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COST LEADERSHIP
Banking Sector Part A
GROUP 5(B)

Krishnanand S Pai 12P022 Niraj Bhilwaria 12P031 Sourabh Inani 12P050

HDFC BANK

Under the guidance of Dr. Rajesh Pillania

DILEMMA
In late November 2012, Mr. Aditya Puri, the Managing Director of the Housing Development Finance Corporation Bank or HDFC Bank, gave an interview to NDTV, a leading news channel in India, regarding the hike in interest rates by the Reserve bank of India. He said, The interest rates have been hiked over the past few months by the RBI, as it is trying to curb the rise in inflation. With the rising interest rates it has become costlier for us to borrow funds. We will have to pass on this interest hike to the customers by increasing the rates at our banks, so as to maintain our Net Interest Margin. Over the past few years HDFC Bank has remained the best in CASA (Current Account, Savings Account) ratio amongst all the private banks in the country. Over the years of establishment of the new private sector banks post the liberalization and amendment of the banking regulation act in 1994, these banks have steadily increased their market share. The banks have been able to do this by consistently increasing their branches, targeting high growth customers, especially in the current account and by increasing their reach in high growth areas. Whilst, HDFCs CASA has remained higher than its competitors, at 48.40 FY12 it has decreased from 52.70 FY11. This has been a major concern at HDFC since current and savings accounts are demand deposits that earn lower interest rate compared to Fixed Deposits, allowing banks to get more money at lower costs. With the focus of keeping low costs, and increasing profitability this has been a major concern for the bank, because lower the CASA, lower is the Net Interest Margin (or NIM). Net Interest Margin is a measure of the difference between the yields on loans and the interest paid on deposits relative to the amount of their interest earning assets. Banks look at NIM as a measure of the profitability, and HDFC has been the highest in NIM with 4.22 FY12, it has decreased from 4.25 in FY11. One way of lowering the costs was to increase the volume of business, which was either by increasing the number of new customers engaging in current or savings account or by increasing the volume of business from an existing customer. This would have been easy if the bank could open branches in Tier 1 cities, but a recent regulation by the RBI, constrained all the banks by mandating them to have 25% of their branches opened in Tier 2 to Tier 6 cities in India. But these areas bring lower profitability as the volume of business is low and with private banks like ICICI bank and Axis bank making their way into the rural market, it would be highly competitive and gaining market share would require strategies that would support the goal of keeping HDFCs focus of keeping costs low. Another way of generating more revenue is through non-funded revenues, which are a core part of customer service driven initiatives, mainly cash management, derivatives and fees & commission. One of HDFCs growth strategies has also been to consistently decrease their cost-to-income ratio to raise their operational efficiency, but over the years their cost-to-income ratio increased from 47.90 FY11 to 48.40 FY12. It was a warm Sunday evening, while sipping hot tea that Mr. Aditya Puri wondered as to how they could maintain their profitability while trying to gain market share in the Indian Banking segment, while maintaining low costs. He wondered if he could generate more non-funded revenues or funded revenues or a mix of both.

INDUSTRY DYNAMICS
In 2012, in the midst of a slowing US economy, the soft landing in China and the Euro debt crisis the Indian banking system has been able to shield itself through the measure taken by the Reserve Bank of India, the Central bank of the country which controls the liquidity in the country. But, in the light of slowing down of GDP growth rate, persistent inflation, elevated interest rates, there is a lowering of investments in the country. The cost of borrowings for banks has been increasing over the few years because of monetary tightening measures adopted by the RBI. With people preferring to get better yields through fixed deposits there has been a decrease in CASA, which has led to a higher cost of funds for the banks. Though the sector had been established pre-independence there were very few private players until 1993. The banks that were not nationalized during 1969 and 1980 were known to be the old private sector banks, which were 16 in number. Post 1993, which saw reforms, a number of private banks got established thus creating the modern banking industry. The banking sector has seen aggressive expansion through creating a network of branches connecting rural and urban India. The number of domestic branches increased from 35392 FY11 to 38392 FY12, a growth of 9.99%. Over the years, private sector banks have penetrated the market by establishing good relationships, a rich customer base, good customer service and the effective use of technologies. Today, banks have started to focus on retail banking which forms a core part of their business because it helps maintain a stable and low-cost deposit base and allows the bank to maintain a business, which is profitable and less risky and creates a healthy lending base. FY12 results of banks show that the retail banking market continued to grow despite increasing interest rates and speculation regarding poor growth of GDP. Some of the drivers of such long-term growth are rising disposable income, favorable demographic profile, a huge underpenetrated market and rapid development in information technology. In the past few years, banks in India have been keen on generating non-funded revenues by offering services such as credit cards, wealth management services, demat accounts and fees & commissions on such services. They have also introduced third party products like mutual funds and insurance to generate more revenues.

Financial Year 2012 Given the external environment like the Euro crisis, lower GDP growth rate and diminishing investments in India, the credit growth had been revised several times by the RBI. The credit growth across all banks reduced in the financial year 2011-2012 between 16.3% in the case of public sector banks and 19.7% in the case of private sector banks, while in the previous year the figures were 21% and 24.7% respectively. RBI has continued to increase the interest rate trying to combat inflation, and deposits have increased 13% year on year growth. While fixed deposits saw good growth, demand deposits like current and savings accounts decreased owing to lower yields. In the retail portfolio which includes home loans, personal loans and vehicle loans, the banking sector saw a growth of 12% YOY on home loans, 20% YOY on vehicle loans but a mere 8% in the personal loans segment. Most private sector banks performed better than other public sector banks owing to higher pricing power and their ability to sustain asset quality. RBI is expected to provide new banking licenses to private sector players based on meeting strict requirements of capital and plenty of NBFCs, microfinance companies etc., are waiting to get a hold of it. The year 2012-2013 could see RBI easing liquidity and monetary conditions so as to encourage banks in increasing loans and advances.

COMPANY BACKGROUND
HDFC bank was incorporated on 30th August 1994. It received certificate of commencement of business on 10th October 1994. On 16th January 1995.The Bank started operating its first branch in Ramon House at Churchgate, Mumbai. HDFC Bank, currently, has a network of 2,776 branches in 1,568 cities across India. All branches are linked on an online real-time basis. It also operates telephone banking for 800 locations. One of the key aspects of HDFC Bank is that they have been consistently posting strong profits and growth over the years of its inception. One of the core aspects is that it embraced technology very early during the growth of the banking sector. As traders in India were worried over the delay over receiving the cheque/drafts, HDFC bank launched Core banking services. Core banking services allowed all the branches to be connected on a real time basis allowing a person to deposit a cheque in one branch and the receiver to receive the amount on the same day. This allowed HDFC bank to build a large customer base during that time since private players like ICICI and Axis bank were still lagging behind. HDFC Bank also established 10,583 ATMs across India. All domestic and international Visa/MasterCard, Visa Electron/Maestro, Plus/Cirrus and American Express Credit/Charge cardholders can access the ATMs network. HDFC bank has an authorized share capital of 550 crore with a paid up capital of 469 crore. Among the major stakeholders are: The HDFC Group: 23.15% American Depository Shares and Global Depository Receipts Depositories: 17.29 % Foreign Institutional Investors (FIIs): 30.68 %

BUSINESSES
The HDFC bank over the years has diversified its business and now operates in three key business segments. 1. Wholesale Banking It caters mostly to large, blue chip manufacturing companies. It also caters to small, midsized corporate and agro-based businesses. The Bank provides commercial and transactional banking services, including working capital finance, trade services, transactional services, cash management, etc. The bank also provides structured solutions, which combine cash management services with vendor and distributor finance for facilitating superior supply chain management. It also provides cash management and transactional banking solutions to corporate customers, mutual funds, stock exchange members and banks. 2. Retail Banking The Bank aims to provide its customers a complete range of financial products and banking services for his banking needs. The HDFC Bank Preferred program for high net worth individuals, the HDFC Bank Plus and the Investment Advisory Services programs provide distinct financial solutions, information and advice on various investment avenues. The Bank also provides a range of retail loan products 1. Auto Loans 2. Loans against marketable securities 3. Personal Loans and Loans for Two-wheelers. It also a provides Depository Participant (DP) services for retail customers

HDFC Bank launched an International Debit Card in association with VISA in India. By March 2012, the bank had a total card base (debit and credit cards) of over 19.71 million. The Bank has over 180,000 Point-of-sale (POS) terminals for debit/credit cards acceptance at merchant establishments. It also provides net-based facilities for fixed deposits, Loans, Bill Payments.

3. Treasury The Bank provides products in the following three areas: 1. Foreign Exchange and Derivatives, 2. Local Currency Money Market 3. Debt Securities, and Equities. The Bank holds 25% of its deposits in accordance with statutory reserve requirements. The treasury business of Bank manages the returns and market risk on the investment portfolio. The Banking industry is distinct from all other industries in terms of its huge impact on economy and relationship with all industries operating in economy. Banking industry drives the economy by acting as intermediate between people willing to lend money and companies seeking funds for operation and expansion. It has to maintain a delicate balance of risk and returns. Thus while many industries are based on taking high risks to succeed, Banking industry is more conservative because here It not only matters what you do but also What you don't do. The US financial crisis is an example of What Banks should not have done? -Such as excessive subprime lending, contagion of Collateral Debt obligations. HDFC Bank is not a pioneer in everything. It has ensured its low cost of operations by being conservative. Thus it has only implemented tried and tested concepts. It took few big risks. Currently, HDFC bank's bad loans total to 0.9% against Industrial average of 4.2%, due to its conservative business model. HDFC bank has largely stayed away from project finance to power and infrastructure projects instead focusing on lending working capital loans to contractors, which keeps exposure smaller, and duration of loan shorter. This keeps the lending comparatively safer. It also means diversified lending and requires efficiency in operations. Operations: The two current areas of focus of HDFC Bank are 1. Mobile banking 2. Penetrating rural markets HDFC has considerably invested in IT technologies for banking throughout its history. According to HDFC the share of banking transactions happening outside the branch has increased from 55% to 82% in the past 2 years. HDFC has 1.2 mn registered mobile banking users. Focusing on banking operations in rural India HDFC has scaled up operations from 40 Managers and 100 field officers to 300 Managers and 2500 field officers. Unlike competitors Yes Bank and Axis Bank, which are operating through business correspondents, HDFC Bank is doing business on its own as this gives the bank better control on the quality of portfolio. The Bank also complained of Business correspondent model experience that money was not reaching the borrowers. HDFC Managing Director Mr Aditya Puri has said There is a tremendous opportunity in rural India with the countrys GDP poised to grow at 8 per cent-plus over the next few years, HDFC Bank is wellpositioned to tap this opportunity for rapid growth. The bank constantly innovates and comes up with new

offerings. Now we give loans against gold jewellery, which helps us tap business from small shop keepers, small businesses and others in rural areas. This business is a good one in the interiors of the country Limitations of mobile banking: 1. Despite huge penetration of mobile phones, smart phones account for just 20% of current phones being used by customer preventing user to download banking applications on mobile, thus limiting potential. 2. RBI has limited mobile transactions to 50000 Rs. Per month 3. Although TRAI allows a user to use upto 9 sim cards, a user can only have one mobile bank account number as per RBI restrictions. 4. Mobile payments are expected to break even in 5 years. 5. Although mobile banking is convenient, the cost of Knowing Your customer is 400-500 rupees per customer. 6. Less than 10,000 outlets accept mobile money as merchants dont get any commission for accepting mobile money. Benefits of mobile banking: 1. Transaction cost of mobile banking is 10 times cheaper than that of physical branch 2. Almost 60% of population does not have a bank account while 90% has mobile thus creating a lucrative base of unserved customers through mobile. 3. There are 90000 physical branches in India and it would take atleast 20 years to reach all customers through physical branches. Thus mobile banking is expected to be prime focus of government policies in future.

MANAGEMENT
The company appointed Mr. Aditya Puri as the Managing Director of HDFC Bank in 1994. Before joining HDFC Bank he was heading Citibanks operations in Malaysia. He has had an experience of 25 years in the banking industry. The banks boards of directors come with a rich experience in public policy, administration, industry and commercial banking. All the senior executives heading various businesses report to Mr. Aditya Puri and the bank believes that it can leverage it people to gain competitive edge in the market.

COMPETITORS
The major private players in the banking sector are HDFC, ICICI, Axis and Kotak Mahindra Bank.

ICICI Bank
In 1994, the Industrial Credit and Investment Corporation of India established the ICICI Bank as a wholly owned subsidiary. It is one of the Big Four Indian Banks, second largest Indian Bank by assets, and third largest by market capitalization. ICICI Bank used technology to target the Indian middle class and Corporates by offering a high level of customer service and efficiency. The Bank has specialized subsidiaries in the areas of investment banking, life and non-life insurance, venture capital and asset management, through which it offers a wide range of banking products and financial services to corporate and retail customers. The Bank has a network of 2,883 branches and 10021 ATM's in India, and has a presence in 18 countries, apart from India. ICICI Bank has had a CAGR of 23.8% over the last 3 years. The Bank has worked on improving its funding profile and improved its CASA ratio from 28.7% in 2009 to 43.5% in 2012. The Bank has managed to keep up its efficiency despite expanding its branch network from 1,262 branches in March 2008 to 2,752 in March 2012. Its cost/income fell from 50.0% to 42.9% during this period. These efforts have led to improvement in profitability; the consolidated RoE (Return on equity) is 13%, FY12, as against 7.8%, FY09. The Bank plans on having a continued focus on growth with further improvement in RoA (Return on Assets) and RoE. ICICI made headway by opening up Internet based transactions in 1998. Since then they have been offering various products and services to customers. MySavings Rewards is one of those products that offer reward points to domestic customers for a variety of transactions done through the savings bank account. Similarly, iWish is another product that offers a flexible recurring deposit scheme for those customers with a savings bank account with ICICI. ICICI bank has also launched various green initiatives with instaBanking and waivering of 50% of loan fee for vehicles that use alternate fuels.

Axis Bank
Dr. Manmohan Singh inaugurated the first branch, in April 1994 in Ahmedabad, and it begun its operations. The Bank was promoted (as UTI Bank) jointly by the Unit Trust of India (UTI-I), Life Insurance Corporation of India (LIC), General Insurance Corporation Ltd., National Insurance Company Ltd., The New India Assurance Company, The Oriental Insurance Corporation and United India Insurance Company. It has had an impressive CAGR of 40% over the last 5 years, with about 35% shareholding from FIIs. Axis Bank has its operations in four segments: treasury operation, retail banking, corporate/wholesale banking, and other banking business. The retail-banking sector offers services such as lending to individuals/corporates, Internet banking, ATMs, cards and NRI services. The bank has an extensive network of 1600 branches and about 10000 ATMs and is the bank with the largest number of ATMs among the private players.

With a focus on business segments such as large corporates, infrastructure and Mid corporates, their focus has been on quality of credit assets. In the financial year 2012, they made steady growth by posting a net profit growth of 25% YOY. They have kept their Net Interest Margin at 3.59% and have a had a operating profit growth of 16% YOY. Axis Bank has had a strong presence in Electronic Benefit Transfer (EBT) and has covered over 6800 villages with over 3.7 million beneficiaries.

Kotak Mahindra Bank

In February of 2003, Kotak Mahindra Finance Ltd was given the license to carry on banking business by the RBI. It became the first such company to be converted to a bank. It has grown to employ more than 20,000 people with an annual revenue of 10,000 crores. Their network of branches has increased to 1622 in 2012 from 1390 in 2011, which is good growth over the year. They also have a large network of ATMs, 9924 by 2012. It offers various products such as deposit accounts, investment services, loans, fixed income products etc. They offer a broad variety of services focusing on customized offerings to the customer. They also focus on cross selling to existing clients to drive growth. Cross selling is a way to generate more business through your customer by offering the customer more products. The third party products also include mutual funds, insurance, online broking, portfolio management and gold coins. Their strength in the retail segment has also been growing, especially in the housing sector, since 75% of the retail assets of Kotak are in housing loans. Kotak Mahindra amongst other banks has also embraced technology and has allowed value added services such as bill payments, mutual fund investments, mobile top ups and VISA money transfer services through its ATMs. In the financial year 2012 they posted an NIM of 4.8% as against 5.2% in 2011. Their profits are up 17% YOY from 1567 crore in 2011. They have had a CAGR of 39% on assets from the period of its birth.

ENVIRONMENT
India is a developing economy with a population of 1.2 billion and well over 30% residing in urban areas, increasing at an annual rate of 2.4% per year. The per capita income is Rs. 53,000 per year (est 2012). With a little over 10% market share of private banks in the banking sector there is tremendous scope for growth. According to a 2011 report from Central Statistical Organization, in India the Personal Disposable Income increased to 71640920 INR million from 60158160 INR million, a 19% increase. The same report also says that Indian Household Savings increased to 20037 INR billion from 18329 INR billion, a 9% increase. With rising oil prices, inflation has been pegged at around 7% and people are increasingly saving money amidst doubt over the future. The Reserve Bank of India maintains control over the interest rates and monetary measures to regulate the countrys economy and drive it through growing inflation and a slowing economy. Until 1993, there were only a few players in the banking sector, primarily very few private sector banks and other nationalized banks. Post 1993, the banking regulation act was amended and new banking licenses were granted leading to intense competition and growth in the banking sector.

The birth of new banks is subjected to licensing, capital and regulatory requirements. The criteria for establishing new banks are: 1. They should have a minimum net worth of Rs. 200 crores. 2. The promoters holding should have a minimum net worth of 25% of the paid up capital. 3. Within 3 years of starting of the operations, the banks should offer shares to the public and their net worth must be increased to Rs. 300 crores. During times of tight liquidity the public has a major bargaining power over the banks, considering the number of banks in India and how each bank is trying to capture higher market share. Similarly, credit worthy borrowers, have a large number of banks to borrow from. The intensity of competition in the country is high because there are 26 public sector banks, 24 private sector banks and a number of foreign banks each trying to gain market share through higher volume of business and reach. The biggest players among public sectors are State Bank of India, Canara Bank, Punjab National Bank and Bank of Baroda, whereas, in the private sector the major players are ICICI Bank, HDFC Bank and Kotak Mahindra based on their market capitalization. Banks have been quick to adopt new technologies, thus providing better services to their customers. ATMs, Online transactions, Credit cards have been adopted openly by the citizens whose 65% of the population is below the age of 35. With the country becoming more Internet savvy, people are using mobile phones and smartphones for transactions. From a mere 10.2 million telephone users in 2002 to 920 million in 2012, India is the one of the fastest growing telecom markets. Internet users are estimated to be around 121 million and growing fast in number. Customers are increasingly valuing services from banks from extending credit limits, credit cards, wealth management, custody etc. Banks are competing in this area by offering services at various customer segments owing to the amount of business each customer offers.

CURRENT SCENARIO
For the financial year 2012, HDFC bank has outperformed other banks on various attributes, primarily CASA and NIM. But, the future looks bleak with customers preferring long-term deposits and rising interest rates. HDFC bank has maintained a strong distribution network and a retail customer franchise positioning themselves equally in urban and rural India. Moreover they are the leading player in all retail loan segments. They have been a large tax collector for the Government of India and have provided cash management services for public sector and semi-government undertakings.

FUNDED REVENUES
Although, they have the lowest cost of deposits in the country, it has increased from 4.30% FY11 to 5.72% FY12. Their net interest margin (NIM) has decreased from 4.25% FY11 to 4.22% FY12. Their return on assets (RoA) has increased from 1.58% FY11 to 1.77% FY12.

Retail Sector
On the retail side they have a well-diversified product mix, balancing volumes and market share with margins and risk. In recent times as competition has been intense, most banks have penetrated the

rural markets. For these markets HDFC has compiled a set of customized products suited to their needs and built a healthy eco-system surrounding these products. Loan products for the rural markets primarily comprise of Pre and Post Harvest Credit, Tractor Loans, Kisan Cards, Small Working Capital Loans and Sustainable livelihood banking. Although HDFC Bank has made headway in these markets; it is imperative that other private banks are also grabbing a chunk of these markets by offering customized products.

Wholesale Sector
In the Wholesale sector they have been able to leverage on accessing multiple segment by having a relationship with large and emerging corporates for multiple revenue streams. They have focused on house banking and kept a healthy mix between working capital financing, term loans and transactional banking. Moreover, they have maintained a well-diversified portfolio across major industry segments. Although their gross volume on cash management has been the same, they are the clear market leaders on cash settlements on stock and commodities exchange. They are a provider of cash management solutions to large corporates, Small and Medium Enterprises, Financial institutions and the Government of India.

Treasury
HDFC Bank has customer focused treasury products and revenues are primarily customer driven considering most of their revenues come from the retail customers (54%) through cross selling. They bank upon their Treasury Advisory Services to generate revenue. They offer Forex services or FX to retail and business banking segments and derivatives to corporates or institutional customers.

NON-FUNDED REVENUES
Non-funded revenues are those revenues that are generated not through deposits/loans but through services and third party products. Their other income is 30% of their net revenues for the financial year 2012. The composition of other income is as follows: Fees and Commissions 82% FX and Derivatives Revenues 22% Loss on sale of investments (4%)

CARDS
HDFC Bank has been the leader in credit market with 5.6 mn cards as of FY12. Among these 70% of these cards are issued to internal customers. Moreover, they have over 180,000 Point-Of-Service terminals.

THIRD PARTY PRODUCTS

Third party products have had a steady performance over the years although the environment is volatile. New regulations have an impact on fees generated through these third party products. This segment primarily captures high net worth individuals and they have relationship managers for these clients. These products are distributed through branches all over India to drive distribution. Third party products comprise of mutual funds, insurance etc.

CHALLENGES
In spite of the industry growing, there are some concerns regarding the industry. Some of the concerns are mentioned below: More stringent capital requirements As per RBI guidelines, banks will have to augment the minimum core capital after a strict deduction. The two new requirements will require banks to keep a 2.5% buffer on capital to take care of risk and the second is a counter cyclical buffer to keep during good times. In this scenario banks will not be able to make discretionary payouts such as dividends, share buy-backs etc. Whereas the counter cyclical buffer is to protect the banks from increasing aggregate credit growth. Increasing non-performing and restructured assets Due to the slowing down of the economy and the rate at which banks are lending to borrowers results in increasing amount of nonperforming assets. Restructuring enables the banks to reduce interest rate on loans or to increase the duration of loan repayment to encourage borrowers to repay, thus reducing the risk of an asset turning into an NPA. Intensifying competition Due to a lot of banks offering homogenous services it is difficult to differentiate among the competitors. Moreover, switching cost of clients is very low, so customer retention is one of the primary targets of most banks. Since, RBI has also announced to provide new banking licenses the competition is going to rise. Managing employees Considering the attrition rate is high in the industry and the training costs are increasing, it is imperative to manage the employees through stock options, job satisfaction etc.

Further, apart from the concerns generally prevailing in the banking sector the future looks promising. But, as HDFC Bank is trying to keep its profitability high, they have some concerns of their own.

Retail Sector
As the retail sector continues to grow and the economy faces a slowdown, customers are increasingly putting their money in long term deposits since they give better yields. This has made the CASA to go down and costs of the company to increase because of increase in interest rate by the countrys central bank to curb inflation. This has also resulted in a number of NPAs because of the inability of the customer to pay back their loans. Thus, to increase profitability HDFC bank will have to increase its volume of business vis--vis increasing businesses from existing customer by encouraging him to put more

money in his current/savings account or by cross selling other products to the customer. Another way is to get new customer, which will have to be done by offering new products and efficient marketing. As RBI has put guidelines regarding the number of branches to be put in rural areas (at 25% of new branches), it is a matter of concern because the volume of business from customers in rural areas are less, which would result in lesser profitability from branches in rural areas.

Wholesale Sector
The slowing down of economy has hit the sector since corporates are borrowing less and the input costs such as labour, raw materials are increasing. Moreover companies, which depend on imports, are facing higher exchange risk. With this in mind, HDFC banks concern is what kind of services it will have to offer to these corporates to increase business. Some of the services offered are Cash Management, Custodial Services, Clearing Bank services, Correspondent banking, Tax collection etc.

Treasury
With products such as equity and foreign exchange, there is volatility in the market due to increasing interest rates. Moreover M3 (money supply) has had a lower growth and there are fewer Hedge oriented products in the market. The key challenge for HDFC bank is to know which would be more cost effective funded or nonfunded revenue growth. A major challenge for expansion is the rising cost-to-income ratio, which means that the amount paid to employees and the amount of business they generate is lowering. Their cost-toincome ratio has increased from 47.90 FY11 to 48.40 FY12. So they will have to put performance based incentives so as to increase the amount of business generated through employees or cut vacancies so as to curb recruitment. The GDP growth of India is speculated to be still around 5% over the next year and with restrictions on Foreign Institutional Investments and Foreign Direct Investments growth in the economy is still bleak.

As, HDFC Bank has made strides in the industry, it now has to concentrate on the future of its growth. Keeping costs in mind what could be the way forward? Will it be expanding into the rural markets to get more business or to cross sell products to existing clients to improve upon existing business and generate non-funded revenues or to create new initiatives/innovations in the banking sector to create more business?

Exhibits HDFC Profit and Loss Statement [Exhibit 1]

Source: HDFC Bank Annual Report 2012

HDFC Business mix [Exhibit 2]

Customer segments are the main drivers of growth There is a well balanced mix between retail and wholesale segments Retail revenues are offset through high operating and credit costs Well positioned for growth in both segments

HDFC Bank services delivery distribution

HDFC National Network [Exhibit 3]

HDFC Deposits and Savings [Exhibit 4]

HDFC Non funded revenues [Exhibit 5]

ICICI Bank Profit and Loss Statement [Exhibit 6]

Source: ICICI Bank Annual Report 2012

Axis Bank Profit and Loss Statement [Exhibit 7]

Source: Axis Bank Annual Report 2012

Kotak Mahindra Bank Profit and Loss Statement [Exhibit 8]

Source : Kotak Mahindra Bank Annual Report 2012

KPMG Benchmarking Report on Performance of Banks [Exhibit 9]

Market Capitalization of Private Sector Banks [Exhibit 10]

Percentage Market Share in 2012

17.31 31.87 10.36

HDFC Bank ICICI Bank Axis Bank Kotak Mahindra

13.48 26.98

Other Private Banks

Timeline of initiatives by HDFC Bank [Exhibit 11] HDFC bank was incorporated on 30th August 1994. It received certificate of commencement of business on 10th october 1994. On 16th January 1995 The Bank started operating its first branch in Ramon House at Churchgate, Mumbai. 1996 HDFC was awarded highest possible PP1+ rating for its superior capacity for repayment. 1997 HDFC Bank become the first private sector bank to conclude a structured interest rate option deal. 1998 HDFC bank offered mobile banking services in cities in a long term plan to reduce costs of banking. HDFC offered online bill-payment facility in alliance with Maharashtra State electricity board HDFC Bank tied up with BPL Mobile a utility company to offer mobile commerce Spice cellular service tied up with HDFC bank for mobile bill payment service. HDFC launched its brokerage services for retail investors in the Capital. By efficiently managing Broker financing HDFC bank earned huge money. 2001 HDFC offered online real time accounting services to small and medium sized firms through Tally

2002 HDFC Bank launched a new online account aggregation service `OneView'. 2003 HDFC Bank tied up with IRCTC for online railway booking. HDFC Bank launched India's first mobile payment solution. HDFC Bank's debt programme of Rs 400-crore received triple A rating from credit rating agency FITCH. 2004 HDFC launched Quickremit, a unique online service that enables NRIs in the US to send money to their relatives in India online. HDFC Bank launched an online bill payment facility for its customers who are also subscribers to Tata Teleservices. 2005 HDFC Bank unveiled credit card for farmers 2008 HDFC Bank tied Up With Postal Department to extend its reach to rural customers. HDFC Bank won Nasscom IT User Award The Year' HDFC Bank merges with centurion Bank HDFC Bank launched Indias First Rural Banking BPO At Tirupathi 2010 HDFC Bank pays variable interest rates on recurring deposits to prevent premature withdrawl HDFC Bank replaces ICICI as Number 1 private retail bank in India 2011 HDFC Bank declared as Strongest Bank in Asia Pacific region by The Asian Banker magazine 2012 HDFC Bank tied up with IOC to offer banking services in rural areas HDFC launched its mobile banking application in Hindi