
CURRENT
LIABILITIES
TOTAL 29,45,97,711 32,05,55,863 2,59,58,152 8.81
LIABILITIES

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) has
decreased 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 of
funds are utilized for fixed assets.

The current assets have been increased by 1, 32, 37,816 by 6.99%. the current liabilities have
increased 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 not
good.

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

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

.
COMPARATIVE ASSET LIABILITY SHEET AS ON 31ST MARCH 2008-09
ABSOLUTE
CHANGE
PARTICULARS 2008 2009 INCREASE/
IN %
DECREAES
ASSETS
CURRENT ASSETS
CASH &BANK
14,121,860 15,11,751 -1,26,10,109 89.29
BALANCE
SUNDRY DEBTORS 65,10,948 16,22,803 -48,88,145 75.07
DEPOSITS 2,91,926 8,27,407 5,35,544 183.45
CENVANT 24,03,543 64,25,816 40,22,273 167.34
INCOME TAX 2,49,757 6,14,801 3,65,044 146.15
ADVANCE TAX 12,58,000 19,50,000 6,92,000 55.00
21,16,88,39
INVENTORIES 11,75,48,402 94,13,99,88 80.88
0
EXCISE DUTY PAID IN
1,52,682 5,44,356 3,91,674 256.52
ADVANCE
TAX DETECTED AT
59,838 - -59,838 100
SOURCE
22,51,85,38
TOTAL 14,25,96,956 -8,25,88,431 57.99
7
LOANS& ADVANCS
LOANS & GROUP 2,09,12,698
CONCERNS (INTER 4,09,11,931 13,34,70,06 -199,99,233 48.88
CORPORATE BODIES) 0
ADVANCE TO CANE
1,80,47,409 80,04,767
GROWERS
STAFF ADVANCE 1,73,317 3,99,273 2,25,956 130.37
OTHER ADVANCE 8,59,690 6,41,023 -21,86,67 25.43
 16,34,27,82
TOTAL 5,99,92,347 10,34,35,474 172.41
1
TOTALCURRENT 55,20,41,02
20,25,89,303 34,94,51,726 172.49
ASSETS 9
TOTAL FIXED 11,78,44,260 11,29,58,52 -48,85,737 4.14
ASSETS 3
MISCELLANIOUS
EXPENDITURES
PRELIMINARY 122,300 19,57,834 18,35,534 15,00.82
EXPENSES
WRITTEN OF TOTAL
ME
TOTAL ASSETS 32,05,55,863 50,35,29,56 18,29,73,702 57.08
5
LIABILITES
SHARE CAPITAL &
RESULTS & SURPLUS
PAID UP EQUITY 2,71,11,890 2,71,11,890 - -
SHARES CAPITAL
RESERVES & 3,46,30,113 5,08,12,447 1,61,82,334 46.72
SURPLUS
TOTAL CAPITAL 6,17,42,003 7,79,24,337 1,61,82,334 26.20
&RESERVES
LONGTERM 58.35
LIABILITES
SECURED LOANS 19,10,18,611 7,95,55,940 -11,14,62,671 1384.47
UNSECURED LOANS 1,94,57,888 28,88,46,51 26,93,88,621 63.95
7
TOTAL LONG TERM 27,22,18,502 44,63,26,79 17,41,08,292 63.95
LIABILITIES 4
CURRENT LIABILTY
& PROVISON
SUNDRY CREDITORS 3,00,94,997 5,54,93,648 2,53,98,471 84.39
FOR MATERIALS
SUNDRY CREDITORS 2,68,009 14,12,857 11,44,848 427.16
FOR EXPENSES
OTHER LIABILITIES 48,81,795 2,96,446 -45,85,349 93.92
& PROVISIONS
PROVISION FOR TAX 1,06,80,560 - -1,06,80,560 100
TOTAL CURRENT 4,83,37,361 5,72,02,771 88,65,410 183.40
LIABILITIES
TOTAL LIABILITIES 32,05,55,863 50,35,29,56 18,29,73,702 5.08
5

INTERPRETATION:

The comparative balance sheet of the co-reveals that during the year 2008 fixed assets
decreased 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 are
utilized 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 the
current 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 company’s profitability position of the company is good.

The overall Asset position of the HDFC. During the period of study is satisfactory.
COMPARTIVE ASSET LIABILITY SHEET OF YEAR ENDING 31ST MARCH2010

PARTICULARS 2009 2010 ABSOULT CHANGE

INCRESE/DECRESE IN%
ASSETS 15,11,751 1,99,36,365 18,42,46,614 1218.75
CASH &BANK
BALANCE
SUNDRY 16,22,803 16,50,832 28,209 1.73
DEBTORY
DEPOSITS 8,27,407 8,71,404 43,997 5.32
CENVANT 64,25,816 10,63,21,121 9,98,95,305 1554.59
TAX DEDUCTED - 3,647 3,647 -
SOURCE
ADVANCE TAX 19,50,000 16,23,415 -3,26,585 16.75
INVENTORIES 21,16,88,390 15,01,52,853 61,535537 29.07
INCOME TAX 61,48,01 - -6,14,801 100
TOTAL 22,51,85,387 29,63,15,752 7,11,30,365 31.59
OTHER 85,96,90 10,07,589 147,899 17.20
ADVANCES
TOTAL 16,34,27,821 10,66,4695 -15,27,63,126 93.47
TOTAL 38,86,13,208, 30,69,80,447 -8,16,32761 21.00
CURRENT
ASSETS
FIXED ASSETS 11,29,58,523 1,50,86,9811 13,95,73,9590 1235.62
3
TOTAL ASSETS 50,35,29,565 1,8,56,78,560 1,31,21,48,995 260.59
PAID UP EQUITY 2,71,11,890 2,71,11,890 - -
SHARE CAPITAL
RESERVES & 5,08,12,447 35,39,1549 -1,54,20,898 30.35
SURPLUS
TOTAL CAPITAL 7,79,24,337 14,25,03,439 6,45,79,102 82.87
& RESERVES

LONGTERM LIABILITES

SECURED LOANS 7,95,55,940 1,02,34,73,85 94,3917911 1186.48

1
UNSECURED LOANS 28,88,46517 61,83,41,930 32,9495,413 114.07
TOTAL LONG TERM 44,63,26794 1,78,43,19,22 13,37,99,2426 299.78
LIABILITIES 0
SUNDRY CREDITORS 5,54,93,648 24,77,0016 -30,72,3632 55.36
FOR MATERIALS
SUNDRY CREDITORS 14,12,857 48,11,183 33,98,326 240.52
FOR EXPENSES
 OTHER LIABILITIES & 2,96,446 14,37,208 11,40,762 384.81
PROVISIONS
TOTAL CURRENT 5,72,02,771 31,35,9340 -25,84,3431 45.18
LIABILITIES
TOTAL LIABILITIES 50,35,29,365 18,15,678,560 13,12,14,8995 260.59

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) has
increased 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 of
funds 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 the
current assets of liabilities is very low. In this year the co-working capital positions it not
good.

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 company’s 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 firm’s 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
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
 Current assets include inventories, sundry debtors, cash and bank balances and loans and
advances.
 Current liabilities include current liabilities and provisions.

(RUPEES IN LAKHS)
YEARS CURRENT CURRENT CURRENT
ASSETS LIABILITIES 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

700000

600000

500000

400000
CURRENT ASSETS
300000 CURRENT LIABILITIES

200000

100000

0
2006-2007 2007-2008 2008-2009 2009-2010

INTERPRETATION:
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 firm’s 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

 Liquid assets of quick asset includes Sundry debtors, cash and bank balance and loan and
advance.
 Current liabilities include current liabilities and provisions.

(RUPEES IN LAKHS)
YEARS QUICK CURRENT CURRENT
ASSETS LIABILITIES 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
 600000

500000

400000

300000 LIQUID ASSETS

CURRENT LIABILITIES

200000

100000

0
2006-2007 2007-2008 2008-2009 2009-2010

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 owner’s 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 TERM LIABILITIES

SHARE HOLDER’S FUNDS
For the calculation of this ratio
  Long – term liabilities included secured loans, unsecured loans and deferred credits.
 Shareholder’s funds include share capital and reserves and surplus.

(RUPEES IN LAKHS)
YEARS LONG TERM SHARE HOLDER’S DEBT EQUITY
LIABILITIES FUNDS 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

60000000

50000000

40000000

30000000 LONG TERM LIABILITIES

SHARE HOLDER’S FUNDS

20000000

10000000

0
2006-2007 2007-2008 2008-2009 2009-2010

INTERPRETATION:
Explains the relationship between long term debts to share holders funds which is gradually
decreasing from 2006-09.

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

300000000

250000000

200000000

150000000 SHAREHOLDER’S FUNDS

TOTAL ASSETS
100000000

50000000

0
2006-2007 2007-2008 2008-2009 2009-2010

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 FIXED ASSETS CURRENT

ASSTES ASSETS/ FIXED
ASSETS
2006-2007 234274 45379 5.16
2007-2008 589973 77378 7.62
2008-2009 263114 85938 3.06
2009-2010 256922 80886283 0.003

900000

800000

700000

600000

500000 CURRENT ASSTES

FIXED ASSETS
400000 CURRENT ASSETS/ FIXED
ASSETS
300000

200000

100000

0
2006-2007 2007-2008 2008-2009 2009-2010

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
 COST OF GOODS SOLD = OPENING STOCK + PURCHASES + MANUFACTURING EXPENSES –
CLOSING STOCK
 AVERAGE STOCK = OPENING STOCK + CLOSING STOCK / 2

(RUPEES IN LAKHS)

YEARS COST OF AVERAGE STOCK STOCK

GOODS SOLD 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
 250000

200000

150000

100000

50000

0
2006-2007 2007-2008 2008-2009 2009-2010

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.

FINDINGS

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

2. Implementation of ALM as a Risk Management tool is done using maturity profiles and
GAP analysis.

3. ALM presents a disciplined decision making framework for while at the same time guarding
the 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 4
years 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 year
2006-07, 2007-08, all other years it is below.

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

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

Suggestions

1. They should strengthen its management information system (MIS) and computer
processing 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) creates
economic 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 future
lead to smooth integration of the risk management process with effective business
strategies.

BIBILIOGRAPHY

Title of the Books Author

1. Risk management 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