The major factors for increasing CAR can be as follow:Raising Capital from Fresh issue of equity shares:Internal generations of funds (Retained Earnings):HDFC bank has a policy of retaining 78% of its earnings and using the funds for advances. Due to higher retention of earnings bank is maintaining higher CAR.Risk Weighted Assets:HDFC bank has given more loans with risks during the years. HDFC Bank has issued loans in huge quantity therefore the risk weight of CAR has increased considerably.
Employee per branch for HDFC Bank (merged) has moved up from 17 in FY04 to 39 in FY08. This coupled with high wage inflation has led to significant increase in employee cost to assets ratio. Going ahead, we expect employee per branch to stabilise at current levels and wage inflation to moderate leading to improvement in cost ratios for HDFC Bank.
): For banks, interest expenses are their main costs (similar to manufacturing cost for companies) and interest income is their main revenue source. The difference between interest income and expense is known as net interest income. It is the income, which the bank earns from its core business of lending. Net interest margin is the net interest income earned by the bank on its average earning assets. These assets comprises of advances, investments, balance with the RBI and money at call. Margin expansion was contributed by increase in yields across all products partially offset by increase in time deposit costs. NIM = Interest income – Interest expenses ------------------------------------ Average earning assetsBank NIM has been increasing due to high interest loan advances and low cost deposits . Increasing signifies that bank has been successfully able to able to deploy its average earning assets to generate more revenues.
This ratio also tells us about the good earning quality of the bank. We can see that the banks operating profit as a percentage of average working funds has been increasing which tells that banks has been is
Analysis<br />1<br />
Overview of HDFC Bank<br /><ul><li>Housing Development Finance Cooperation Ltd.
1st – Bank to receive an “in principle approval” from RBI.
Incorporated in August 1994,in the name of “HDFC Bank Ltd.”
Camel’s Approach<br />It is a method for evaluating bank performance and healthy position of the bank since it considers all areas of banking operations.<br />Camel Means<br /><ul><li>C = “Capital Adequacy Ratio”
L= “Liquidity”</li></li></ul><li>Capital Adequacy Ratio <br /><ul><li> HDFC BANK has maintained Capital Adequacy ratio of more than 13% which is above the RBI norms of 9%.
Maintaining higher CAR will ensure high expansion possibilities as and when opportunity arises for HDFC bank.</li></li></ul><li>Asset Quality<br />Non Performing Asset means an asset or account of borrower, which has been classified by a bank or financial institution as sub-standard, doubtful or loss asset.<br />