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Three Segments of HDFC Banking Services

HDFC Bank, established in 1994, is India's leading private sector bank offering a range of banking services and has a vast network of 5,314 branches and 13,640 ATMs. The bank's balance sheet shows an increase in assets and liabilities from 2018 to 2019, indicating overcapitalization with an actual rate of return of 7.97% compared to a normal rate of 6.50%. This overcapitalization can be addressed through various capital reduction techniques to stabilize the company's financial health.

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Charul Agrawal
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41 views5 pages

Three Segments of HDFC Banking Services

HDFC Bank, established in 1994, is India's leading private sector bank offering a range of banking services and has a vast network of 5,314 branches and 13,640 ATMs. The bank's balance sheet shows an increase in assets and liabilities from 2018 to 2019, indicating overcapitalization with an actual rate of return of 7.97% compared to a normal rate of 6.50%. This overcapitalization can be addressed through various capital reduction techniques to stabilize the company's financial health.

Uploaded by

Charul Agrawal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

HDFC Bank is the leading private sector bank in India which was incorporated in the year

1994 with its registered office in Maharashtra being among the first to get approval from the

Reserve Bank of India to set up a private sector bank.

It provides a number of products and services to its customers covering industrial and

commercial banking on the wholesale side and branch or transactional banking on the retail

side. Few of them are retail banking, personal loans, wholesale banking, credit cards,

treasury, two-wheeler loans, lifestyle loan and loan against property.

HDFC Bank has got 5,314 branches and 13,640 ATMs which is spread over 2,768 cities and

towns.

Three segments of HDFC Banking services


BALANCE SHEET OF HDFC BANK LTD.

(Rs. in crore)
Interpretation of the Balance Sheet

In the above balance sheet, we can notice that there is a slight increase in the assets and

liabilities of the company which is, from Rs 10,89,432.40 crores in 2018 to Rs 11,89,432.40
crores in the financial year 2019. The increase in value is around Rs 1,71,261.70 crores. From

the balance sheet it is clearly evident that this increase is due to the increase in the value of

the shareholder’s fund and Net assets of the company from year ended 2018 to 2019.

In the year 2019,

Normal rate of return = 14 %

Actual rate of return = Earnings/Capital employed x 100

Capital employed = Total assets - current liabilities

= 11,89,432.40 – 55,108.29

= Rs. 11,34,324.11 Cr.

Earnings = Rs. 90,478.57 Cr.

Actual rate of return = 90,478.57/11,34,324.11 x 100

= 7.97%

From the above, it can be seen that the normal rate of return is 6.50% whereas the actual rate
of return is 7.97%. As the actual rate of return is higher than the normal rate of return. This
states that company is ​Overcapitalized​.

This can be due to reasons such as over issue of capital, acquisition of assets at inflated prices

or even formation of the company during a boom in the business cycle. Even due to

inadequate depreciation where the replacement provision is not provided adequately, there

could be an overcapitalization situation since this situation presses the earnings downwards,

which in turn will result in a fall in share values which represents over capitalization. A lack
of reserves is another reason for over capitalization of the company. These conditions can be

curbed through the scheme of capital reduction, which include the following techniques :

1. A reduction in the interest rates that are payable on debentures.

2. A reduction in the rate of preference share dividend.

3. A reduction in either the paid up value of equity shares, preference shares or both.

This is clearly a situation of overcapitalisation which is not a very healthy condition for a

company. However, with corrective measures the company can be stabilised into fair

capitalisation.

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