DECLARATION

I, Neha Ravindra Deshmukh student of Third Year BBA, Here by

declared that the project work entitled ‘A COMPARATIVE STUDY OF
FINANCIAL PERFORMANCE OF TWO BANKS SBI AND HDFC’
is my original work and not copied from any other project.

The project work submitted to Sir Parashurambhau college

(Autonomous), Affiliated to Savitribai Phule University partial fulfilment
for award of the degree of Bachelor of Business Administration. I further
declared that the work reported in this project is not submitted in any
other university for any examination.

Date : 4 APRIL 2023 Neha Ravindra Deshmukh

Place: S.P.COLLEGE PUNE Name of student

1
 CERTIFICATE

This is to certify that Neha Ravindra Deshmukh has successfully completed his /
her project titled as ‘A COMPARATIVE STUDY OF FINANCIAL
PERFORMANCE OF TWO BANKS SBI AND HDFC’.

In the subject ‘Legal Aspects of Finance and Security Law’ as partial fulfillment
of Bachelor of Business Administration in the academic year 2022-2023.

(Dr. VinitaNawalakha) (Dr. PravinRansure)

Project Guide Vice principal

Signature: Signature:
(Internal Examiner) (External Examiner)
Dr V. P. Nawalakha Name :Kanchan Shinde

2
 ACKNOWLEDGEMENT

I wish to acknowledge my sincere gratitude for giving me an opportunity

I am immensely thankful to Dr. Vinita Nawalakha for her guidance and valuable

information. It would not have been possible successful completion of my project

without her help.

Above all I offer my heartiest thanks to my family and friends for their fullest

support and wonderful guidance.

Date: 4 APRIL 2023 Name of Student:

PLACE : SP COLLEGE PUNE NEHA RAVINDRA DESHMUKH

3
 Chapter I .
INTRODUCTION

4
INTRODUCTION

1.1 Rationale of the Study

A thorough examination of a bank's financial statements will reveal important factors to
consider before making an investment decision. Investors should be aware of the market cycle
and interest rates, as these can have a direct effect on a bank's financial results.

Reasons to choose Ratio Analysis for SBI and HDFC

➢ It provides clear understanding about the Profitability, Liquidity and Long term
Solvency of the firm.
➢ Ratio Analysis is an efficient way to evaluate the company’s performance and compare
it with other similar companies to measure financial stability.
➢ It is useful to analyze firm’s performance across the period of time. It is time and
cost effective.
➢ A comprehensive method to compare the NPA ratios of both the firms.

Reasons to choose SBI and HDFC bank

➢ In the current scenario in June, 2020 if we think about the two largest of banks of India
one from the private segment and other from the public sector segment, there is no doubt
about it being HDFC Bank from the Private sector and SBI from the Public sector looking
at their balance sheet, reach and customer base.

➢ The study will assist in contrasting the public and private sectors in addition to SBI and
HDFC.

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1.2 Introduction to Banking Sector

India is not only the world's largest independent democracy, but it is also a rapidly growing
economic powerhouse. No country can have a stable economy without a sound and efficient
banking system. Banks play a critical role in a country's economic growth. They collect people's
unused savings and make them eligible for investment. They're in the process of granting loans
and purchasing investment securities, new demand deposits are also established. Accepting and
discounting bills of exchange allows for trade both within and outside the country. Banks also help
to improve capital mobility. India's banking system has a long list of notable accomplishments
over the last three decades. It is no longer limited to the cities, but has spread to even the most
remote parts of the world. This is one of the factors behind India's development. The banking
industry is now one of India's most important service industries. The availability of high-quality
services is critical to the economy's success. Banks' attention has turned away from customer
acquisition to customer retention. The introduction of Information Technology into the banking
sector has changed the way people work. The banking sector's policy has undergone radical
transformations, various customer-oriented products, such as internet banking, are available.
Customer’s workload has been reduced mainly because of ATM providers, telebanking, and
electronic payments. The internet's convenience Banking allows a customer to access and manage
his bank account without having to go to the bank. 'The Customer's options have been
revolutionized by the availability of ATMs and credit/debit cards.

Definition of a Bank
A bank is a financial institution and a financial intermediary that accepts deposits and channels
those deposits into lending activities, either directly by loans or indirectly through capital markets.
(technofunc.com, 2013)

Types of Banks:
Banks are classified as Public or Private depending on their ownership.

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PUBLIC SECTOR BANKS-
Public Sector Banks (PSBs) are a major form of bank in India, in which the Indian government or
state governments own a majority stake (i.e. more than 50%). The shares of these banks are
traded on stock exchanges. Public sector banks in India include State Bank of India, Bank of
Baroda, Bank of Maharashtra, Bank of India and others. (types of banks, 2020)
Public sector banks or nationalised banks are those in which the government has retained a
majority of its share with the primary aim of public interest.
After independence, the government of India started the nationalisation of the Imperial Bank of
India in 1955 to enter the banking business. The Reserve Bank of India took 60% of the share and
renamed it the State Bank of India.
In 1969, the government of India nationalised 14 more banks. In the last decade of the 20th
century, the public sector banks achieved huge growth.
Many political changes in the early 21st century affected the growth of the public sector banks,
and these banks reported huge losses. In 2002-03, these banks returned to the growth track and
posted a profit of ₹7780 crores.
The Indian government merged ten public sector banks into four to restructure them and
optimise functionality, significantly increasing profits. The State Bank of India is one of the biggest
banks in India and worldwide.

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 PRIVATE SECTOR BANKS-

Private sector banks are those in which majority of the stake is owned by the bank's shareholders
rather than the government. Private sector banks in India include RBL Bank, HDFC Bank, ICICI
Bank, Yes Bank, and others. (Private sector Banks) The central part of a private bank’s equity is
owned by either a group of individuals or private companies. However, they need to adhere to the
rules and regulations of the central bank’s guidelines despite having their own set of independent
financial strategies. The trading of these banks is done on the stock market. Most private secto
r banks provide excellent innovative service and efficiency in operations. However, since they are
profit-based financial institutions, they provide efficient services at an additional cost.
Commercial Banks became popular in the 1990s when the LPG policy was founded. IndusInd
Bank and Axis Bank are among the oldest banks in the private sector in the country. Both were
founded between 1993-and 1994 after the government of India permitted them.

Indian Banking Sector-

The Reserve Bank of India (RBI) claims that India's banking sector is adequately capitalised and
controlled. The country's financial and economic standards are far superior to those of any other
country on the planet. According to credit, industry, and liquidity risk studies, Indian banks are
generally resilient and have fared well during the global downturn.

Innovative banking models such as transfers and small finance banks have recently been
introduced in the Indian banking industry. The RBI's new initiatives may go a long way toward
assisting the domestic banking industry's restructuring.

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Market Size

The Indian banking system consists of 12 public sector banks, 22 private sector banks, 46 foreign
banks, 56 regional rural banks, 1485 urban cooperative banks and 96,000 rural cooperative banks
in addition to cooperative credit institutions. As of September 2020, the total number of ATMs in
India increased to 210,049 and is further expected to increase to 407,000 by 2021. (banking sector
in india, 2021)

NON PERFORMING ASSESTS of a Bank

Definition: A non performing asset (NPA) is a loan or advance for which the principal or interest
payment remained overdue for a period of 90 days. (definition of NPAs)

Types of NPAs-
Standard Assets: This is a type of performing asset that generates a steady stream of income and
repayments as they become due. These assets have a normal risk profile and are not NPAs in the
traditional sense. As a result, standard properties do not need any special requirements.

Sub-Standard Assets- These include loans and advances that have been classified as
nonperforming assets for more than a year.

Doubtful Assets- these are assets that have been deemed non-performing for a duration of more
than 12 months.

Loss Assets- these are the assets that the lending institutions are unable to recover. (What is
NPA and Types of NPA, 2020)

9
Road Ahead
Increased infrastructure investment, faster project delivery, and the continuation of reforms are
expected to give the banking sector a boost. All of these factors point to a strong future for India's
banking sector, as rapidly expanding companies will turn to banks for credit.

In addition, technological advancements have pushed mobile and internet banking to the forefront.
The banking industry is putting a greater focus on delivering better services to customers and
improving their technology infrastructure in order to boost the overall customer experience and
offer banks a competitive advantage.

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 1.3 Introduction to the SBI and HDFC bank

➢ HDFC Bank

About HDFC

The Housing Development Finance Corporation Limited (HDFC) Bank is an Indian banking and
financial services company, headquartered in Mumbai, Maharashtra. HDFC Bank is India’s largest
private sector bank by assets and by market capitalization as of April 2021. It is the third largest
company by market capitalization on the Indian stock exchanges.

The HDFC Bank Preferred program for high net worth individuals-
The HDFC Bank Plus and The Investment Advisory Services program 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,

History
HDFC Bank, a subsidiary of the Housing Development Finance Corporation, was established in

1994 and is headquartered in Mumbai, Maharashtra, India. Manmohan Singh, the Union Finance

Minister, inaugurated the company's first corporate office and a full-service branch at Sandoz

House in Worli. he HDFC Bank was incorporated on August 1994 by 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. The Housing Development Finance Corporation

(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

11
Industry in 1994.
HDFC Bank is headquartered in Mumbai. The Bank at present has an enviable network of over

1416 branches spread over 550 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

also has a network of about over 3382 networked ATMs across these cities.

The promoter of the company HDFC was incepted in 1977 is India's premier housing finance

company and enjoys an impeccable track record in India as well as in international markets

. 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.

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.

On May 23, 2008, the amalgamation of Centurion Bank of Punjab with HDFC Bank was formally

approved by Reserve Bank of India to complete the statutory and regulatory approval process. As

per the scheme of amalgamation, shareholders of CBoP received 1 share of HDFC Bank for every

29 shares of CBoP.

The merged entity now holds a strong deposit base of around Rs. 1,22,000 crore and net advances

of around Rs. 89,000 crore. The balance sheet size of the combined entity would be over Rs.

1,63,000 crore. The amalgamation added significant value to HDFC Bank in terms of increased

12
branch network, geographic reach, and customer base, and a bigger pool of skilled manpower.
In a milestone transaction in the Indian banking industry, Times Bank Limited (another new

private sector bank promoted by Bennett, Coleman & Co. / Times Group) was merged with HDFC

Bank Ltd., effective February 26, 2000. This was the first merger of two private banks in the New

Generation Private Sector Banks. As per the scheme of amalgamation approved by the

shareholders of both banks and the Reserve Bank of India, shareholders of Times Bank received 1

share of HDFC Bank for every 5.75 shares of Times Bank

Market Reach
The Bank's distribution network had 5,500 branches in 2,764 cities as of 30 June 2019. In fiscal
year 2017, the bank also constructed 430,000 point-of-sale terminals and issued 23,570,000 debit
cards and 12 million credit cards. As of March 21, 2020, it had 1,16,971 permanent staff.

Products and Services Offered-

Wholesale banking, retail banking, treasury, auto loans, two-wheeler loans, personal loans, loans
against land, consumer durable loan, lifestyle loan, and credit cards are among the products and
services offered by HDFC Bank. Payzapp and SmartBUY are two other digital products available.
(HDFC Bank)

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➢ SBI Bank

About SBI

STATE BANK OF INDIA is a regulatory body for public sector banking and financial services in
India, based in Mumbai, Maharashtra. SBI is world's 43rd largest bank and the only Indian bank
on the Fortune Global 500 list of the world's largest companies for 2020, ranking 221st. [eight] It
is India's largest public sector bank, with a 23 percent asset market share and a 25 percent share of
the overall loan and deposit market. State Bank of India (SBI) is an Indian Multinational, Public
Sector Banking, and Financial Services. It is statutory and is headquartered in Mumbai. The
rich SBI history and legacy of over 200 years, empowers SBI as the most trusted Bank by Indians
through generations. SBI is the largest bank in India which serves over 44 crore customers of our
nation. In this article, we are discussing the SBI History, Facts, and Recent Updates.

History

The Imperial Bank of India was established when the Bank of Calcutta and the Bank of Bombay
merged to create the Imperial Bank of India, which later became the State Bank of India in 1955.
In 1955, the Indian government took control of the Imperial Bank of India, with the Reserve Bank
of India (India's central bank) owning a 60% stake and renaming the bank State Bank of India.
(State Bank of India)

• The origin of the State Bank of India goes back to the establishment of the Bank of
Calcutta in Calcutta on 2 June 1806.

• Three years later the bank received its charter and was re-designed as the Bank of Bengal
(2 January 1809).

• It was the first joint-stock bank of British India sponsored by the Government of
Bengal. The Bank of Bombay (15 April 1840) and the Bank of Madras (1 July 1843)
followed the Bank of Bengal.

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 • These three banks remained at the apex of modern banking in India till
their amalgamation as the Imperial Bank of India on 27 January 1921.

• When India attained freedom, the Imperial Bank had a capital base (including reserves)
of INR 11.85 crores, deposits and advances of INR 275.14 crores and INR 72.94 crores
respectively, and a network of 172 branches and more than 200 sub-offices extending all
over the country.

• The All India Rural Credit Survey Committee recommended the creation of a state-
partnered and state-sponsored bank by taking over the Imperial Bank of India. Thus, an
act was passed in Parliament in May 1955 and the State Bank of India was
constituted on 1 July 1955.

• Later, the State Bank of India (Subsidiary Banks) Act was passed in 1959, enabling
the State Bank of India to take over eight former State-associated banks as its
subsidiaries (later named Associates).

Market Reach
SBI is one of the largest employers in the country with 209,567 employees as on 31 March 2017,
out of which 23% were female employees and 3,179 (1.5%) were employees with disabilities. On
the same date, SBI had 37,875 Scheduled Castes (18%), 17,069 Scheduled Tribes (8.1%) and
39,709 Other Backward Classes (18.9%) employees.

National
In India, SBI has over 24000 branches. Its revenue in the financial year 2012–13 was 2.005 trillion
(US$28 billion), with domestic operations accounting for 95.35 percent of revenue. In the same
financial year, domestic activities accounted for 88.37 percent of overall earnings.

15
 SBI organized 11,300 camps and opened over 3 million accounts by September under the Pradhan
Mantri Jan Dhan Yojana, which was launched by the government in August 2014 and included 2.1
million accounts in rural areas and 1.57 million accounts in urban areas.
International
As of 2014-15, the bank had 191 overseas offices in 36 countries making it the Indian bank with
the highest presence in international markets. (State Bank of India)

Products and Services Offered

SBI offers a plethora of products and services such as savings account, credit cards, fixed deposits,
personal loan, home loan, business loan, debit card, loan against property, car loan, gold loan,
mudra loan and more. (State Bank of India, 2020)
State Bank Of India (SBI), country's largest lender, offers a wide range of services in the personal
banking segment. These products are designed with flexibility to suit customer's personal
requirements and are available at all branches, noted the lender on its portal- sbi.co.in. From
internet banking facility to 24-hour ATM (automated teller machines) facility, from online trading
platform to national pension system (NPS), from safe deposit locker to foreign inward remittance
service, the lender provides a variety of options.

Here are top 10 services offered by State Bank of India (SBI):

1. ATM services: SBI offers the convenience of 43,000+ ATMs in the country. This means
that one can transact free of cost at the ATMs of State Bank Group using any State Bank
ATM-cum-debit card. This includes the ATMs of State Bank of India as well as the
associate banks - namely, State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State
Bank of Mysore, State Bank of Patiala and State Bank of Travancore, said SBI.

2. Cards: SBI offers a host of debit cards, ranging from classic debit cards to RuPay debit
cards, silver international debit cards to global international debit cards, from gold
international debit cards to platinum international debit cards, among others.

3. Internet banking: The internet banking portal of the bank- onlinesbi.com, enables its retail
banking customers to operate their accounts from anywhere anytime, removing the
restrictions imposed by geography and time. It's a platform that enables the customers to
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 carry out their banking activities from their desktop, aided by the power and convenience of
the internet, noted SBI.

4. National Pension System (NPS):National Pension System (NPS) is a defined contribution

pension system introduced by the government as a part of pension sector reforms, with an
objective to provide social security to all citizens of India. It is administered and regulated
by Pension Fund Regulatory and Development Authority (PFRDA). NPS offers two types
of accounts: Tier 1 and Tier 2. Subscribers must make a minimum contribution of ₹ 1,000
per annum for the tier 1 account. For the tier-2 account of NPS, there is no minimum
requirement of contribution, said SBI.

5. Online Trading: SBI in alliance with SBICap Securities Limited offers an online trading
account which allows trading from the comfort of home or office through the internet. This
service provides a 3-in-1 account which is an integrated platform of savings bank account,
demat account and an online trading account.

6. Safe Deposit Locker: For the safety of valuables, SBI offers safe deposit locker facility at
a large number of branches. There is a nominal annual rent, which depends on the size of
the locker and the centre at which the branch is located. The rent is payable in advance for
the financial year. A copy of the locker agreement regarding operation of the locker is
provided to the locker hirer at the time of allotment of the locker, noted SBI. The major
advantage of availing these facilities is that in the event of unfortunate death of one of the
joint locker-hirer, the right to the contents of the locker does not automatically devolve on
the surviving joint locker-hirer/ nominee (s), unless there is a survivorship clause/
nomination.

7. Foreign Inward Remittance: Customer can send remittances to India for credit to his/her
account with the bank or for any family member in a convenient way with SBI's foreign
offices network and correspondent banking arrangements, mentioned the lender. The
facilities of remittances are available worldwide.

8. Green remit card: SBI green remit card is a simple magstripe based card without PIN. The
product is targeted to facilitate non-home cash deposit transactions to be routed through
green channel counter (GCC)/ cash deposit machine (CDM). All customers (remitters),
particularly non-account holders, who want to remit money to a SBI bank account at
regular intervals can avail this facility. The transaction limit is ₹ 25,000 per transaction
subject to a monthly cap of ₹ 1,00,000, as mentioned on SBI's portal.

9. sbiINTOUCH: There are 257 sbiINTOUCH branches which are equipped with state-of-
the-art digital technology. These sbiINTOUCH branches cover more than 143 districts
across the country. These futuristic branches offer customers banking through self-service
kiosks and services of other SBI subsidiaries such as life insurance, general insurance,
mutual funds, credit cards, and online trading through SBI cap securities, noted the lender.

17
 10. NO Queue Mobile App: SBI's 'NO Queue' app offers booking of a virtual token from any
place without being physically present in the branch. With 'NO Queue' app, customer can
book a virtual queue ticket for the nearest branch and get real time status notification of
his/her position in the queue. Thus, one can virtually book queue ticket to avoid long
queues.

1.4 Justification of the Topic

Ratio analysis is an effective way to evaluate the financial results of the company to gauge
performance. It provides clear understanding about the Profitability, Liquidity and Long term
Solvency of the firm. It will also aid in the comparison of both the banks as well as the subsequent
changes in liquidity, profitability and NPA position over the last years. Ratio analysis is the finest
method to compare the firm’s performance across the period of time. Hence the researcher has
chosen the ratio analysis for comparing the SBI (largest public sector bank) and HDFC Bank.
(largest private sector bank)

18
 CHAPTER II
REVIEW OF LITRATURE

19
INTRODUCTION
2.1 International Reviews
Here are several factors that impact the profitability of banks (Sufian & Habibullah, 2010);
(Dietrich & Wanzenried, 2011). These factors can be broadly classified as either internal
determinants that originate within the firm such as bank size, capital, risk management, expenses
management, and diversification (Molyneux & Thornton, 1992); (BODLA & VERMA, 2006)

or

external determinants that are outside the firm like market concentration, industry size and
ownership, inflation, interest rates, money supply and Gross Domestic Product (GDP)
(Athanasoglou, Brissimis, & Delis, 2008); (Chirwa, 2003).

The effect of main internal factors on profitability has been studied in a number of studies.
(Smirlock & Brown, 1986) investigated the profitability of demand deposits as a feature of total
deposits. Demand deposits seemed to have a substantial positive relationship with earnings,
according to their results. Loan loss provision and net charge offs had a major negative impact on
large bank profitability, according to Miller and Noulas (1997).
These findings revealed that asset and liability composition had an effect on net charge-offs. As a
result, commercial banks' asset liability portfolio decisions are likely to have an effect on their
profitability through net charge-offs. As a result, banks with higher wages and benefits will need
higher net interest margins to stay profitable. (S M Miller , A G Noulas, 1997)

(Ganesan, 2001) looked at the profitability of India's public sector banks and discovered that
interest costs, interest income, other income, deposits per branch, credit to total assets, and the
proportion of priority sector advances were all important determinants of profitability. (ElBannay,
2004) looked into it.

20
Whether or not investment in information technology infrastructure has an effect on bank
profitability in the United Kingdom. The findings revealed that a bank's profitability is influenced
by the number of automated teller machines it has built. (BODLA & VERMA, 2006) attempted
to define the core determinants of profitability of public sector banks in India, and their findings
revealed that non-interest income, operating expenses, provision, and capital are all important
factors. Net profits are inextricably linked to contingencies and spread.

(Naceur, S, & Goaied, 2001)found that banks with relatively high capital and overhead
expenses have higher net-interest margins and profitability levels in a study of Tunisian banks
from 1980 to 2000. They also discovered that the size of a bank has a negative impact on
profitability, moreover the stock exchange. Bank profitability increased as a result of the
expansion. Furthermore, private banks were discovered to be comparatively more profitable.
They are more successful than their government-owned counterparts.

(SUFIAN, 2009) looked at the factors that influenced Malaysian domestic and foreign
commercial bank profitability from 2000 to 2004. Malaysian banks with higher credit risk and
loan concentration have lower profitability rate, according to research. Banks with a higher
capitalization ratio, on the other hand, have a higher risk of failure.
High running costs and a high proportion of income from non-interest sources were found to be
comparatively more beneficial.

The effect of macroeconomic variables such as concentration, expansion, and inflation on bank
profitability is covered by external determinants of bank profitability (Rajan & Zingales, 1998);
(Athanasoglou, Brissimis, & Delis, 2008); (Chirwa, 2003) looked into the relationship between
market structure and consumer behavior and profitability of Malawi's commercial banks using
time series data from 1970 to 1994. The investigation demonstrates a long-term connection
between bank performance and concentration.

(SUFIAN, 2009) discovered that economic growth has a negative effect on Malaysian bank
profitability. Inflation rates that were higher had a positive effect on the profitability of these
banks. (Molyneux & Thornton, 1992) studied a survey of eighteen European countries.

21
and discovered that the return on equity and the level of interest rates have a significant positive
relationship on each nation, the concentration of banks, and the ownership of the government.

2.2 National Reviews

Avani Ojha and Hemchandra Jha- has conducted studies on the effect of NPAs on the operations

of the SBI and PNB using various research methods and analyzed the hypothesis based on the

entire study that NPAs play a significant role. Non-performing assets have a significant effect on

bank profitability because they are closely linked to efficiency. The profitability and asset liability

management of Indian banks. NPAs are the product of advances not being recovered or not being

recovered within a certain time frame for a given type of lending. They suggest that banks analyze

NPAs on a regular basis, by intent, borrower, country, and so on. Before sanctioning, there should

be methods and proper inspections of the creditors. (Ojha & Jha, 2018)

Dr. Ganesan and R. Santhanakrishnan has conducted a report on NPAs at the State Bank of
India from 2002-03 to 2011-12 with the aim of deploying capital, analyzing gross NPAs,

investigating the effects of NPAs, and recommending steps to monitor NPAs. They calculated

the averages and standard deviations to test the hypothesis, and the results were based on the

desired outcomes. They put the hypothesis to the test by estimating averages and standard

deviations, and then comparing the results to the desired outcomes. They discovered that the

banking industry has changed dramatically since the first phase of economic liberalization, and

that credit management has become increasingly important as a result. NPAs has increased with

economic growth and aggressive lending practices. (Santhankrishnan & Ganesan, 2013)

22
Manisha Raj, Aashita Jain, Shruti Bansal, and Tanya Verma conducted a report on non- performing

assets (NPAs) and conducted a “A comparative study of SBI and ICICI Bank from

2014-17.” They primarily conducted a report on nonperforming assets (NPAs) to examine the

pattern of NPAs at State Bank of India and ICICI Bank over a four-year period from 2014 to

2017. They also compared overall advances, net benefit, gross NPAs, and net NP from table to

table. They looked for a linear relationship between net profit and net NPAs in both banks during

the research. After conducting research, they came to the conclusion that managing non-

performing assets (NPAs) is a difficult challenge for any bank in the banking industry. After

analyzing the data for the given years, it appears that the biggest problem for both banks in terms

of liquidity is that NPAs have increased while profitability has decreased. Despite the fact that

SBI has a higher NPA ratio than ICICI Bank.

Since SBI is a public sector bank, it is more vulnerable to losing money if it extends loans to the

general public. In the case of ICICI Bank, their investigation discovered that no significant

benefit or loss has been reported, but that NPAs are periodically settled against the bank’s

profitability. In the event that SBI’s condition worsens as a result of rising NPAs. (RAJ, Jain,
Bansal, & Verma, 2018)

Swathi.M.S. and Sridhar.K. conducted a study of non-performing assets from 2007 to 2013 and

analyzed the methods for resolving NPAs for public sector banks, private sector banks, and other

types of banks. To conclude the analysis, they mostly relied on secondary data released by banks

at the end of each quarter and year, as well as the RBI annual reports. They have taken the net

23
and gross Non-Performing Assets to assess and find the facts and figures in the analysis using

data derived from secondary sources. They investigated the causes and factors that influence

NPAs. Willful defaults by customers of various banks is the key cause, according to the central

light. Other factors they discovered during the study included lenient lending norms, industrial

crises, fund diversification, higher debt and borrowing costs, and a sudden stock market

downturn. Lok Adalat, enactment of the SARFAESI Act, Asset Reconstruction Company,

corporate debt restructuring, and other solutions are also suggested by them to solve the

problems. (Swathi.M.S & Sridhar., 2019)

The first mention of bankers is that of the ‘Shroffs,’ ‘Seths,’ ‘Sahukars,’ ‘Mahajans,’ and

‘Chettis,’ who were doing similar work in the past. In her article on the history of banking,

Srivastava (2001) mentions the presence of these early forms of bankers.

‘Indian Banking History’ is a book about the history of Indian banking. She goes on to say that
these small businesses were run by indigenous bankers. Their activities ranged from small
money lenders to Shroffs with massive conglomerates Corporations they ran are much bigger and
more specialized company than they did before even greater than an ordinary bank. (Shrivastava,
2001)

Tiwari (1959) investigated the growth and development of the Indian banking system. He claims

that Allahabad Bank (founded in 1865) was the first bank owned entirely by Indians, followed by

Punjab National Bank (1894). A large number of other banks like Bank of India, Central Bank of

India, and other Indian banks were founded between 1906 and 1913. Bank of Baroda, Canara

24
Bank, Indian Bank, and Bank of Mysore are some of the most well-known banks in India. (Tiwari,
1959)

The performance of public sector banks has declined dramatically since nationalization, with

more than half of them having a negative net worth. Recognizing that a sound banking system is

essential for any country’s growth, the ‘Banking Sector Reforms’ were introduced by the

government at the time. The first move was to set up a committee to implement the banking

reforms.

The Narasimham Committee was established in 1989 to implement these reforms. In 1991, the

Committee issued its first report, which included recommendations such as lowering the Statutory

Liquidity Ratio (SLR) to 25% over a five-year period and gradually lowering the SLR.

CRR (Cash Reserve Ratio) of 3-5 percent. It also suggested that guided credit be phased out.

Programs and a re-definition of the priority field are in the works. The prohibition on

estabilishing new private banks. Branch licensing was also abolished, according to the

Narasimham Committee Report.

In 1991, The committee’s second report, released in 1998, recommended that the two

organizations be merged. Banks in the public sector that are strong and those that are poor are

being closed. The committee also promoted a healthy rivalry between public and private sector

banks by recommending the Golden Handshake Scheme. (Arora, 2017)

Following the Narasimham Committee’s recommendations, the profitability and growth of

25
Indian banks improved significantly. Deposits as a percentage of GDP increased from 48.6% in
1990 to 60.4 percent in 2010. In 2002, the credit rating rose from 29.5 percent

to 39 percent. (Radha, 2003)

According to Malayadri and Sirisha (2011), in their paper titled “A Comparative Study of Non-

Performing Assets in Indian Banking Industry,” there has been a rise in advances and a decrease

in the NPA ratio in both public and private sector banks, resulting in improved financial

performance. Quality of the asset They also came to the conclusion that the banks’ NPA

management had improved as a result of the study. The regulatory authorities implemented

prudential standards and measures. (Malayadri, Sirisha, & Pacha, 2011)

In their paper titled “NPAs Reduction Strategies for Commercial Banks in India,” Prasad and

Veena (2011) reported that NPAs have a negative effect on the ROA because they do not produce

any net interest income. As a result, bank profits are reduced, and recycling of waste is limited.

(Bhavani, G.V., Veena, & D, 2011)

The NPAs study comparing public and private sector banks was conducted by Kajal Chaudhari
and Monika Sharma in June 2011. To detect any diversion of funds, effective and regular followup
of the end usage of the funds sanctioned is needed. This procedure can be repeated every quarter
to ensure that any accounts that become NPA are properly accounted for. (Chaudhari & Sharma,
2011)

PROF. SIRAJ. K. K & SIRAJ. K. K (DR). NPA, according to P. SUDARSANAN PILLAI

(February 2014), is a virus that has infected the banking sector. It has an effect on liquidity and
profitability, as well as posing a challenge to asset quality and bank survival. The study concluded
26
that nonperforming assets (NPAs) continue to be a major danger, and the incremental aspect
explained by NPA additions raises serious doubts about the efficiency of Indian banks' credit risk
management. (PILLAI & K.K, 2012)
Chetan Dudhe (August 2017) discovered a connection between gross nonperforming assets and
net profit. Every country has a problem with nonperforming loans, and financial institutions
should devise new strategies to boost loan recovery. Non-performing assets (NPAs) are
impacting financial institutions' financial and psychological results. (Dudhe, 2017)

27
 CHAPTER III

RESEARCH METHADOLOGY

28
3.1 Objectives of the Study

➢ To compare and evaluate the financial performance of SBI and HDFC Bank.
➢ To understand and compare the trends of NPA of both the banks over the last three years.
➢ To ascertain yearly fluctuations in terms of profitability, liquidity and efficiency of SBI and
HDFC Bank.

3.2 Research Hypothesis

Ho1 = there is no significant relationship between the gross NPA ratio of SBI and
HDFC over the last three years.

Ho2 = there is no significant relationship between the net NPA ratio of SBI and
HDFC over the last three years.

3.3 Scope of the Study

In the present study, an attempt has been made to measure, evaluate and compare the financial
performance of SBI and HDFC. The study is based on secondary data that has been collected
through annual reports of the respected banks, websites, journals, documents and other published
information. The study covers the period of 3 years i.e. is from year 2017-18, 2018-19 and 201920.
Ratio analysis was applied to analyze and compare the trends in financial performance. Mean and
t test have also been deployed to analyze the trends in banking profitability.

29
3.4 Research Design

➢ DURATION OF STUDY- The period of this study will cover last 3 years of the
financial data- 2017-18, 2018-19, 2019-20.

➢ DATA COLLECTION PROCEDURE- Secondary Data will be used in this study to

compare the financial statements of both the banks over the last three years.

➢ DATA COLLECTION METHODS- Data has been collected through Ratio Analysis.

➢ STATISTICAL TOOLS AND TESTS USED- The statistical tool used in the study is
Mean and inferential statistic T-test has been conducted to know the significant relation
between the NPA Ratios of both the banks.

3.5 Limitations of the Study

➢ The study is confined only to the selected and restricted indicators and the study is
confined only for a period of three years.
➢ *As the analysis is entirely based on secondary data, it has its drawbacks, firms can
cheat and window dress their financial statements.
➢ Ratio analysis metrics do not necessarily represent future performance of the company.

30
CHAPTER IV

PROFILE

31
Balance sheet of State Bank of India [SBI]

MAR 20 MAR 19 MAR 18

BALANCE SHEET OF
STATE BANK OF
INDIA (in Rs. Cr.)

12 mths 12 mths 12 mths

EQUITIES AND
LIABILITIES

SHAREHOLDER'S
FUNDS

Equity Share Capital 892.46 892.46 892.46

TOTAL SHARE 892.46 892.46 892.46

CAPITAL

Revaluation Reserve 23,762.67 24,653.94 24,847.99

Reserves and Surplus 207,352.30 195,367.42 193,388.12

231,114.97 220,021.36 218,236.10

Total Reserves and
Surplus

32
TOTAL 232,007.43 220,913.82 219,152.56
SHAREHOLDERS
FUNDS

Deposits 3,241,620.73 2,911,386.01 2,706,343.29

Borrowings 314,655.65 403,017.12 362,142.07

163,110.10 145,597.30 167,138.08

Other Liabilities and
Provisions

TOTAL CAPITAL 3,951,393.92 3,680,914.25 3,454,752.00

AND LIABILITIES

ASSETS

Cash and Balances with 166,735.78 176,932.42 150,397.18

Reserve Bank of India

84,361.23 45,557.69 41,501.46

Balances with Banks
Money at Call and Short
Notice

Investments 1,046,954.52 967,021.95 1,060,986.72

Advances 2,325,529.56 2,185,876.92 1,934,880.19

Fixed Assets 38,439.28 39,197.57 39,992.25

Other Assets 289,613.55 266,327.70 226,994.20

33
TOTAL ASSETS 3,951,393.92 3,680,914.25 3,454,752.00

OTHER
ADDITIONAL
INFORMATION

Number of Branches 22,141.00 22,010.00 22,414.00

Number of Employees 249,448.00 257,252.00 264,041.00

13.00 13.00 13.00

Capital Adequacy Ratios
(%)

KEY
PERFORMANCE
INDICATORS

Tier 1 (%) 11.00 11.00 10.00

Tier 2 (%) 2.00 2.00 2.00

ASSETS QUALITY

Gross NPA 149,091.85 172,753.60 223,427.46

Gross NPA (%) 6.00 8.00 11.00

Net NPA 51,871.30 658,947.40 110,854.70

Net NPA (%) 2.23 3.00 6.00

2.00 3.00 6.00

Net NPA To Advances
(%)

34
CONTINGENT
LIABILITIES,
COMMITMENTS

Bills for Collection 55,758.16 70,022.54 74,027.90

Contingent Liabilities 1,214,994.61 1,116,081.46 1,162,020.69

35
 PROFIT& LOSS A/C

MAR 20 MAR 19 MAR 18

PROFIT & LOSS ACCOUNT OF STATE
BANK OF INDIA (in Rs. Cr.)

12 mths 12 mths 12 mths

INCOME

Interest / Discount on Advances / Bills 179,748.84 161,640.23 141,363.17

Income from Investments 68,204.72 74,406.16 70,337.62

2,920.41 1,179.07 2,250.00

Interest on Balance with RBI and Other
InterBank funds -

Others 6,449.63 5,643.19 6,548.53

TOTAL INTEREST EARNED 257,323.59 242,868.65 220,499.32

Other Income 45,221.48 36,774.89 44,600.69

TOTAL INCOME 302,545.07 279,643.54 265,100.00

EXPENDITURE

Interest Expended 159,238.77 154,519.78 145,645.60

Payments to and Provisions for Employees 45,714.97 41,054.71 33,178.68

Depreciation 3,303.81 3,212.31 2,919.47

26,154.91 25,420.72 23,845.30

Operating Expenses (excludes Employee Cost &
Depreciation)

36
TOTAL OPERATING EXPENSES 75,173.69 69,687.74 59,943.45

Provision Towards Income Tax 2,803.14 491.13 673.54

Provision Towards Deferred Tax 7,510.99 954.12 -9,654.33

Other Provisions and Contingencies 43,330.37 53,828.55 75,039.20

TOTAL PROVISIONS AND 53,644.50 54,573.80 66,058.41

CONTINGENCIES

TOTAL EXPENDITURE 288,056.96 278,781.31 271,647.46

NET PROFIT / LOSS FOR THE YEAR 14,488.11 862.23 -6,547.45

NET PROFIT / LOSS AFTER EI & PRIOR 14,488.11 862.23 -6,547.45

YEAR ITEMS

Profit / Loss Brought Forward -15,226.06 -15,078.57 0.32

TOTAL PROFIT / LOSS AVAILABLE FOR -737.94 -14,216.34 -12,954.83

APPROPRIATIONS

APPROPRIATIONS

Transfer To / From Statutory Reserve 4,346.43 258.67 0.00

Transfer To / From Capital Reserve 3,985.84 379.21 3,288.88

308.20 371.84 -1,165.14

Transfer To / From Revenue And Other
Reserves

0.00 0.00 0.00

Dividend and Dividend Tax for The Previous
Year

Equity Share Dividend 0.00 0.00 0.00

37
Tax On Dividend 0.00 0.00 0.00

Balance Carried Over To Balance Sheet -10,498.30 -15,226.06 -15,078.57

TOTAL APPROPRIATIONS -737.94 -14,216.34 -12,954.83

OTHER INFORMATION

EARNINGS PER SHARE

Basic EPS (Rs.) 16.23 0.97 -7.67

Diluted EPS (Rs.) 16.23 0.97 -7.67

DIVIDEND PERCENTAGE

Equity Dividend Rate (%) 0.00 0.00 0.00

38
 BALANCE SHEET OF HDFC BANK

MAR 20 MAR 19 MAR 18

BALANCE SHEET OF HDFC
BANK (in Rs. Cr.)

12 mths 12 mths 12 mths

EQUITIES AND LIABILITIES

SHAREHOLDER'S FUNDS

Equity Share Capital 548.33 544.66 519.02

TOTAL SHARE CAPITAL 548.33 544.66 519.02

Revaluation Reserve 0.00 0.00 0.00

Reserves and Surplus 170,437.70 148,661.69 105,775.98

Total Reserves and Surplus 170,437.70 148,661.69 105,775.98

TOTAL SHAREHOLDERS FUNDS 170,986.03 149,206.35 106,295.00

Deposits 1,147,502.29 923,140.93 788,770.64

Borrowings 144,628.54 117,085.12 123,104.97

39
Other Liabilities and Provisions 67,394.40 55,108.29 45,763.72

TOTAL CAPITAL AND LIABILITIES 1,530,511.26 1,244,540.69 1,063,934.32

ASSETS

72,205.12 46,763.62 104,670.47

Cash and Balances with Reserve Bank of
India

14,413.60 34,584.02 18,244.61

Balances with Banks Money at Call and
Short Notice

Investments 391,826.66 290,587.88 242,200.24

Advances 993,702.88 819,401.22 658,333.09

Fixed Assets 4,431.92 4,030.00 3,607.20

Other Assets 53,931.09 49,173.95 36,878.70

TOTAL ASSETS 1,530,511.26 1,244,540.69 1,0 63,934.32

OTHER ADDITIONAL
INFORMATION

Number of Branches 5,416.00 5,103.00 4,787.00

Number of Employees 116,971.00 98,061.00 88,253.00

Capital Adequacy Ratios (%) 19.00 17.00 15.00

KEY PERFORMANCE INDICATORS

40
Tier 1 (%) 17.00 16.00 13.00

Tier 2 (%) 1.00 1.00 2.00

ASSETS QUALITY

Gross NPA 12,649.97 11,224.16 8,606.97

Gross NPA (%) 1.00 1.00 1.00

Net NPA 3,542.36 3,214.52 2,601.02

Net NPA (%) 0.36 0.00 0.00

Net NPA To Advances (%) 0.00 0.00 0.00

CONTINGENT LIABILITIES,
COMMITMENTS

Bills for Collection 51,584.90 49,952.80 42,753.83

Contingent Liabilities 1,128,953.40 1,024,715.12 875,488.23

41
 Profit & loss A/C

PROFIT & LOSS ACCOUNT OF HDFC MAR 20 MAR 19 MAR 18

BANK (in Rs. Cr.)

12 mths 12 mths 12 mths

INCOME

Interest / Discount on Advances / Bills 91,787.88 77,544.19 62,661.79

Income from Investments 20,633.32 19,997.46 16,222.37

Interest on Balance with RBI and Other 1,828.93 635.70 523.88

InterBank funds

Others 562.52 794.70 833.31

TOTAL INTEREST EARNED 114,812.65 98,972.05 80,241.36

Other Income 23,260.82 17,625.88 15,220.30

TOTAL INCOME 138,073.47 116,597.94 95,461.66

42
EXPENDITURE

Interest Expended 58,626.40 50,728.83 40,146.49

Payments to and Provisions for Employees 9,525.67 7,761.76 6,805.74

Depreciation 1,195.85 1,140.10 906.34

Operating Expenses (excludes Employee Cost & 19,976.01 17,217.51 14,978.30

Depreciation)

TOTAL OPERATING EXPENSES 30,697.53 26,119.37 22,690.38

Provision Towards Income Tax 9,833.15 12,129.61 10,107.25

Provision Towards Deferred Tax 516.69 -1,008.12 -896.68

Other Provisions and Contingencies 12,142.39 7,550.08 5,927.49

TOTAL PROVISIONS AND 22,492.23 18,671.57 15,138.06

CONTINGENCIES

TOTAL EXPENDITURE 111,816.15 95,519.77 77,974.93

NET PROFIT / LOSS FOR THE YEAR 26,257.32 21,078.17 17,486.73

43
NET PROFIT / LOSS AFTER EI & PRIOR 26,257.32 21,078.17 17,486.73
YEAR ITEMS

Profit / Loss Brought Forward 49,223.30 40,453.42 32,668.94

TOTAL PROFIT / LOSS AVAILABLE FOR 75,480.62 61,531.58 50,155.67

APPROPRIATIONS

APPROPRIATIONS

Transfer To / From Statutory Reserve 6,564.33 5,269.54 4,371.68

Transfer To / From Capital Reserve 1,123.85 105.34 235.52

Transfer To / From Revenue And Other 0.00 0.00 0.00

Reserves

Dividend and Dividend Tax for The Previous 0.00 0.00 3,390.58
Year

Equity Share Dividend 6,540.31 4,052.59 0.00

Tax On Dividend 0.00 0.00 0.00

Balance Carried Over To Balance Sheet 57,492.40 49,223.30 40,453.42

TOTAL APPROPRIATIONS 75,480.62 61,531.58 50,155.67

44
OTHER INFORMATION

EARNINGS PER SHARE

Basic EPS (Rs.) 48.01 78.65 67.76

Diluted EPS (Rs.) 47.66 77.87 66.84

DIVIDEND PERCENTAGE

Equity Dividend Rate (%) 250.00 750.00 650.00

45
 CHAPTER V
DATA ANALYSIS

46
5.1 Data Representation and Interpretation

Ratio analysis of SBI and HDFC bank from its annual reports for the year 2017-18, 2018-19 and
2019-20 is presented below-:

I NON PERFORMING ASSETS RATIOS-

NON-PERFORMING ASSETS (NPA) are assets for which interest is overdue for more than 90
days. It includes-

Gross non performing asset ratio

Gross non-performing assets- Gross non-performing assets refer to the total amount of the debts
that an organization has failed to collect or the people owing the organization has failed to honor
their contractual obligations of paying both the principal and interest amount.

Gross non-performing loans are the sum of all the loans that have been defaulted by the individuals
who have acquired loans from the financial institution. This means that all loans defaulted are
added together to form gross non-performing assets.

Formula-

Gross NPA Ratio= (A1 + A2 + A3 ……………………. + An)/Gross Advances

( A1 stands for loans given to person number one, A2 for loans given to person number two
etc)

47
YEAR SBI HDFC

2017-18 10.91 1.30

2018-19 7.53 1.36

2019-20 6.15 1.26

Average 8.19 1.30

(Table 1 shows the % of Gross NPA of SBI and HDFC for last three years)

12

10

6 SBI
HDFC
4

0
2017-18 2018-19 2019-20

(Graph 1 shows the % of Gross NPAs of SBI and HDFC for last three years)

Interpretation: The gross NPA ratio of SBI stood at 10.91 in 2017-18 while that of HDFC was 1.30
in the same year. In 2018-19 the ratio of SBI dropped down to 7.53 and that of HDFC increased
to 1.36. In the year 2019-20 the ratio of SBI further dropped down to 6.15 while that of HDFC
was 1.26.

So the average Gross NPA ratio of SBI stood at 8.19 while that of HDFC was much lesser at
1.30, which clearly shows that SBI’s asset quality is in very poor shape.

48
 NET NON PERFORMING ASSESTS RATIO

Net non-performing assets are the amount that is realized after provision amount has been deducted
from the gross non-performing assets. It is the actual loss that the organization incurs after loan
defaults.

Formula-

Net NPA Ratio = (Total Gross NPA) – (Provision for Unpaid Debts)/Gross Advances
YEAR SBI HDFC

2017-18 5.73 0.40

2018-19 3.01 0.39

2019-20 2.23 0.36

Average 3.65 0.38

(Table 2 shows the % of Net NPA of SBI and HDFC for last three years)

4
SBI
3
HDFC
2

0
2017-18 2018-19 2019-20

(Table 2 shows the % of Net NPA of SBI and HDFC for last three years)

49
Interpretation: In the year 2017-18, the Net NPA ratio of SBI stood at 5.73 while that of HDFC
was much lesser i.e. 0.40. In year 2018-19, the ratio of SBI further dropped to 3.01 and that of
HDFC was at 0.39. In 2019-20, the ratio again dropped to 2.23 and 0.36 respectively, which shows
the Net NPAs gradually started decreasing.

The average gross NPA ratio of SBI was at 3.65 and that of HDFC was at 0.38. Therefore it shows
that HDFC has better overall financial health and it is better than SBI in managing their net NPAs.

II Efficiency Ratios

Efficiency ratios measure a company’s ability to use its assets and manage its liabilities effectively
in the current period or in the short-term. These ratios measure how efficiently a company uses its
assets to generate revenues and its ability to manage those assets.

The efficiency ratio of a bank can be used to determine how efficient a bank is. This reveals the
financial health of the institution.

Fixed Asset Turnover Ratio

Fixed-asset turnover ratio is a type of efficiency ratio that measures sales to the value of fixed
assets. It indicates how well the business is using its fixed assets to generate sales. Generally, a
high fixed assets turnover ratio indicates better utilization of fixed assets and a low ratio means
inefficient or under-utilization of fixed assets.
50
Fixed Asset Turnover Ratio = Net Sales / Average Fixed Assets
YEAR SBI HDFC

2017-18 0.08 0.08

2018-19 0.07 0.08

2019-20 0.07 0.08

Average 0.07 0.08

(Table 3 showing Fixed Asset Turnover Ratio of SBI and HDFC for the last three years)

0.082

0.08

0.078

0.076

0.074
SBI
0.072
HDFC
0.07

0.068

0.066

0.064
2017-18 2018-19 2019-20

(Graph 3 showing Fixed Asset Turnover Ratio of SBI and HDFC for the last three years)
Interpretation: The fixed asset turnover ratio of both SBI and HDFC stood at 0.08 in the year
2017-18, in 2018-19, the ratio of SBI was at 0.07 while that of HDFC remained same at 0.08. In
2019-20, the ratio again remained same as 0.07 and 0.08 respectively.

51
The average Fixed Assets Turnover ratio of SBI was 0.07 and that of HDFC was 0.08 which shows
that both the banks are inefficiently using their fixed assets.

III Leverage Financial Ratios

Leverage ratios measure the amount of capital that comes from debt. In other words, leverage
financial ratios are used to evaluate a company’s debt level.

Debt to Equity Ratio

The debt to equity ratio is a type of leverage ratio that calculates the weight of total debt and
financial liabilities against shareholders’ equity. The ideal debt to equity ratio is 2:1 (because the
cost of debt is lower than the cost of equity.)

Debt to equity ratio = Total liabilities / Shareholder’s equity

YEAR SBI HDFC

2017-18 15.79 8.58

2018-19 16.89 6.97

2019-20 17.08 7.56

Average 16.59 7.70

(Table 4 showing Debt to Equity Ratio of SBI and HDFC for the last three years)

52
 18
16
14
12
10
8 Sum of SBI

6 Sum of HDFC

4
2
0
2017-18
2018-19
2019-20

(Graph 4 showing Debt to Equity Ratio of SBI and HDFC for the last three years)

Interpretation: In the year 2017-18, the debt to equity ratio of SBI is very high at 15.79 and that of
HDFC is 8.58. In 2018-19, the DER of SBI increased to 16.89 while that of HDFC decreased to
6.97. Lastly in 2019-20, the ratio further increased to 17.08 and 7.56 respectively.

The average debt to equity of SBI stood at 16.59 and that of HDFC stood at 7.70. It suggests that
SBI is at higher default risk than HDFC and both of the banks are financing a significant amount
of their potential growth through borrowing.

53
IV Profitability Ratios

Profitability ratios measure a company’s ability to generate income relative to revenue, balance
sheet assets, operating costs, and equity. Common profitability financial ratios include the
following:

Operating Profit Ratio

Operating profit ratio is a profitability or performance ratio that compares the operating income of
a company to its net sales to determine operating efficiency.

Operating Profit Ratio = Operating income / Net sales

YEAR SBI HDFC

2017-18 8.14 22.33

2018-19 8.95 15.87

2019-20 -6.65 12.66

Average 3.48 16.95

(Table 5 showing Operating Profit Ratio of SBI and HDFC for the last three year
25

20

15

10 SBI

5 HDFC

0
2017-18 2018-19 2019-20
-5

-10

(Graph 5 showing Operating Profit Ratio of SBI and HDFC for the last three years)

54
Interpretation: In 2017-18, the operating profit ratio of SBI is 8.14 and that of HDFC is much
higher at 22.33. In the year 2018-19, the ratio of SBI stood at 8.95 and that of HDFC at 15.87. In
2019-20, SBI had a negative operating profit ratio which shows its overhead costs are too high and
they can only survive as long as their cash reserves will allow. If they begin to run out of cash in
hand, they may have to sell assets in order to cover their expenses and remain in operation.

The average operating profit ratio of SBI student 3.48 and that of HDFC stood at 16.95 which
suggest that SBI has low operating profit margin while HDFC has very high operating profit
margin.

Gross Profit Ratio

The gross profit ratio compares the gross profit of a company to its net sales to

show how much profit a company makes after paying its cost of goods sold.

Gross Profit Ratio = Gross profit / Net sales

YEAR SBI HDFC

2017-18 6.81 21.20

2018-19 7.62 14.72

2019-20 -7.93 11.62

Average 2.16 15.84

(Table 6 showing Gross Profit Ratio of SBI and HDFC for the last three years)

55
 25

20

15
SBI
10
HDFC
5

0
2017-18 2018-19 2019-20
-5

-10

(Graph 6 showing Gross Profit Ratio of SBI and HDFC for the last three years)

Interpretation: In 2017-18, the gross profit ratio of SBI stood at 6.81 while that of HDFC stood at
21.20. In 2018-19, ratio of SBI increased to 7.62 while that of HDFC decreased to 14.72. In 2019-
20 SBI had a negative gross profit ratio of -7.93 which shows that the sales are not enough to cover
the costs incurred to manufacture the goods or provide the services.
The average gross profit ratio of SBI stood at 2.16 while that of HDFC was much higher at 15.84
and it suggests that HDFC is successfully producing profits over and above cost.

Net Profit Ratio

Also known as Net Profit Margin ratio, it establishes a relationship between net profit earned and
net revenue generated from operations (net sales). Net profit ratio is a profitability ratio which is
expressed as a percentage hence it is multiplied by 100.

NP ratio helps to determine the overall efficiency of the business’ operations, furthermore, it is an
indicator of how well a company’s trading activities are performing.

56
Net Profit Ratio = (Net profit ÷ Net sales) x 100
YEAR SBI HDFC

2017-18 -2.96 21.79

2018-19 0.35 21.29

2019-20 5.63 22.86

Average 1 22
(Table 7 showing Net Profit Ratio of SBI and HDFC for the last three years)

25

20

15

SBI
10
HDFC

0
2017-18 2018-19 2019-20
-5

(Graph 7 showing Net Profit Ratio of SBI and HDFC for the last three years)
Interpretation: The net profit ratio of SBI stood at -2.96 at while that of HDFC stood at 21.79 in
2018-19 the ratio of SBI was at 0.35 while that of HDFC was at 21.29. In 2019-20 the net profit
ratio of SBI increased to 5.63 while that of HDFC increase to 22.86.

The average net profit ratio of SBI stood at 1 while that of HDFC stood at 22 which show that
SBI is making less money than it is spending and HDFC's overall efficiency is quite good.

57
 Liquidity Ratios-

Liquidity ratios are financial ratios that measure a company’s ability to repay both short- and long-
term obligations. Common liquidity ratios include the following:

Current Ratio

The current ratio is a liquidity ratio that measures a company’s ability to pay off short-term
obligations or those due within one year. This ratio measures the financial strength of the company.
Generally 2:1 is treated as the ideal current ratio.

Current Ratio = Current Assets / Current Liabilities

YEAR SBI HDFC

2017-18 1.36 0.89

2018-19 1.83 0.89

2019-20 1.78 0.80

Average 1.66 0.86

(Table 8 showing Current Ratio of SBI and HDFC for the last three years)
2
1.8
1.6
1.4
1.2
1 SBI

0.8 HDFC

0.6
0.4
0.2
0
2017-18 2018-19 2019-20

58
 (Graph 8 showing Current Ratios of SBI and HDFC for the last three years)

Interpretation: In 2017-18 the current ratio of SBI stood as 1.36 and that of HDFC stood at 0.89.
In 2019-20, the ratio of SBI was 1.83 and that of HDFC was 0.89. In 2019-20, the ratio stood at
1.78 and 0.80 respectively.

The average of current assets ratio of SBI was 1.66 and that of HDFC was at 0.86 which shows
that SBI is more capable in paying its short term obligations.

SBI HDFC

Mean 8.196667 1.306667

Variance 5.997733 0.002533

Observations 3 3

Pooled Variance 3.000133

Hypothesized Mean 0
Difference

df 4

t Stat 4.871857

P(T<=t) one-tail 0.004104

t Critical one-tail 2.131847

P(T<=t) two-tail 0.008209 Ho2 = there is no significant relationship

between the net NPA ratio of SBI and HDFC
t Critical two-tail 2.776445 over the last three years.

59
CONCLUSION:

A two sample t test assuming equal variances was conducted to check if there was significant
difference between the net NPA ratio of SBI and HDFC bank over the last three years.

There was statistically significant difference between the average net NPA ratios of SBI and HDFC
bank. Since p<0.05(p=0.008), H02 is rejected and therefore we it is proved that there is significant
relationship between the net NPA ratio of SBI and HDFC bank over the last three years.

60
 Chapter VI

FINDING AND RECOMENDATION

61
6.1 Major Findings

1. NPA Ratios- From graph 1 and graph 2 it is clear that over the last three years, NPAs
of SBI are far more than that of HDFC which clearly shows that asset quality and
overall financial health of SBI is in poor shape.
Among the last three years 2017-18 has been proved to the worst year for SBI with highest
NPA ratios and HDFC had highest gross and net NPA ratios in 2018-19 and 2017-18
respectively.

2. Efficiency Ratios
Fixed Assets Turnover ratio-From table and graph no. 3 it is found that the average fixed asset
turnover ratios of SBI and HDFC were almost same during the last 3 years which shows that both
the banks were inefficiently using their fixed assets.

3. Leverage Ratios
Debt to equity ratio- It is used to evaluate a company's debt level which is not satisfactory
of both the banks. The average debt equity of SBI stood at 16.59 and that of HDFC stood
at 7.70 which shows that SBI is at higher default risk than HDFC.
Among the last three years it is observed that SBI had highest debt in 2019-20 whereas
HDFC had the highest in 2017-18.

62
 4. Profitability Ratios
• Operating Profit ratio- Further in graph 5 it is clear that the operating profit ratio of SBI
is very less while that of HDFC is completely satisfactory which shows that the company
is making enough money from its ongoing operations to pay for its variable costs as well
as its fixed costs.

Gross Profit ratio- Graph 6 shows that gross profit ratio of SBI is again very less than that of
HDFC over the last three years. SBI had a negative gross profit ratio of -7.93 in the year 2019-20
issues that the sales and not enough to cover the cost incurred in manufacturing activities. But in
the same year HDFC's GP ratio was highest which shows the company has more cash to pay for
indirect and other costs such as interest raph 7 show that the net profit ratio of SBI is less than that
of HDFC over the last 3 years which shows that HDFC's overall efficiency is better.

• Net Profit Ratio- Graph 8 shows that current ratio of SBI is better than that of HDFC
which shows that SBI is more capable in paying it's short term obligations.

Among the last 3 years 2018-19 has proved to be the best year for both the banks with highest
current ratio of SBI at 1.83 and that of HDFC stood at 0.89.

5. Lastly a two sample t test assuming equal variances was conducted to check if there was
significant difference between the NPA ratios of SBI and HDFC bank over the last 3
years.
• In the test the null hypothesis was rejected and therefore it was proved that there was
significant difference between the NPA ratios of SBI and HDFC.

63
6.2 Suggestions

➢ As we see, the debt equity ratio of SBI is higher than HDFC so it should try to restructure
its debt and NPAs. The borrowings should be reduced to the level that it is not more than
4-5 times of equity. It will decrease their NPAs. Also this will result in better financial
health of the companies.

➢ Banks should limit its huge lending to trusted companies or individuals so that recovery
becomes comparatively faster and easier which would consequently result in less NPAs.

➢ We can increase the gross profit ratio of SBI by generating more revenue by managing the
costs of company efficiently. Working on the products and services of the bank and making
different changes in little time will increase the revenue.

➢ Reducing extra operating expenses and direct overhead expenses will increase the profit
margin of the Banks.

➢ The current ratio of HDFC Bank can be improved by-

1. Delaying any capital purchases that would require any cash payments.

2. Looking to see if any term loans can be re-amortized.

3. Selling any capital assets that are not generating a return to the business (use cash to reduce
current debt).

64
 6.3 Conclusion

After the above study on the comparative analysis of SBI and HDFC it was discovered that both
the banks are managing their ratios to the best of their abilities within the specified parameters.
However, when we compare the two banks, it appears that HDFC Bank has an edge over SBI,
reason being HDFC Bank have lower NPAs than the SBI. HDFC Bank having average Gross
NPAs less than 1.5% while SBI having the GNPAs near about 8.1% as per the annual report of
both banks over the last three years.
HDFC Bank has managed their NPA and profitability ratios in a very efficient manner and are
playing an important role as a profitable commercial bank, while SBI is controlling its ratios
particularly the current assets ratio but is not as competitive in terms of net profit and Non
Performing Assets (NPAs).
SBI needs to be more focused on managing the net profits and NPAs part to be a commercially
successful bank.
During, the comparative study of SBI v/s HDFC Bank it is found that HDFC Banks has never gone
above 2% in net NPAs during the study period while SBI has never gone below 6% during the
study period.
This is an eye-opening comparison that demonstrates SBI's need to concentrate on acquiring high-
quality assets, otherwise they will be compromising customers' hard-earned money in the future.

In order to study the trends of NPA, t-Test has been used, the results of which have been shown in
the relevant tables. The comparative analysis of the profitability of the two banks clearly reveals
that there is no significant relation between the NPA ratios of both the Banks

65
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68
CHAPTER VII

CONCLUSION

69
 The results point out that HDFC Bank has outperformed State Bank of India on the parameters

of Capital Adequacy, Asset Quality and Management whereas State Bank of India has

outperformed HDFC Bank on the parameter of Liquidity. Both the banks have performed equal

in terms of Earnings quality.

After the above study on comparative study of HDFC Bank and State Bank India, it is found that

both thebanks managing their ratios at the best in their capacities in given boundaries. However

ifwe compare both thebanks it suggests that HDFC Bank having the edge on the SBI reason being

HDFC Bank having lower NPAsthan the SBI. HDFC Bank having Gross NPAs less than 1.5%

while SBI having the GNPAs near about 7.5% asper the annual report of both banks for the fiscal

2019. Also the comparative study of both bank shows theNPAs never been easy handling for the

state bank of India and in every two to three year they are doing theprovisioning of their NPAs

while in case of HDFC Bank these restructuring incidents are rare. Howeverfindings of the

study are suggesting that HDFC Bank has managed their ratios like NPAs, CAR and PCR in a

very efficient manner and managed the net profits in a systematic way and paying the great role of

successfulcommercial bank while in case of SBI they are managing their ratio but are not that

much efficient in case ofNet profits and NPAs while CAR and PCR are being managed by

them. SBI need to be more focused onmanaging the net profits and NPAs part to be a

commercially successful bank.

70
71