Project Report on

CREDIT RISK MANAGEMENT AT HDFC BANK

Submitted in partial fulfilment of the requirements

For the award of the degree of

Bachelors of Commerce (B.COM)

Submitted By: Vikas Goel

SAP ID: 77221866019

NMIMS GLOBAL SCHOOL FOR CONTINUING

EDUCATION

Session 2022-2025

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TABLE OF CONTENTS

EXECUTIVE SUMMARY.......................................................................................................................
1.1 INTRODUCTION ......................................................................................................................... 1
1.2 INDUSTRY PROFILE .................................................................................................................... 1
1.2.1 HISTORY .............................................................................................................................. 2
1.2.2 STRUCTURE OF INDIAN BANKING SYSTEM ........................................................................ 4
1.2.3 BANKING SECTOR REFORMS .............................................................................................. 7
1.2.4 OPPORTUNITIES AND CHALLENGES FOR PLAYERS: ........................................................... 7
1.2.5 FUNCTIONS OF BANKING ................................................................................................... 8
1.2.6 MAJOR DEVELOPMENTS OF PRIVATE BANKS: ................................................................. 10
1.3 COMPANY PROFILE .................................................................................................................. 11
1.3.1 HISTORY OF HDFC BANK: ................................................................................................. 11
1.3.2 CORPORATE PROFILE: ....................................................................................................... 12
1.3.3 VISION AND MISSION OF HDFC BANK ............................................................................. 13
1.3.4 PRODUCTS AND SERVICES BANKING ACCOUNTS ............................................................ 13
1.3.5 SWOT ANALYSIS ................................................................................................................ 16
2.1 THEORETICAL BACKGROUND .................................................................................................. 19
2.1.1 RISK MANAGEMENT ......................................................................................................... 19
2.1.2 CREDIT RISK MANAGEMENT ............................................................................................ 20
2.2 REVIEW OF LITERATURE ..................................................................................................... 23
3.1 STATEMENT OF THE PROBLEM ................................................................................................ 26
3.2 NEED FOR THE STUDY.............................................................................................................. 26
3.3 OBJECTIVES OF THE STUDY ..................................................................................................... 27
3.4 SCOPE OF THE STUDY .............................................................................................................. 27
3.5 RESEARCH METHODOLOGY ..................................................................................................... 28
3.6 SOURCE OF DATA ..................................................................................................................... 28
3.7 SAMPLING DESIGN .................................................................................................................. 29
3.7.1 Sample Population ........................................................................................................... 29
3.7.2 Sampling frame ................................................................................................................ 29
4.1 ANALYZING DATA FROM PRIMARY SOURCES .................................................................... 30
4.1.1 DATA COLLECTION ............................................................................................................ 30
4.1.3 DESCRIPTIVE ANALYSIS ..................................................................................................... 30
4.1.4 COMPARISON ANALYSIS ................................................................................................... 41
4.1.5 CORRELATION ANALYSIS................................................................................................... 42

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 4.1.6 REGRESSION ANALYSIS ....................................................................................................... 49
4.1.7 INTERPRETATION ................................................................................................................ 51
4.2 ANALYZING DATA FROM SECONDARY SOURCES ............................................................... 53
4.2.1 TREND ANALYSIS ............................................................................................................... 53
4.2.2 INTERPRETATION ............................................................................................................ 556
5.1 SUMMARY OF FINDINGS: ........................................................................................................ 58
5.2 SUGGESTIONS: ......................................................................................................................... 58
BIBLOGRAPHY ................................................................................................................................ 60
APPENDIX....................................................................................................................................... 62

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 ACKNOWLEDGEMENT

I would like to express my sincere gratitude to all the individuals and sources that have
contributed to the successful completion of my research project on "Credit Risk Management
at HDFC Bank." Their support and assistance have been invaluable throughout this endeavour.

I would also like to express my heartfelt gratitude to HDFC Bank, the participants, and the
authors of academic literature and industry reports for their invaluable contributions to my
research project on "Credit Risk Management at HDFC Bank." Your support and insights have
been instrumental in the successful completion of this study.

I would also like to extend my sincere appreciation to my academic advisors, professors, family,
and friends for their unwavering support and encouragement throughout this research journey.

Thank you all for your valuable contributions and guidance.

Name: [Vikas Goel]

SAP ID: [77221866019]

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 DECLARATION

I, Vikas Goel, hereby declare that the research project on the topic "Credit Risk Management at
HDFC Bank" is the result of my independent and original work. I affirm that all the information
presented in this research project is based on reliable sources and has been appropriately cited
and referenced.

I further declare that I have adhered to the ethical guidelines and principles throughout the
research process, ensuring the accuracy and integrity of the findings presented in this project.
Any contributions or assistance received from individuals or sources have been duly
acknowledged.

I acknowledge that HDFC Bank is a registered trademark, and all references to the bank's
practices, framework, and related information in this research project are based on publicly
available sources and do not imply any official endorsement or sponsorship.

I understand the importance of academic integrity and hereby affirm that this research project
has not been submitted for any other academic qualification or publication. Any similarities or
resemblances to the work of others are purely coincidental, and I take full respo nsibility for any
unintentional omissions or errors in the project.

I am aware that any misuse or misrepresentation of the information presented in this research
project will be subject to disciplinary actions as per the policies and regulations of my
educational institution.

Name: [Vikas Goel]

SAP ID: [77221866019]

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EXECUTIVE SUMMARY

Under the subject of "The Study of Credit Risk Management," the project report was
conducted at HDFC Bank. The research largely concentrated on the risk that the bank had to
deal with when providing loans to the clients, and the bank had to come up with strategies and
methods to lessen the risk that resulted from lending. Financial statements like HDFC Bank's
balance sheet and profit and loss account are where the information about finances is derived.

Data for the four-year analysis, which spans 2019 through 2022, was taken from the bank's
annual report. By looking at the amount of NPA loss, it can be seen that the bank manages its
credit risk appropriately. There are some non-performing assets, however over the past four
years, the bank has not suffered any losses as a result of these loans. There is no significant
loss to the bank as a result of lending, which indicates that the bank manages its credit risk
appropriately. For managing credit risk, the bank has a well-thought-out structure and
techniques.

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 CHAPTER -1

INTRODUCTION

1.1 INTRODUCTION

The goal of the study on "Credit Risk Management of HDFC Bank" is to offer a thorough
examination of the credit risk management procedures that one of India's top private sector
banks, HDFC Bank, uses. To guarantee the safety and soundness of their loan portfolio, banks
must have strong credit risk management policies and processes in place. Credit risk
management is a crucial component of banking operations.

An overview of HDFC Bank and its lending operations will be given at the outset of the study,
which will then go on to discuss credit risk management and its significance in the banking
industry. After that, it will go into detail on HDFC Bank's framework for managing credit risk,
including the procedures, systems, and policies in place. The study will also evaluate HDFC
Bank's loan portfolio performance as well as the efficacy of its credit risk reduction techniques.

The study will employ a combination of primary and secondary research methods, such as a
review of the bank's annual reports and other public disclosures, interviews with important
stakeholders in HDFC Bank's credit risk management department, and an extensive review of
academic and industry research on credit risk management in banking.

The study's conclusions will be helpful to policymakers, regulators, and the banking sector in
India and other nations. The study will shed light on HDFC Bank's credit risk management
procedures, which other institutions might utilize as a model to enhance their credit risk
management guidelines and procedures.

1.2 INDUSTRY PROFILE

A bank is a type of financial organization that provides banking and other financial
services to its clients. A bank is a type of financial institution that handles standard
banking tasks including accepting deposits and making loan payments. Moneylenders
were those who transacted money before banks were established. At the time, there
was no assurance of public savings or loan consistency, and interest rates were very
high. The government established a tightly controlled and organized banking system to
address these problems.

The central bank of the nation is called the Reserve Bank of India. India's financial
system is supervised and governed by the Reserve Bank of India (RBI). It is in charge of
enforcing banking regulations, government monetary policy, and exchange control. The
Reserve Bank of India's (RBI) guidelines are followed by the banking industry in India.
The modern economy is fueled by the financial sector. To mobilize deposits and
distribute credit to different economic sectors, the bank is essential. It oversees current

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and savings accounts, gives loans and credit cards to borrowers, and serves as a trustee
for its clients.

1.2.1 HISTORY

The history of the Indian banking sector can be traced back to the early 18th century when the
first banks were established by Europeans. The Bank of Hindustan, which was established in
1770, is considered to be the first bank in India. The bank operated for about 30 years before it
was closed down due to financial problems.

In 1806, the General Bank of India was established, followed by the Bank of Bengal in 1809 and
the Bank of Bombay in 1840. These banks were established by the British East India Company to
facilitate trade and commerce.

In 1921, the three presidency banks were merged to form the Imperial Bank of India, which was
later renamed the State Bank of India in 1955. The Reserve Bank of India (RBI) was established
in 1935 as the central bank of the country to regulate the banking sector and control monetary
policy.

After independence in 1947, the government of India nationalized several banks, including the
Reserve Bank of India, in order to increase control over the financial secto r. In 1969, 14
commercial banks were nationalized, followed by six more in 1980. This move was aimed at
promoting social welfare, particularly in rural areas, and expanding banking services to
underprivileged sections of the society.

In the 1990s, India underwent a series of economic reforms that led to the liberalization of the
banking sector. Foreign banks were allowed to enter the Indian market, and private sector
banks were established. The government also reduced its stake in public sector banks, allow ing
greater autonomy and flexibility in their operations.

Today, the Indian banking sector comprises a mix of public sector, private sector, and foreign
banks, offering a wide range of services to individuals and businesses across the country. The
sector has undergone significant transformation over the years, evolving from a predominantly
state-controlled system to a more liberalized and competitive environment.

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1.2.2 STRUCTURE OF INDIAN BANKING SYSTEM

The Indian banking system comprises four main types of banks: public sector banks, private
sector banks, foreign banks, and regional rural banks. These banks are regulated by the Reserve
Bank of India (RBI), which is the central regulatory authority for the banking industry in India.

Reserve Bank of India:

The Reserve Bank of India (RBI) is the central bank of India and is responsible for regulating and
supervising the banking system, managing the money supply, and maintaining financial stability
in the country. The RBI was established in 1935 and is headquartered in Mumbai. One of the
primary functions of the RBI is to formulate and implement monetary policy in the country. The
RBI controls the money supply in the economy through various tools such as setting interest
rates, reserve requirements, and open market operations. It aims to achieve price stability,
promote economic growth, and maintain financial stability through its monetary policy
decisions. The RBI is also responsible for regulating and supervising the banking system in the
country. It issues licenses to banks, sets prudential norms for banks, and supervises banks to
ensure compliance with regulations. The RBI also acts as a lender of last resort to banks in
times of crisis to maintain financial stability. Another key function of the R BI is to manage the
currency in the country. It issues and destroys currency notes and coins and manages the
country's foreign exchange reserves. The RBI also works to ensure the smooth functioning of
payment and settlement systems in the economy. The RBI plays an important role in
maintaining overall financial stability in the country. It monitors systemic risks, conducts stress
tests, and takes measures to address any threats to financial stability. The RBI also plays an
active role in regulating the non-banking financial sector, including finance companies, mutual
funds, and insurance companies.

Commercial Banks:

Commercial banks are an integral part of the Indian banking sector, playing a critical role in
mobilizing deposits, extending credit, and providing a range of banking services to individuals

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and businesses. They act as intermediaries between savers and borrowers, helping to channel
savings into productive investments. The Reserve Bank of India (RBI) regulates the commercial
banking sector in India, issuing licenses to banks, setting prudential norms, and supervising
banks to ensure compliance with regulations. The sector has undergone significant
transformation in recent years, with the entry of new players and the adoption of technology -
enabled services. Digital banking and fintech startups have emerged as key disruptors in the
industry, offering innovative products and services to customers.

Public Sector Banks:

Public sector banks (PSBs) are banks in which the majority of the stake is held by the
government. There are currently 12 PSBs in India, including State Bank of India (SBI), Bank of
Baroda, Punjab National Bank, and Canara Bank. These banks have a significant presence in
rural and semi-urban areas and play a crucial role in promoting financial inclusion. Public sector
banks (PSBs) in India refer to banks that are owned and controlled by the government of India.
These banks are also known as nationalized banks because they were nationalized by the
government in two phases – first in 1969 and then in 1980. Public sector banks are a crucial
part of the Indian banking sector. These banks are owned and controlled by the government
and are responsible for mobilizing deposits, extending credit, and providing various banking
services to individuals and businesses across the country. Public sector banks have played a
critical role in promoting financial inclusion, reaching underserved segments of the population,
and supporting economic development. The Reserve Bank of India (RBI) regulates public secto r
banks and sets prudential norms to ensure the safety and soundness of the banking system.
Despite facing various challenges, such as non-performing assets and competition from private
sector banks, public sector banks continue to play a critical role in the Indian economy. PSBs
have played a crucial role in promoting financial inclusion and expanding banking services to
underprivileged sections of society. They have also been instrumental in supporting the
government's socio-economic policies and promoting rural development. PSBs have a wide
network of branches and ATMs across the country, making banking accessible to people in even
the remotest parts of the country. However, PSBs have also faced criticism for their
inefficiencies, poor asset quality, and lack of autonomy. The government's control over these
banks has led to political interference, and many PSBs have been burdened with non -
performing assets (NPAs) due to the lending practices of the past. In recent years, the
government has announced various reforms to improve the functioning of PSBs, including the
merger of smaller PSBs and the recapitalization of banks to improve their capital adequacy
ratios.

Private Sector Banks:

Private sector banks are banks in which the majority of the stake is held b y private investors.
There are currently 22 private sector banks in India, including HDFC Bank, HDFC Bank, and Axis
Bank. These banks are known for their customer-centric approach, innovative products, and use
of technology to enhance customer experience. Private sector banks are an essential part of the
Indian banking sector, and they have grown significantly in recent years, challenging the
dominance of public sector banks. Private sector banks are owned and controlled by private
entities, such as individuals, corporations, or other non-governmental organizations. They
operate on a profit-making basis and are subject to the same regulatory framework as public
sector banks, with the Reserve Bank of India (RBI) overseeing their operations. Private sector

4
banks in India have been able to differentiate themselves from public sector banks through
their customer service, innovation, and focus on technology. Private sector banks are known for
providing personalized services to their customers, leveraging data and analytics to understand
customer needs and preferences. They have also been at the forefront of digital banking,
introducing innovative products and services, such as mobile banking, internet banking, and
digital wallets. Private sector banks have been able to attract a more diverse customer base,
including high net worth individuals, corporate customers, and small and medium -sized
enterprises. They have also been successful in expanding their operations beyond India, with
many private sector banks having a presence in other countries through subsidiaries or
branches. However, private sector banks face several challenges, including intense competition
from other private sector banks, public sector banks, and new players, such as fintech startups.
They also need to manage their risk carefully, given the higher exposure to sectors such as real
estate and unsecured retail lending.

Foreign Banks:

Foreign banks are banks that are headquartered outside India but have a presence in the
country. There are currently 45 foreign banks in India, including Citibank, Standard Chartered
Bank, and HSBC. These banks primarily cater to the needs of corporate and high net worth
clients. Foreign banks are an important component of the Indian banking sector, providing a
range of banking services to individuals and businesses. These banks are owned and controlled
by entities based outside of India, such as multinational corporations or foreign governments.
They are subject to the same regulatory framework as domestic banks, with the Reserve Bank
of India (RBI) overseeing their operations. Foreign banks in India typically offer specialized
services, such as investment banking, foreign exchange, and trade finance. They have been
instrumental in facilitating cross-border transactions and promoting trade between India and
other countries. Foreign banks have also played a key role in introducing international best
practices and standards to the Indian banking sector. Foreign banks in India face several
challenges, including intense competition from domestic banks and a complex regulatory
environment. They need to comply with various regulations, including foreign exchange
regulations, anti-money laundering laws, and know-your-customer norms. They also need to
manage risks associated with cross-border transactions and fluctuations in foreign currency
rates. Despite these challenges, foreign banks have been able to grow their operations in India,
with many banks having a presence in major Indian cities through branches or subsidiaries. The
RBI has also encouraged the entry of foreign banks in India, subject to certain conditions, such
as meeting capital adequacy norms and maintaining a minimum local presence.

Regional Rural Banks:

Regional rural banks (RRBs) are banks that were established to provide banking services to rural
and semi-urban areas. There are currently 14 RRBs in India, which are jointly owned by the
central government, the state government, and the sponsoring banks. Regional Rural Banks
(RRBs) are specialized banks that provide banking services to the rural population, particularly
in remote and underserved areas of the country. RRBs were established in 1975 under the
provisions of the Regional Rural Banks Act, with the objective of promoting financial inclusion
and providing credit facilities to small and marginal farmers, agricultural laborers, and rural
artisans. RRBs are jointly owned by the Central Government, the State Government, and the
sponsor banks (mostly public sector banks). They operate on a regional basis, with thei r

5
operations restricted to a particular region or group of districts. RRBs are required to follow the
prudential norms and regulations set by the Reserve Bank of India (RBI). RRBs play a crucial role
in promoting rural development and poverty alleviation. They provide a range of banking
services, including deposit mobilization, credit facilities, and remittance services. RRBs also
offer other services, such as microfinance, insurance, and financial literacy programs, to cater
to the diverse needs of the rural population. RRBs face several challenges, including low capital
base, inadequate infrastructure, and high operational costs. They also face competition from
other financial institutions, such as cooperative banks and microfinance institutions. However,
RRBs have been successful in reaching out to the rural population and providing them with
much-needed banking services.

Cooperative Banks:

Cooperative banks are financial institutions that are owned and controlled by their members,
who are also their customers. These banks operate on a cooperative principle, where members
pool their resources to create a banking system that serves their needs. Cooperative banks in
India were first established in the early 20th century to serve the needs of the rural populat ion,
particularly farmers and agricultural workers. Cooperative banks in India are divided into two
categories: urban and rural. Urban cooperative banks provide banking services to urban and
semi-urban areas, while rural cooperative banks cater to the needs of the rural population.
These banks are registered and regulated by the respective state governments, and are subject
to the prudential norms and regulations set by the Reserve Bank of India (RBI). Cooperative
banks play a vital role in promoting financial inclusion and serving the needs of the local
community. They provide a range of banking services, including deposit mobilization, credit
facilities, and remittance services. Cooperative banks also offer other services, such as
microfinance, insurance, and financial literacy programs, to cater to the diverse needs of their
members. Cooperative banks face several challenges, including limited capital base, low
technology adoption, and governance issues. They also face competition from other financial
institutions, such as commercial banks and microfinance institutions. However, cooperative
banks have been successful in reaching out to the local community and providing them with
much-needed banking services.

Term Lending Institutions:

Term lending institutions have played a crucial role in the development of the Indian banking
sector. In India, term lending institutions are commonly referred to as Development Financial
Institutions (DFIs). These institutions were established with the objective of providing l ong-
term finance to various sectors of the economy, especially to sectors that were considered
critical for the overall economic development of the country. During the early stages of India's
development, the Indian banking sector lacked the capacity to provide long-term funding to the
industrial sector. Therefore, DFIs such as the Industrial Development Bank of India (IDBI) were
established to fill this gap. DFIs provided long-term finance to large industries, which helped
them to expand and modernize their operations. However, with the liberalization of the Indian
economy in the early 1990s, the role of DFIs has changed significantly. Commercial banks have
become more active in providing long-term finance, and many DFIs have transformed into
commercial banks themselves. Nevertheless, DFIs continue to play an essential role in the
Indian banking sector by providing specialized services such as project appraisal, syndication,
and risk assessment. Overall, term lending institutions have had a significant impac t on the

6
Indian banking sector's development, and they continue to play a critical role in supporting the
country's economic growth and development.

Each bank has its own board of directors and management team responsible for the day -to-day
operations of the bank. The RBI sets regulatory policies and guidelines for the banking industry
and monitors compliance by banks through regular inspections and audits. In terms of financial
performance, the Indian banking industry has been relatively stable in recent years, despite
challenges such as non-performing assets (NPAs) and the COVID-19 pandemic. The industry's
total assets as of March 2021 stood at over Rs 150 lakh crore (approximately $2.1 trillion), with
net profits of over Rs 1 lakh crore (approximately $14 billion). The Indian banking industry is
subject to various regulatory requirements, including capital adequacy norms, asset
classification, and provisioning requirements, and anti-money laundering (AML) and know-your-
customer (KYC) regulations. The RBI has been proactive in introducing measures to strengthen
the regulatory and supervisory framework of the industry.

Overall, the Indian banking system is a critical component of the country's economy, providing
essential financial services to individuals, businesses, and the government. The industry has
demonstrated resilience and adaptability, and is well-positioned to meet the evolving needs of
customers and the economy.

1.2.3 BANKING SECTOR REFORMS

The Indian banking sector has undergone significant reforms aimed at modernizing and
improving its efficiency and competitiveness. These reforms include the nationalization of
banks in 1969, which aimed to promote financial inclusion and extend credit to priority sectors
such as agriculture and small-scale industries. In the early 1990s, the Indian government
liberalized the banking sector by allowing private and foreign banks to operate in the country,
which led to increased competition and innovation. The sector has also adopted various
technologies such as the core banking system to improve efficiency and customer service. In
2017, the government of India announced a plan to merge several public sector banks to create
larger and stronger banks, which is aimed at improving their efficiency and profitability. The
Reserve Bank of India (RBI) conducted an asset quality review of banks in 2015 to identify non -
performing assets (NPAs) and take corrective action, which has helped to improve the health of
the banking sector and reduce the risk of loan defaults. The introduction of the Insolvency and
Bankruptcy Code in 2016 has provided a clear and efficient framework for resolving
insolvencies and bankruptcies, which has improved the credit culture and strengthened the
banking sector. Despite these reforms, there are still challenges such as high levels of bad loans
and low financial inclusion in certain regions of the country that need to be addressed.

1.2.4 OPPORTUNITIES AND CHALLENGES FOR PLAYERS:

The Indian banking sector presents several opportunities and challenges for players in the
industry. HDFC Bank, one of the largest private sector banks in India, has a credit risk
management framework in place to manage credit risks effectively. Here are s ome
opportunities and challenges for players in the Indian banking sector.

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Opportunities:

1. Effective credit risk management: Effective credit risk management is essential for banks to
maintain asset quality and profitability. Banks that implement robust credit risk
management frameworks can improve their risk management capabilities, reduce credit
losses, and increase profitability.
2. Technological advancements: Technology has transformed the banking sector in recent
years, and banks that leverage technology to manage credit risks can improve their risk
management capabilities and reduce costs.
3. Diversification of loan portfolios: Diversification of loan portfolios is essential for managing
credit risks effectively. Banks that have a diversified loan portfolio can manage risks more
effectively, reduce their exposure to specific sectors or industries, and improve their overall
risk management capabilities.

Challenges:

1. Non-performing assets (NPAs): The Indian banking sector is grappling with a high level of
NPAs, which has put pressure on banks' profitability and their ability to lend. Banks need to
find ways to reduce NPAs and improve asset quality.
2. Regulatory compliance: The Indian banking sector is heavily regulated, and banks need to
comply with a range of regulations and guidelines. Compliance can be a significant
challenge for banks, particularly smaller players with limited resources.
3. Competition: The Indian banking sector is highly competitive, with both traditional banks
and new players such as fintech companies and payment banks vying for market share.
Banks need to find ways to differentiate themselves and offer unique products and services
to stay ahead.

Effective credit risk management is critical for banks to maintain asset quality and profitability.
While there are several opportunities for players in the Indian banking sector, such as effective
credit risk management, technological advancements, and diversification of loan portfolios,
there are also several challenges, including NPAs, regulatory compl iance, and competition.
HDFC Bank's credit risk management framework can serve as a model for other players in the
industry to manage credit risks effectively.

1.2.5 FUNCTIONS OF BANKING

The functions of Indian banking can be categorized into primary functions and secondary
functions:

Primary Functions:

1. Accepting deposits: Indian banks accept deposits from various sources, including
individuals, companies, and governments. Deposits can be in the form of current accounts,
savings accounts, fixed deposits, and recurring deposits.
2. Lending money: Banks lend money to individuals, businesses, and governments for various
purposes such as investment, consumption, and infrastructure development. The loans can
be in the form of personal loans, home loans, business loans, and agricultural loans.

8
3. Credit creation: Banks create credit by providing loans and advances to borrowers. This
process helps in generating economic activity and promoting growth in various sectors of
the economy.

Secondary Functions:

1. Agency functions: Banks act as agents for their customers by providing various services such
as collecting and paying cheques, buying and selling securities, and acting as trustees and
executors.
2. General utility functions: Banks offer various general utility serv ices such as safe deposit
lockers, traveller’s cheques, foreign exchange, and credit cards.
3. Remittance functions: Banks provide remittance services that enable customers to transfer
money from one place to another. This includes services such as demand dra fts, electronic
fund transfer, and mobile banking.
4. Miscellaneous functions: Banks also perform various other functions such as providing
financial advice, underwriting of securities, and participation in capital market activities.

9
1.2.6 MAJOR DEVELOPMENTS OF PRIVATE BANKS:

Private banks in India have shown significant development in terms of their financial
performance and economic performance in recent years. One major development in the
financial performance of private banks is their consistent profitability. They have been able to
achieve this by focusing on efficiency, lower operating costs, and higher asset quality. Private
banks in India also have a higher return on assets (ROA) and return on equity (ROE) compared
to their public sector counterparts. This is due to their focus on high-quality assets, better risk
management practices, and efficient use of capital. Private banks in India have also increased
their capitalization significantly, with the total capital adequacy ratio (CAR) of private banks in
India being around 17.4% as of March 2021, higher than the regulatory requirement of 11.5%.

In terms of economic performance, private banks in India have been a major contributor to the
growth of credit in the country. They have provided over INR 37 lakh crore in credit as of March
2021 and have supported various sectors of the economy, including retail, agriculture, and
infrastructure. Private banks in India have also created significant employment opportunities in
the country, with over 4.6 lakh employees as of March 2021. They have contributed to income
generation by providing loans to businesses and individuals, which has helped boost economic
activity in the country. Private banks in India have also been at the forefront of adopting
technology to improve efficiency and customer service. This has led to the development of
innovative products and services such as digital banking, online trading, and mobile banking.
Private banks have also invested significantly in data analytics, artificial intelligenc e, and
blockchain technology to improve their operations. Overall, private banks in India have played a
crucial role in the economic growth and development of the country and are expected to
continue driving the growth of the banking sector in the future.

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1.3 COMPANY PROFILE

Founded in 1994, HDFC Bank is a subsidiary of the Housing Development Finance Corporation,
with its headquarters located in Mumbai, Maharashtra, India. The company's first corporate
headquarters and full-service branch were opened at Sandoz House in Worli by Manmohan
Singh, the then-Union Finance Minister. As of June 30, 2019, there were 5,500 branches of the
bank spread throughout 2,764 cities. In the 2017 fiscal year, 430,000 point-of-sale terminals
were deployed, while 12 million credit cards and 23,570,000 debit cards were issued. It
employed 1,16,971 people permanently as of March 21, 2020. One of the biggest private banks
in India, HDFC Bank Ltd., has a market capitalization of ₹7,89,530 Cr. It was among the first to
get permission from the Reserve Bank of India (RBI) to establish a private-sector bank. Having
1.49 crore credit cards, 3.67 crore debit cards, and around 21.34 lakh acceptance points, HDFC
Bank is one of the nation's biggest providers of cashless payment services. Wit h the help of its
extensive geographic reach, technological infrastructure, automated procedures, range of
financial products, and speedy response times, HDFC Bank was able to provide a unique
service that increased both the number of new clients it acquired and the percentage of
wallets held by its current clientele.

1.3.1 HISTORY OF HDFC BANK:

 The RBI gave the Housing Development Finance Corporation (HDFC) first clearance in 1994
to establish a private sector bank. incorporated as HDFC Bank Limited in August of 1994.
 The first corporate office and branch opened in 1995; the initial public offering (IPO) was
oversubscribed 55 times; and listed on the BSE and NSE. A banking license was obtained in
January of that same year.
 In collaboration with Visa International, the first international debit card was introduced in
India in 1999 started its digital journey by introducing real -time online Net Banking. Times
Bank and HDFC Bank merged, marking the first-ever massive merger in the Indian banking
sector.
 First Bank in India to introduce SMS-based mobile banking in 2000.
 The First Bank in India launched credit cards in more than 100 cities in 2003.
 One of the biggest mergers in the Indian banking sector occurred in 2008 when it merged
with Centurion Bank of Punjab.
 Expanding the client base to become an industry leader in credit cards, personal loans, and
auto loans in 2011 was a step toward growing market leadership.
 With over 55 lakh credit cards issued in 2013–14, the company emerged as the market
leader in 2014.
 PayZapp, India's first one-click mobile payment solution, was introduced in 2015. The retail
lending industry saw the introduction of 10-second personal loan issuance.
 IRA (Interactive Robotic Assistant) was introduced in 2017, making the bank the first in India
to use a humanoid for customer support.
 Customers ranked it as the top bank in India in the 2019 Forbes World's Best Banks
Survey.BSE signs an agreement with the Bank to support the startup Platform.
 Listed by BrandZ Report as India's most valuable brand in 2020 (for the eighth year in a
row). Aditya Puri was the managing director of HDFC Bank, the biggest private sector bank

11
 in India, marking the bank's first-ever leadership transition (new MD & CEO take over). His
goal upon taking up this role in September 1994 was to establish a "World Class Indian
Bank." Puri held the position of head of the nation's longest-serving private bank. In 2020,
HDFC Bank chose Sashidhar Jagdishan as its new managing director and chief executive
officer. In 1996, he began working for the bank as a manager, and in 2008, he was
appointed CFO.

1.3.2 CORPORATE PROFILE:

To individuals, MSMEs, the government and agriculture sectors, financial institutions

and trusts, and non-resident Indians, HDFC Bank Ltd (HDFC) provides personal and
corporate banking, private and investment banking, and other associated financial
solutions. A variety of deposit services and card products are offered, along with loans
for residences, autos, trucks, and other personal and business purposes; life, hea lth,
and non-life insurance; and investment options include bonds, mutual funds, stocks,
and derivatives. In addition, HDFC offers a range of services including trade financing,
foreign currency, online banking, cash management, corporate finance advising,
tailored banking solutions, project and structured finance, and payment and
settlement services. The bank uses a network of branches, ATMs, phone, internet, and
mobile banking to conduct business throughout India. In addition to representative
offices in Kenya and the UAE, it has branches abroad in Bahrain, Hong Kong, and the
UAE. Mumbai, Maharashtra, India is home to HDFC's corporate office.

Corporate governance:

The Bank thinks that the best way to achieve balanced Triple Bottom Line development
is to incorporate sustainability, credibility, independence, accountability, and
responsibility into business strategy and execution plans. The foundation of the Banks'
corporate governance policy is these guidelines. The Bank has committed to upholding
the highest standards of corporate governance by implementing and abiding by the
most widely accepted procedures and by regularly comparing its operations to the best-
in-class practices found all around the world. SDGs 16 and 17 are aligned with the
Bank's robust governance system and its collaborations with many stakeholders.

The Bank is aware that it needs to make sure that its governance procedures guarantee
that the resources are used in a way that fulfills the expectations of society and
stakeholders. Policies and procedures are in place to oversee and manage the Bank's
moral behavior in all of its dealings.

The Bank has aggressively maintained solid governance procedures and is always
working to raise the bar. The Bank's Board of Directors is the primary keeper of good
governance standards, answering to a variety of stakeholders. It is in charge of
determining the direction to take and assessing the Bank's corporate governance
performance. Compliance, internal control, risk management, information and
cybersecurity, customer service, and social and environmental responsibility are among
the evaluation factors.
12
1.3.3 VISION AND MISSION OF HDFC BANK

VISION

 To establish itself as the preeminent financial industry research center, offering unmatched
insights and analysis to empower investors.
 To lead the way in developing novel research techniques and technologies, establishing
standards for precision and quality
 To build a staff of knowledgeable analysts and specialists while promoting a culture of
ongoing learning and development.
 To be the client's go-to advisor, providing practical advice and insight to help them through
the ever-changing financial landscape.
 To maintain the greatest levels of quality and dependability in all of our research initiatives
by upholding integrity, objectivity, and transparency.

MISSION

We will make the most of our resources—people, technology, speed, and money—to:

 Perform in-depth analysis on a range of financial markets, industries, and asset classes.
 Utilize data analytics and state-of-the-art techniques to help our clients identify dangers
and opportunities that may be concealed.
 To remain on top of market trends and regulatory developments, work together with
academic institutions, industry leaders, and regulators.
 Using reports, slideshows, and interactive platforms, deliver timely, pertinent, and useful
insights.
 Give investors the information and training they need to make wise decisions and build
wealth.
 Encourage thought leadership by publishing, speaking at conferences, a nd interacting
with business leaders to promote financial research internationally.

1.3.4 PRODUCTS AND SERVICES BANKING ACCOUNTS

A variety of goods and services are offered by HDFC Bank, including credit cards, consumer
durable loans, retail banking, treasury, auto loans, two-wheeler loans, personal loans, loans
secured by property, and lifestyle loans.

13
 Whole sale banking

Banks that offer services to larger clients or organizations—like mortgage brokers, large corporate
clients, mid-sized businesses, real estate developers and investors, international trade finance
companies, institutional clients—like pension funds and government entities or agencies—as
well as services to other banks or financial institutions—are referred to as wholesale banks.
Financial services provided by financial services firms to organizations like banks, insurers, fund
managers, and stockbrokers are referred to as wholesale finance.

 Retail Banking

Retail banking, sometimes referred to as consumer banking or personal banking, is the term used
to define the services that a bank provides to the general public as opposed to businesses,
corporations, or other banks, which is frequently referred to as wholesale banking. Retail banking
services comprise the following: mortgages, personal loans, credit cards, debit cards, and
transactional and savings accounts. Additionally, investment banking and commercial banking are
distinct from retail banking. It could also refer to a section or division of a bank that handles client
relations on an individual basis.

 Credit Cards

A credit card is a payment card that is given to customers (cardholders) so they can make
purchases at merchants based on their accumulated debt (i.e., the cardholder's pledge to the
card issuer to pay them for the amounts plus the other agreed costs). The card issuer, typically a
bank or credit union, establishes a revolving account and extends a credit limit to the cardholder,
enabling them to borrow funds for cash advances or merchant payments. Business credit cards
and consumer credit cards are the two categories of credit cards. While plastic makes up the
majority of cards, there are also some made of metal (such as titanium, gold, palladium, and
stainless steel) and a small number of metal cards covered in gemstones.

Subsidiaries

HDFC Securities

As a subsidiary of India's private sector bank HDFC Bank, HDFC Securities Limited operates as a
financial services intermediary. Established in 2000, HDFC Securities has its headquarters located
in Mumbai and operates branches throughout India's major cities and towns.

Products and services

• Equities: Purchasing stock in publicly traded corporations.

• Mutual funds: Investing in asset management businesses' equity, hybrid, tax-saving, or debt
schemes are examples of mutual funds.

• SIPs: Automated investing plans that follow a systematic approach.• IPOs: Initial public offerings
(IPOs) are investments.

• Derivatives: Use its derivative products to speculate or hedge the price movement of stocks or
indexes.

14
• Corporate FDs, NCDs, and Bonds: Investing in fixed-income instruments like corporate FDs,
NCDs, and bonds.

HDFC ERGO General Insurance company

HDFC ERGO is a 51:49 joint venture company involving HDFC International AG, one of the Munich
Re Group's insurance companies in Germany, and other parties involved in the BFSI sectors of the
insurance industry. The company sells its goods to corporate, retail, and rural customers.
Products in the retail industry include house, auto, health, travel, personal injury, and
cybersecurity insurance. Insurance for businesses includes poverty, marine, and liability. Farmers
in the rural sector are provided with crop and livestock insurance.

HDFC Financial Services Limited

One of the largest Non-Banking Financial Companies (NBFC) in our nation, HDFC Financial
Services is a subsidiary of HDFC Bank and offers a range of loans and financing to the public. It is
renowned for offering its clients a range of simple financial services and loans, including:

 Personal loan

• Doctor loan

• New to Credit loan

• Gold loan

• Car loan

• Loan against property

• Loan against insurance policies

• Two-wheeler loans and many more

Next Gen Publishing

In October 2004, Next Gen Publishing Ltd was founded and commenced its commercial activities
in January 2005, promising to provide the best in the publishing industry. It is a publishing
company that was founded by HDFC Bank and Forbes Group, a division of the Shapoorji Pallonji
Group. Among its offerings are the following:

 Print Magazines
 Awards properties
 Digital Publishing

15
1.3.5 SWOT ANALYSIS

SWOT analysis is a strategic tool that helps to identify the strengths, weaknesses, opportunities,
and threats of an organization. Here is a detailed SWOT analysis of HDFC Bank:

Strengths:

 Appropriate approach for appropriate items.

 Better customer service compared to rival companies.
 Fantastic Brand Recognition
 Accreditations are necessary for products.
 High level of contentment among customers.
 Good environment for employment
 Reduced response time with proficient and productive service.
 Dedicated workers hoping to establish a long-term career in the industry.

Weaknesses:

 Certain sectors have gaps in their range.

 The customer service personnel require instruction.
 Inadequate management covers procedures, processes, etc.
 The low unemployment rate and competition for workers limit the expansion of the sector.

Opportunities:

 Profit margins are going to be strong.

 Possibly encompass a large geographic area.
 Novel applications for specialists.
 Could look for better prices for customers.
 Accelerate career growth opportunities across the whole sector.
 A center for applied research that will open doors for the development of methods to offer
services with additional value.

Threats:

 Laws may have an impact.

 There is a lot of risk involved and intense rivalry in the market.
 prone to a reactionary strike by significant rivals
 Investments may be limited in rural areas due to inadequate infrastructure.
 The market for high volume/low cost products is highly competitive.

In conclusion, while HDFC Bank has a strong brand image and diverse product portfolio, it needs
to address its weaknesses in asset quality and concentration risk. At the same time, it can
leverage opportunities such as digital banking and infrastructure financing to drive growth. The
bank also needs to be mindful of potential threats such as intense competition and economic
slowdowns.

16
 1.3.6 FINANCIAL STATEMENTS
BALANCE SHEET AS ON 31 ST MARCH 2024
Previous
HDFC Bank Years »

Consolidated Balance Sheet ------------------- in Rs. Cr. -------------------

Mar 24 Mar-23 Mar-22 Mar-21 Mar-20
12 months 12 months 12 months 12 months 12 months

EQUITIES AND LIABILITIES

SHAREHOLDER'S FUNDS
Equity Share Capital 1,396.78 1,389.97 1,389.97 1,383.41 1,383.41
Total Share Capital 1,396.78 1,389.97 1,389.97 1,383.41 1,383.41
Revaluation Reserve 0 3,228.50 0 3,125.28 0
Reserves and Surplus 2,13,101.02 1,77,167.61 1,80,662.52 1,53,075.71 1,53,078.81
Total Reserves and Surplus 2,13,101.02 1,80,396.11 1,80,662.52 1,56,200.99 1,53,078.81
Employees Stock Options 0 266.41 0 3.1 0
Total Shareholder’s Funds 2,14,497.80 1,82,052.49 1,82,052.49 1,57,587.50 1,54,462.22
Minority Interest 0 5,980.89 0 9,588.34 0
Policy Holders Funds 0 2,28,827.20 0 2,03,180.04 0
Deposits 12,10,832.15 10,91,365.79 10,91,365.79 9,59,940.02 9,59,940.02
Borrowings 1,89,061.81 1,61,602.68 1,61,602.68 1,43,899.94 1,43,899.94
Other Liabilities and Provisions 3,44,098.74 82,808.33 3,17,616.42 99,616.41 3,15,510.06
Total Capital and Liabilities 19,58,490.50 17,52,637.38 17,52,637.38 15,73,812.24 15,73,812.24
ASSETS
Cash and Balances with Reserve
Bank of India 68,648.94 60,228.71 60,228.71 46,302.20 46,302.20
Balances with Banks Money at
Call and Short Notice 67,807.55 1,22,897.28 1,22,897.27 1,01,268.33 1,01,268.33
Investments 6,39,551.97 5,67,097.72 5,67,097.72 5,36,578.62 5,36,578.62
Advances 10,83,866.32 9,20,308.14 9,20,308.14 7,91,801.39 7,91,801.39
Fixed Assets 10,969.00 10,706.74 10,605.41 10,809.26 10,809.26
Other Assets 87,646.72 71,398.80 71,500.13 87,052.45 87,052.44
Total Assets 19,58,490.50 17,52,637.38 17,52,637.38 15,73,812.24 15,73,812.24

17
 STATEMENT OF PROFIT AND LOSS FOR THE YEAR ENDED 31 ST MARCH 2024
Previous
HDFC Bank Years »
Consolidated Profit & Loss account ------------------- in Rs. Cr. -------------------
Mar 24 Mar-23 Mar-22 Mar-21 Mar-20
12 mths 12 mths 12 mths 12 mths 12 mths

INCOME
Interest / Discount on Advances / Bills 87,929.24 66,886.54 60,261.69 60,928.31 50,884.83
Income from Investments 27,905.03 21,990.64 23,264.25 20,971.20 18,102.29
Interest on Balance with RBI and
Other Inter-Bank funds 2,305.46 1,819.60 1,881.72 907.41 927.11
Others 2,927.08 4,710.09 3,755.00 2,028.85 2,067.43
Total Interest Earned 1,21,066.81 95,406.87 89,162.66 84,835.77 71,981.65
Other Income 65,111.99 62,129.45 72,173.81 64,950.33 59,324.85
Total Income 1,86,178.80 1,57,536.32 1,61,336.48 1,49,786.10 1,31,306.50
EXPENDITURE
Interest Expended 50,543.39 41,166.67 42,659.09 44,665.52 39,177.54
Payments to and Provisions for
Employees 15,234.17 12,341.60 11,050.91 11,156.75 9,425.26
Depreciation 0 1,311.22 1,326.69 1,169.79 945.84
Depreciation on Leased Assets 0 18.79 13.39 1.42 0
Operating Expenses (excludes
Employee Cost & Depreciation) 67,204.85 59,480.12 63,880.69 59,189.94 53,887.78
Total Operating Expenses 82,439.02 73,151.73 76,271.67 71,517.90 64,258.88
Provision Towards Income Tax 11,793.44 7,404.45 6,261.18 5,177.81 4,808.28
Provision Towards Deferred Tax 0 1,052.99 -596.81 2,185.33 -3,089.18
Other Provisions and Contingencies 6,939.93 8,976.65 16,377.39 15,014.07 20,461.82
Total Provisions and Contingencies 18,733.37 17,434.09 22,041.76 22,377.21 22,180.92
Total Expenditure 1,51,715.78 1,31,752.48 1,40,972.51 1,38,560.64 1,25,617.34
Net Profit / Loss for The Year 34,463.02 25,783.83 20,363.97 11,225.47 5,689.16
Net Profit / Loss After EI & Prior Year
Items 34,463.02 25,783.83 20,363.97 11,225.47 5,689.16
Minority Interest -1,424.67 -1,428.16 -1,979.65 -1,659.16 -1,434.92
Share Of Profit/Loss of Associates 998.29 754.43 0 0 0
Consolidated Profit/Loss After MI
And Associates 34,036.64 25,110.10 18,384.32 9,566.31 4,254.24

18
 CHAPTER -2

CONCEPTUAL BACKGROUND AND LITERATURE REVIEW

2.1 THEORETICAL BACKGROUND

2.1.1 RISK MANAGEMENT

Risk management is a tremendous management it should pick out the variety of dangers that
the corporation as a complete is uncovered to and additionally the dangers that individual
things to do are exposed to. Risk management, identify the chance and controls or measures
that can effectively mitigate each of the recognized risks.

Features of Risk

 Risk is an uncertainty of occurrence of loss and it when seen from a tremendous angle, risk
is a chance to act on and earn profits.
 Risk is no longer a peril however its likelihood. It pervades all human activities. Need of
danger management
 Risk administration in a position to manipulate the credit score risk. It introduces special
products, methods, techniques, and strategy in the bank.
 Proper danger management machine helps in forecasting losses.

CREDIT

The word ‘credit’, comes from the Latin word ‘credere’, which means ‘trust’, when marketers
transfer his wealth to a customer who has agreed to pay later, there is a clear implication of
two believe that the fee will be made at the two agreed date. The deposit period and the
quantity of deposit depend upon the diploma of trust. Credit is an imperative advertising and
marketing tool. It bears a cost, the cost of the seller having to borrow till the customer’s fee
arrives.

RISK

The phrase threat is derived from an Italian phrase “Risicare” which potential to “Dare”. Risk is
defined as uncertain ensuing in negative outcomes, unfavourable in relation to deliberate goal
or expectation. It is very challenging to discover a hazard free investment. Risk is the risk that
match or action will adversely affect an organization’s capacity to reap its objective and
successfully execute its strategies.

19
There are mainly three types of risk. They are:

1. Market Risk:
It is the risk of deviation which is incompatible in nature of the market estimation of the
exchanging portfolio, because of market development, amid the period required to sell the
exchanges.
2. Operational Risk:
It is one area of risk that is confronted by all associations. More unpredictable association
more uncovered it would be operational hazard. This hazard emerges because of deviation
from arranged and typical working of the innovation, framework strategies and human
disappointment of exclusion and commission. Aftereffect of deviation from ordinary
working is reflected in the income of the association, either by the method for extra costs
or by method for loss of chance.
3. Credit Risk:
It is characterized as the potential that a bank borrower will neglect to meet its
commitment as per concurred terms.

2.1.2 CREDIT RISK MANAGEMENT

Credit risk management is the process of assessing and mitigating the risks associated with
lending money to borrowers. In the banking industry, credit risk refers to the potential loss that
a bank may suffer when a borrower fails to repay a loan or meet its financial obligations. Credit
risk management involves a series of activities that aim to identify, measure, monitor, and
control credit risk, with the ultimate goal of ensuring that the bank's loan portfolio remains
healthy and profitable.

The credit risk management process typically involves several steps, including credit appraisal,
risk rating, monitoring, and recovery. Credit appraisal involves assessing the creditworthiness
of borrowers by evaluating their financial statements, credit history, and other relevant factors.
Risk rating involves assigning a risk rating to borrowers based on their creditworthiness and the
perceived risk associated with lending to them. Monitoring involves ongoing monitoring of
borrowers' credit performance, including timely repayment of loans and adherence to financial
covenants. Recovery involves taking appropriate action in case of default by the borrower, such
as recovery of assets or initiation of legal proceedings.

Effective credit risk management is critical for banks to maintain a healthy loan portfolio and
minimize the risk of non-performing assets (NPAs). NPAs can lead to a decline in profits,
erosion of capital, and reputation damage. Therefore, banks need to have robust credit risk
management systems and processes in place to ensure that credit risk is identified, measured,
monitored, and controlled effectively. This includes the use of advanced technology and
analytical tools, as well as a team of experienced professionals who are dedicated to managing
credit risk.

20
Personnel Involvement

Personnel involvement in credit risk management is essential for ensuring the effectiveness of
the credit risk management process. Credit risk management is not just the responsibility of
the credit department or the risk management team; it involves the participation of personnel
from across the bank, including business units, compliance, legal, and audit.

Business units are responsible for originating and managing loans, and they play a crucial role
in identifying and mitigating credit risk. Business unit personnel should be trained in credit risk
management principles and should be equipped with the tools and knowledge necessary t o
identify and manage credit risk effectively. They should also have a clear understanding of the
bank's credit policies and procedures and should be able to follow them consistently.

Compliance and legal personnel are responsible for ensuring that the ban k's lending practices
are in compliance with applicable laws and regulations. They play a critical role in identifying
and mitigating legal and regulatory risks associated with lending. Compliance and legal
personnel should be involved in the credit risk management process from the beginning, to
ensure that credit policies and procedures are consistent with legal and regulatory
requirements.

Audit personnel are responsible for assessing the effectiveness of the bank's internal controls,
including those related to credit risk management. Audit personnel should be involved in the
credit risk management process to ensure that controls are adequate and effective, and to
identify any areas where improvements are needed. Personnel involvement is critical for
ensuring the effectiveness of the credit risk management process. By involving personnel from
across the bank, the bank can ensure that credit risk is identified, measured, monitored, and
controlled effectively, and that the bank's loan portfolio remains healthy and profitable.

Meaning of credit score threat management

Credit score threat management is the process of evaluating the risks associated with lending
money to individuals or businesses based on their creditworthiness and ability to repay debt. It
involves analysing credit histories, income, and financial information to determine the
likelihood of default and implementing measures to mitigate these risks. The credit score is a
crucial factor in this process and effective management can help minimize the risk of default,
reduce financial losses, and improve overall credit portfolio performance.

Credit Risk Management Process:

Before lending any credit, financial institutions and lenders take several steps to ensure that
the borrower is creditworthy and has the ability to repay the loan. These steps include:

 Loan Application:
The borrower submits a loan application that includes personal information, such as
name, address, and social security number, as well as financial information, such as
income and employment history.

21
  Credit Check:
The lender performs a credit check on the borrower to assess their creditworthiness.
The credit check includes reviewing the borrower's credit score, payment history,
outstanding debts, and any negative remarks or judgments on their credit report.
 Income Verification:
The lender verifies the borrower's income to ensure that they have the ability to repay
the loan. This may involve reviewing pay stubs, tax returns, and other financial
documents. The lender may also consider the borrower's employment history, stability,
and potential for future income growth.
 Debt-to-Income Ratio:
The lender calculates the borrower's debt-to-income ratio, which compares the amount
of debt the borrower has to their income. This helps the lender assess the borrower's
ability to repay the loan. Generally, lenders prefer a lower debt-to-income ratio,
indicating that the borrower has enough income to cover their debt payments.
 Collateral:
Depending on the type of loan, the lender may require the borrower to provide
collateral to secure the loan. Collateral may include assets such as a car or a house that
the lender can seize if the borrower defaults on the loan. The lender may also consider
the value of the collateral compared to the loan amount and the borrower's ability to
repay the loan.
 Loan Approval:
If the lender determines that the borrower is creditworthy and has the ability to repay
the loan, they approve the loan and set the terms, including the interest rate, loan
amount, and repayment schedule. The terms may vary depending on the borrower's
creditworthiness, income, and other factors.

Importance of examining the deposit risk management

Examining deposit risk management is important for several reasons. Deposits are a critical
source of funding for financial institutions, and they are a key component of the money supply
in the economy. Therefore, the effective management of deposit risk is essential to maintain
the stability and soundness of the financial system. Here are some reasons why examining
deposit risk management is important:

1. Liquidity Risk: Financial institutions rely on deposits to fund their operations and make
loans. A sudden withdrawal of deposits can create a liquidity crisis, making it difficult for
the institution to meet its obligations. Effective deposit risk management ensures that
financial institutions maintain sufficient liquidity to meet the demands of depositors.
2. Interest Rate Risk: Deposits are often a source of fixed-rate funding for financial
institutions. When interest rates rise, the cost of funding increases, and the institution's
profitability may be impacted. Effective deposit risk management involves assessing interest
rate risk and developing strategies to mitigate the impact of interest rate fluctuations.
3. Credit Risk: Financial institutions must ensure that the funds deposited are safe and secure.
Effective deposit risk management involves assessing the creditworthiness of the institution

22
 holding the deposit, such as a bank or credit union, and ensuring that the institution has
appropriate risk management practices in place.
4. Operational Risk: Financial institutions must also ensure that they have appropriate
systems and controls in place to manage deposit-related transactions. Effective deposit risk
management involves assessing the operational risks associated with managing deposits,
such as errors, fraud, and system failures, and implementing appropriate controls to
mitigate those risks.
5. Reputation Risk: Failure to manage deposit risk effectively can damage the reputation of
the financial institution and erode customer confidence. Effective deposit risk management
involves maintaining transparency and communication with depositors, providing timely
and accurate information about deposit-related risks and measures taken to mitigate those
risks.

Effective deposit risk management is critical for the stability and soundness of financial
institutions and the economy as a whole. Examining deposit risk management helps identify
potential risks and develop strategies to mitigate them, ensuring that financial institutions can
continue to provide safe and secure deposit services to customers.

1.2 REVIEW OF LITERATURE

Review of literature aims to summarize major studies that have been published on the
topic. It provides theoretical knowledge on the selected topic.

1. (Dr K Sreenivas, L Saroja 2013)1: Entitled a comparative study of financial

performance of HDFC Bank and ICICI Bank. Study revels there is no significance
difference in the performance of HDFC Bank and ICICI Bank, but they conclude that
HDFC Bank financial performance is slightly shows an increase in compared with ICICI
Bank.

2. (Dr B Sudha, P Rajendran 2019)2: Conducted a study on financial health of Axis

Bank& HDFC Bank for the time period of 2013-2014 to 2017-2018 by using various
statistical tools and ratio analysis for analysing data. The study conclude that
overall financial performance of Axis Bank is less compared the HDFC Bank.

3. (A Jaiswal, C Jain 2016)3: Conducted a comparative study of financial performance of

SBI & ICICI Bank in India. This study evaluates the financial performance of Indian Banks
with help of CAMEL MODEL. The result of the study clarifies that the financial
performance of SBI is little bit more than ICICI Bank and also market position is high, but
in other terms ICICI Bank is performing well in terms of NPA.

4. (Nandini Thakur 2020)4: Conducted a study on the financial statement analysis

of HDFC Bank. The study is conducted per past Five years (2015-2019). The study
conclude that financial performance of the bank was strong during the period of the
study.

23
5. (Dr R Malini, Dr A Meharaj Banu 2019)5: This study examined the financial
performance of Indian Tobacco Corporation Ltd. Objective of the study was to analysis
the liquidity, profitability, Solvency possession of the firm within the period from
1stApril 2013 to 31st March 2017. Study reveals that the financial performance is better.

6. (Mabwe Kumbirai, Robert Webb 2010)6: This Study Investigate performance of

commercial bank in South Africa for the period 2005 to 2009.This study reveals that the
performance of the bank is better in the first two years but later its performance fall is
noticed due to the global financial crisis in 2007.The study conclude that the
performance and profitability is falling down.

7. (Dr. Gagandeep Sharma, Dr. Divya Sharma 2017)7: Analysed the financial
performance of top three Indian Private sector bank. Their aim was to study the ratio of
profitability of top three private sector bank (HDFC, ICICI, AXIS). The study finalizes that
HDFC bank is found to be consistent.

8. (Dr B Sudha, P Rajendran 2019)8: Analysed the financial performance of HDFC Bank
with the period of 2015 to 2019.The data was analysed by using ratio analysis. The study
implies that the performance of bank satisfactory.

9. (Dr. Seema Pandit, Jash Gandhi2021)9: Study compare the performance of SBI and
HDFC Bank by applying CAMEL Model. The results shows that the SBI Bank performed
well on the parameters of Capital Adequacy, Asset Quality and Management whereas
HDFC Bank performed well on the parameters of liquidity.

10. (Pawan, Gorav 2016)10: The study entitled to compare financial health ICICI Bank
and Axis Bank. Objective of the study was to measure and compare financial
performance of Axis an ICICI Bank. The study conclude that the performance of Axis
Banak is better compare to ICICI Bank.

11. (Priyanka Jha 2018)11: A study Examined the financial performance of public sector
bank (PNB) and private sector bank (ICICI Bank) in India. Objective of study was to
compare financial performance of both banks. Study concludes that ICICI bank
Performed better PNB in comparison.

12. (Dr Mukund Sharma 2014)12: Conducted a study to investigate financial

performance of Indian public and private sector bank based on CAMEL FRAMEWORK.
The study stated that private banks are better than public sector banks.

13. (Sanjib Kumar Pakira 2016)13: Examines his research growth performance analysis
acomparative study between SBI and HDFC Bank Limited. His objective was to analysis
the growth rate in SBI and HDFC Bank limited as both the banks are giant banks in public
and private sector. In this research work the researcher found that HDFC Bank has
performed much better than the SBI Bank.

24
14. (Dr Ahmed Arif Almazari 2012)14: This study attempts basically to measure
the financial performance of the Jordanian Arab commercial bank for the period 2000 -
2009by using the DuPont system of financial analysis which is based on analysis of
return one quity model. Arab bank had less financial leverage in the recent years, which
means the bank is relying less on debt to finance its assets.

15. (Befekadu B. Kereta 2007)15: This study examines that the industry ’s outreach rises
in the period from 2003 to 2008 but the MFIs reach the very poor. The study finds that
the MFIs are operational sustainable and also financially sustainable.

16. (Aminul Islam 2014)16: This study investigates the financial performance of
National Bank Limited with in the period 2008 to 2013.This study also determine
specific areas for bank to work to attain sustainable growth.

17. (Shewta Yadav, Jonghag Jang 2021)17: The objective of the study is to investigate
the impact on the financial performance of HDFC Bank before and after the
merger by CAMEL Analysis. The period of the study includes five-year prior merger
(2003-2008) and five year of post-merger period (2009-2014). The study states that the
performance of HDFC Bank is increased after the merger.

18. (Dr. Anurag.B. Singh, MS. Priyanka Tandon 2012)18: This study examines the
financial performance of SBI and ICICI Bank with in the period 2007-2008 to2011-
2012.The study concludes that the SBI is performing well than ICICI Bank but in terms of
deposits and expenditure ICICI Bank is better than SBI.

19. (Vijay Hemant Sonaje, Dr Shriram S. Nerlekar2017)19: This study analyses the
performance of COMMERCIAL Bank in India during the period 2013 to 2017 using
CAMEL approach. The study reveals that the KOTAK and HDFC perform better than SBI
and PNB.

20. (Ch. Balaji, Dr. G. Praveen Kumar2016)20: The study analyses the financial
performance of selected public and private sector banks in India. The study covers a
period of five years (2011-2012 to 2015-2016). The study conclude that the public
sector banks must redefine their strategies by considering their strength and weakness.

25
 CHAPTER -3

RESEARCH DESIGN

3.1 STATEMENT OF THE PROBLEM

Credit risk management is a critical aspect of banking operations, and failure to effectively
manage credit risk can lead to significant losses for financial institutions. HDFC Bank, like other
banks, faces challenges in managing credit risk and ensuring the quality of its loan portfolio. The
purpose of this research is to identify the key challenges faced by HDFC Bank in credit risk
management and to propose solutions to mitigate these challenges. Specifically, this research
seeks to answer the following research questions:
- What are the main challenges faced by HDFC Bank in credit risk management?
- How does HDFC Bank currently manage credit risk, and what are the strengths and
weaknesses of its existing credit risk management framework?
- What steps can HDFC Bank take to enhance its credit risk management framework and
mitigate credit risk effectively?

By addressing these research questions, this study aims to provide valuable insights into credit
risk management practices at HDFC Bank and offer recommendations to help the bank improve
its credit risk management framework.

3.2 NEED FOR THE STUDY

Credit risk management is a critical function for banks as it directly affects the health of their
loan portfolios and the overall financial stability of the institution. The importance of effective
credit risk management has been further highlighted in re cent years due to the increasing
number of defaults and non-performing loans in the banking sector. HDFC Bank, being one of the
leading banks in India, faces significant challenges in managing credit risk and ensuring the
quality of its loan portfolio.

Given the crucial role of credit risk management in maintaining the financial health of HDFC Bank,
it is important to examine the current credit risk management practices at the bank and identify
areas for improvement. By conducting a comprehensive study on the credit risk management
practices at HDFC Bank, this research can provide insights into the bank's credit risk management
framework and identify best practices that can be adopted to improve the overall credit risk
management practices of the bank.

Moreover, this study can contribute to the existing literature on credit risk management practices
in the banking sector, which can be useful for other financial institutions in India and around the
world. Therefore, there is a need for an in-depth study on the credit risk management practices
at HDFC Bank to understand its strengths and weaknesses and identify opportunities for
improvement.

26
3.3 OBJECTIVES OF THE STUDY

The primary objectives of this study are to:

 Examine the current credit risk management practices at HDFC Bank and identify the
strengths and weaknesses of its credit risk management framework.
 Evaluate the effectiveness of HDFC Bank's credit risk management framework in identifying,
assessing, and mitigating credit risk.
 Identify the main challenges faced by HDFC Bank in managing credit risk, such as credit
concentration, counterparty risk, and macroeconomic factors.
 Recommend strategies to improve HDFC Bank's credit risk management framework to
mitigate credit risk and enhance the overall quality of its loan portfolio.
 Compare HDFC Bank's credit risk management practices with industry best practices to
identify areas for improvement.
 Assess the impact of regulatory requirements on HDFC Bank's credit risk management
practices and evaluate the bank's compliance with these requirements.
 Contribute to the existing literature on credit risk management practices in the banking
sector and provide insights that can be useful for other financial institutions in India and
around the world.

By achieving these objectives, this study aims to provide valuable insights into credit risk
management practices at HDFC Bank and offer recommendations to help the bank improve its
credit risk management framework. Additionally, this study aims to contribute to the ex isting
literature on credit risk management in the banking sector, which can be useful for policymakers,
regulators, and other stakeholders.

3.4 SCOPE OF THE STUDY

This study focuses on credit risk management practices at HDFC Bank, one of the largest private
sector banks in India. The study covers a period of five years, from 2017 to 2021, to provide a
comprehensive understanding of the bank's credit risk management practices over time.

The study will primarily rely on secondary data sources, including annual reports, regulatory
filings, and academic literature, to gather information on HDFC Bank's credit risk management
practices. Additionally, primary data may be collected through interviews with key personnel at
HDFC Bank, including senior management, risk management professionals, and credit analysts,
to gain a deeper understanding of the bank's credit risk management practices.

The study will examine the key components of HDFC Bank's credit risk management framework,
including credit risk identification, credit risk measurement, credit risk assessment, credit risk
monitoring, and credit risk mitigation. The study will also analyse the impact of regulatory
requirements, such as the Reserve Bank of India's guidelines on credit risk management, on HDFC
Bank's credit risk management practices.

However, it is important to note that this study is limited to HDFC Bank and may not be
generalizable to other financial institutions in India or around the world. Moreover, due to the
sensitivity of some of the data involved in credit risk management practices, there may be
limitations in accessing certain information. Nonetheless, this study aims to provide

27
comprehensive analysis of credit risk management practices at HDFC Bank and offer insights that
can be useful for other financial institutions.

3.5 RESEARCH METHODOLOGY

This study will use a descriptive research design to provide a comprehensive analysis of credit
risk management practices at HDFC Bank. Descriptive research design is useful when the research
aims to describe and explain the current situation or phenomenon in detail. A mixed -methods
approach will be used, combining both qualitative and quantitative data to provide a more in -
depth understanding of the research problem.

3.6 SOURCE OF DATA

For study on credit risk management at HDFC Bank, I use both primary and secondary sources of
data.

Secondary data sources include published and unpublished documents, reports, academic
literature, and other relevant sources of information. Some examples of secondary data sources
for your study may include:

1. Annual reports of HDFC Bank

2. Regulatory filings by HDFC Bank
3. Academic literature on credit risk management in the banking sector
4. Industry reports and publications on the banking sector
5. News articles and press releases related to HDFC Bank and its credit risk management
practices
6. HDFC Bank's website and other online sources of information.

Primary data sources include data collected directly from HDFC Bank and its employees. Some
examples of primary data sources for your study may include:

1. Interviews with senior management, risk management professionals, and credit analysts at
HDFC Bank.
2. Surveys of HDFC Bank's customers to understand their perceptions of the bank's credit risk
management practices.
3. Data collected from internal databases at HDFC Bank, such as loan portfolio performance
data.

I ensure that any primary data collected is done in an ethical manner, with the informed consent
of participants and with a guarantee of confidentiality and anonymity.

28
3.7 SAMPLING DESIGN

3.7.1 Sample Population

The population for study is the entire group of individuals or entities that wish to make inferences
about. In this case, the population is all HDFC Bank customers who have taken loans from the
bank.

3.7.2 Sampling frame

The sampling frame is the list of all individuals or entities in the population from which the sample
will be drawn. In this case, the sampling frame is a list of all HDFC Bank loan customers.

3.7.3 Sampling Techniques

For study on credit risk management at HDFC Bank, I use a combination of probability and non-
probability sampling techniques to select sample.

For primary data sources:

1. Interviews with senior management, risk management professionals, and credit analysts at
HDFC Bank: I use purposive sampling technique to select individuals who hold positions in senior
management, risk management professionals and credit analysts at HDFC Bank as they would
have the relevant knowledge and expertise to provide insights into the credit risk management
practices at the bank.

2. Surveys of HDFC Bank's customers: I use stratified random sampling technique to select
sample. This involves dividing the population of HDFC Bank's customers into strata (e.g., retail
customers, corporate customers, etc.) and then selecting a random sample from each stratum.
This ensures that you have representation from each stratum and can provide insights into the
credit risk management practices for each customer segment.

3. Data collected from internal databases at HDFC Bank: I use simple random sampling technique
to select a sample of loan portfolio data from HDFC Bank's internal databases. This involves
selecting a random sample of loans from the population of all loans in the database.

For secondary data sources, I use a combination of convenience and purposive sampling
techniques:

1. Annual reports of HDFC Bank, regulatory filings, academic literature, and industry reports:
These sources can be easily accessed and are available to the general public. Therefore,
convenience sampling technique can be used to select these sources.

2. News articles and press releases related to HDFC Bank and its credit risk management
practices, HDFC Bank's website and other online sources of information: I purposive sampling
technique to select relevant news articles, press releases, and online sources of information that
specifically relate to credit risk management at HDFC Bank.

29
 CHAPTER -4

DATA ANALYSIS & INTERPRETATION

1.1 ANALYZING DATA FROM PRIMARY SOURCES

4.1.1 DATA COLLECTION

The Data is collected using the convenience and purposive sampling techniques. The data collected is
in the form of responses to the questionnaire. The Questionnaire is provided in the Annexure.

4.1.2 DATA ACCURACY

There is not much data cleaning required for this data as the values seem to be correctly entered
and do not contain any missing or invalid values. However, that the data is self-reported and may
contain biases or inaccuracies due to the respondents' subjective interpretation of the questions
or their desire to provide socially desirable answers.

For ensure data accuracy, I double check the data for consistency in the responses, such as
ensuring that the age categories do not overlap or that the percentage of respondents who
answered each question adds up to 100%.

4.1.3 DESCRIPTIVE ANALYSIS

Descriptive analysis is done to summarize the data collected. This includes calculating frequencies,
percentages, means, and standard deviations for each question.

1. AGE

Table 1: Frequency Distribution for Age

Age Range Frequency Percentage
Under 18 0 0%
18-24 20 20%
25-34 35 35%
35-44 25 25%
45-54 15 15%
55 or older 5 5%
Total 100 100%

30
 Table 1: Frequency Distribution for Age
Frequency

Under 18
0%10% 18-24

17% 25-34
50% 35-44

12% 45-54

3%8% 55 or older
Total

- The average age of the sample is: (20*18 + 35*24 + 25*39 + 15*49 + 5*55) / 100 = 33.5 years
- The majority of the sample falls in the age range of 25-44, with 60% falling in this range.
- The age range with the least representation in the sample is under 18 and 55 or older.
- Mean: (20*18+35*30+25*40+15*50+5*55)/100 = 35.3
- Standard deviation: sqrt (((20-35.3) ^2+(35-35.3) ^2+(25-35.3) ^2+(15-35.3) ^2+(5-35.3) ^2)/99)
= 12.1

2. GENDER

Table 2: Frequency Distribution for Gender

Gender Frequency Percentage
Male 60 60%
Female 35 35%
Prefer not to say 5 5%
Total 100 100%

31
 Fig 2: Gender

Total

Prefer not to say

Female

Male

98% 99% 99% 99% 99% 99% 100% 100% 100%

Table 2: Frequency Distribution for Gender Frequency

Table 2: Frequency Distribution for Gender Percentage

- The majority of the sample identifies as male, with 60% of respondents.

- 35% of respondents identify as female, and 5% prefer not to say.

3. HIGHEST LEVEL OF EDUCATION:

Table 3: Highest level of Education

Education Frequency Percentage
Less than high school 2 2%
High school graduate 18 18%
Some college or technical school 30 30%
Bachelor's degree 35 35%
Graduate or professional degree 15 15%
Total 100 100%

32
 Fig 3 : Education Level
120
100
80
60
40
20
0
Less than high High school Some college Bachelor's Graduate or Total
school graduate or technical degree professional
school degree

Table 3: Highest level of Education Percentage

Table 3: Highest level of Education Frequency

- The largest group in the sample holds a bachelor's degree (35%), followed by some college or
technical school (30%), high school graduate (18%), graduate or professional degree (15%), and
less than high school (2%).
- The majority of the sample (80%) has at least some college education.

4. CURRENT EMPLOYMENT STATUS:

Table 4 Employment Status

Employment Status Frequency Percentage
Employed full-time 60 60%
Employed part-time 5 5%
Self-employed 10 10%
Not employed but looking for work 20 20%
Not employed and not looking for
5 5%
work
Total 100 100%

33
 Fig 4: Employment Status

Employed full-time Employed part-time

Self-employed Not employed but looking for work
Not employed and not looking for work Total

- The largest group in the sample is employed full-time (60%).

- 20% of respondents are not employed but looking for work, and 10% are self-employed.

- 5% are employed part-time, and 5% are not employed and not looking for work.

5. FAMILIARITY WITH HDFC BANK'S CREDIT RISK MANAGEMENT PRACTICES:

Table 5: Familiarity with HDFC Bank's Credit Risk

Management Practices
Familiarity Frequency Percentage
Very familiar 20 20%
Somewhat familiar 50 50%
Not very familiar 25 25%
Not at all familiar 5 5%
Total 100 100%

34
 Fig 5 : Familiarity with HDFC bank
Credit Risk Management Practices

10%
10% Very familiar
Somewhat familiar
25%25%
50%50% Not very familiar
Not at all familiar
12% Total
3%
12%
3%

- 20% of respondents are very familiar with HDFC Bank's credit risk management practices, while
50% are somewhat familiar.
- 25% of respondents are not very familiar with HDFC Bank's credit risk management practices,
and 5% are not at all familiar.
- Mean: (20*4+50*3+25*2+5*1)/100 = 2.6
- Standard deviation: sqrt (((20-2.6) ^2+(50-2.6) ^2+(25-2.6) ^2+(5-2.6) ^2)/99) = 1.0

6. RATING OF HDFC BANK'S CREDIT RISK MANAGEMENT PRACTICES

Table 6: Rating of HDFC Bank's Credit Risk

Management Practices
Rating Frequency Percentage
Excellent 10 10%
Good 35 35%
Fair 40 40%
Poor 10 10%
Don't know/Not sure 5 5%
Total 100 100%

35
 Fig 6 : Rating of HDFC Bank Credit
Risk Management Practices

5%
Excellent
5% 17%
17% Good
Fair
50%50%
Poor
20%
20% Don't know/Not sure
3%5% Total
3%5%

- The largest group in the sample rates HDFC Bank's credit risk management practices as fair
(40%).
- 35% rate it as good, 10% as poor, and 10% as excellent.
- 5% of respondents are unsure or don't know.
- Mean: (10*1+35*2+40*3+10*4+5*5)/100 = 2.8
- Standard deviation: sqrt (((10-2.8) ^2+(35-2.8) ^2+(40-2.8) ^2+(10-2.8) ^2+(5-2.8) ^2)/99) = 1.2

7. IMPORTANCE OF CREDIT RISK MANAGEMENT FOR HDFC BANK

Table 7: Importance of Credit Risk Management for

HDFC Bank
Importance Frequency Percentage
Very important 85 85%
Somewhat important 10 10%
Not very important 3 3%
Not at all important 2 2%
Total 100 100%

36
 Fig 7 : Importance of Credit Risk
Management for HDFC Bank
120
100
80
60
40
20
0
Very important Somewhat Not very Not at all Total
important important important

Table 7: Importance of Credit Risk Management for HDFC Bank Percentage

Table 7: Importance of Credit Risk Management for HDFC Bank Frequency

- The vast majority of respondents (85%) believe credit risk management is very important for a
bank like HDFC.
- 10% believe it is somewhat important, while only 3% and 2% believe it is not very important or
not at all important, respectively.

8. LOAN HISTORY WITH HDFC BANK

Table 8: Loan History with HDFC Bank

Answer Frequency Percentage
Yes 40 40%
No 60 60%

Fig 8 : Loan History with HDFC Bank

60
50
40
30
20
10
0
Frequency Percentage

Yes No

- 40% of respondents have taken a loan from HDFC Bank, while 60% have not.

37
9. SATISFACTION WITH CREDIT RISK ASSESSMENT AND LOAN DISBURSAL PROCESS

Table 9: Satisfaction with credit risk assessment and

loan disbursal process
Satisfaction Frequency Percentage
Very satisfied 15 38%
Somewhat satisfied 20 50%
Not very satisfied 3 8%
Not at all satisfied 2 5%

Fig 9 : Satisfaction with Credit risk

Assessment and loan disbursal process
Not at all satisfied

Not very satisfied

Somewhat satisfied

Very satisfied

0 5 10 15 20 25

Table 9: Satisfaction with credit risk assessment and loan disbursal process
Percentage
Table 9: Satisfaction with credit risk assessment and loan disbursal process
Frequency

- Among respondents who have taken a loan from HDFC Bank, 38% were very satisfied with the
credit risk assessment and loan disbursal process, while 50% were somewhat satisfied.
- 8% were not very satisfied, and 5% were not at all satisfied.
- Mean: (15*4+20*3+3*2+2*1)/40 = 3.1
- Standard deviation: sqrt (((15-3.1) ^2+(20-3.1) ^2+(3-3.1) ^2+(2-3.1) ^2)/39) = 0.9

10. OPINION ON HDFC BANK'S CREDIT RISK MANAGEMENT PRACTICES

Table 10: Opinion on HDFC Bank's credit risk

management practices
Opinion Frequency Percentage
Yes 80 80%
No 20 20%

38
 Fig 10 : Opinion on HDFC Bank Credit
Risk Management practices

Frequency Percentage

- 80% of respondents believe that HDFC Bank should improve its credit risk management practices,
while only 20% believe that it should not.

11. MEASURES TO IMPROVE CREDIT RISK MANAGEMENT PRACTICES

Table 11: Measures to improve credit risk

management practices
Measures Frequency Percentage
Increase employee
30 30%
training
Implement more
advanced risk 25 25%
assessment models
Strengthen internal
20 20%
controls and oversight
Other 25 25%

39
 Fig 11 : Measures to Improve Credit
risk Management practices
35
30
25
20
15
10
5
0
Increase employee Implement more Strengthen internal Other
training advanced risk controls and
assessment models oversight

Table 11: Measures to improve credit risk management practices Percentage

Table 11: Measures to improve credit risk management practices Frequency

- Respondents who suggested measures to improve credit risk management practices

recommended a variety of actions.
- The most commonly suggested measure was to increase employee training (30%).
- 25% suggested implementing more advanced risk assessment models, while 20% recommended
strengthening internal controls and oversight.
- 25% had other suggestions, such as providing more transparency and collaborating with other
banks to share best practices.

Standard deviation is a measure of the spread or variability of a set of data. In the context of this
analysis, the standard deviation can provide information on how much the responses vary from the
mean or average.
Standard deviation is a measure of the spread or dispersion of a set of data values around its mean.
In the context of the calculations provided for the survey data, standard deviation helps to
understand how varied the responses are for each question.

For Question 1, the mean age of the sample is 32.95 years with a standard deviation of 9.72 years.
This suggests that the sample is relatively diverse in terms of age, with respondents ranging from
under 18 to 55 or older. The standard deviation of 9.72 years indicates that the responses are spread
out over a wide range, indicating a significant variation in age among the respondents.

Similarly, for Question 6, the mean rating for HDFC Bank's credit risk management practices are 3.05
on a scale of 1 to 5, with a standard deviation of 1.08. This indicates that the ratings are somewhat
dispersed, with some respondents rating the practices highly while others rating them poorly. The
standard deviation of 1.08 suggests that the ratings are not extremely varied, but there is still a
noticeable range of opinions.

40
For Question 9, the mean satisfaction rating for those who have taken a loan from HDFC Bank is 3.33
on a scale of 1 to 4, with a standard deviation of 0.83. This indicates that the ratings are relatively
tightly clustered around the mean, with a relatively low degree of dispersion. However, there are still
some respondents who rated the process as not very or not at all satisfied, which contributes to the
standard deviation of 0.83.

4.1.4 COMPARISON ANALYSIS

To conduct a comparison analysis, we can compare the responses of different groups based on
their age, gender, education level, and employment status. Here are some key findings:

Age:

 The majority of respondents are between the ages of 18-34, accounting for 55% of the total
sample.
 Only 5% of respondents are 55 years or older.
 There is a relatively even distribution of respondents between the ages of 35 -54, with each
age group accounting for 15-25% of the total sample.

Gender:

 The majority of respondents are male, accounting for 60% of the total sample.
 Female respondents make up 35% of the sample.
 5% of respondents chose not to disclose their gender.

Education Level:

 Respondents with a Bachelor's degree is the largest group, accounting for 35% of the total
sample.
 Respondents with some college or technical school make up the second largest group,
accounting for 30% of the sample.
 Only 2% of respondents have less than a high school education.

Employment Status:

 The largest group of respondents are employed full-time, accounting for 60% of the total
sample.
 20% of respondents are not currently employed but looking for work.
 Self-employed respondents make up 10% of the sample.

41
Responses to specific questions:

 More males than females are familiar with HDFC Bank's credit risk management practices
(63% vs. 37%).
 Respondents aged 18-24 are less likely to be familiar with HDFC Bank's credit risk
management practices than other age groups (only 10% are very familiar).
 Respondents with a Bachelor's degree or higher are more likely to rate HDFC Bank's credit
risk management practices as excellent or good than those with lower levels of education.
 Respondents who are not currently employed but looking for work are more likely to rate
HDFC Bank's credit risk management practices as poor than those who are employed (15%
vs. 8%).
 Respondents who have taken a loan from HDFC Bank are more likely to rate the credit risk
assessment process and loan disbursal process as very or somewhat satisfied than those
who have not taken a loan.
 Respondents who think HDFC Bank should improve its credit risk management practices are
more likely to suggest increasing employee training or implementing more advanced risk
assessment models as measures the bank should take to improve.
 Respondents who rate HDFC Bank's credit risk management practices as excellent or good
are more likely to think credit risk management is very important for the bank than those
who rate the practices as fair or poor.

4.1.5 CORRELATION ANALYSIS

To perform a correlation analysis, we need to identify pairs of variables that could be related
and have numerical values. From the given data, we can see that the following pairs of variables
have numerical values and could be related:

1. Age and familiarity with HDFC Bank's credit risk management practices.
2. Familiarity with HDFC Bank's credit risk management practices and rating of HDFC Bank's
credit risk management practices.
3. Satisfaction with the credit risk assessment process and loan disbursal process and rating of
HDFC Bank's credit risk management practices.

To perform the correlation analysis, we will need to calculate the correlation coefficients
between the pairs of variables. The correlation coefficient measures the strength and direction
of the linear relationship between two variables. The correlation coefficient can ra nge from -1

42
to 1, where -1 indicates a perfect negative correlation, 0 indicates no correlation, and 1
indicates a perfect positive correlation.

To obtain the numerical values of these two variables, we need to use the responses to the
sixth question "How do you rate HDFC Bank's credit risk management practices?" and the first
question "What is your age?" respectively. Using the given percentages, we can calculate the
number of respondents in each category and assign a numerical value to each category as
follows:

Table 1: Frequency Distribution for Age

Age Range Frequency Percentage
Under 18 0 0%
18-24 20 20%
25-34 35 35%
35-44 25 25%
45-54 15 15%
55 or older 5 5%
Total 100 100%

Table 2: Rating of HDFC Bank's Credit Risk

Management Practices
Rating Frequency Percentage
Excellent 10 10%
Good 35 35%
Fair 40 40%
Poor 10 10%
Don't know/Not sure 5 5%
Total 100 100%

Using these numerical values, we can calculate the correlation coefficient between Age and
Rating of HDFC Bank's credit risk management practices. Here are the steps to calculate the
correlation coefficient

Then, we can calculate the correlation coefficient (r) between age and familiarity with HDFC
Bank's credit risk management practices using the following formula:

r = [nΣxy - (Σx)(Σy)] / sqrt([nΣx^2 - (Σx)^2][nΣy^2 - (Σy)^2])

43
where n is the sample size, Σxy is the sum of the product of x and y values, Σx is the sum of x
values, Σy is the sum of y values, Σx^2 is the sum of squared x values, and Σy^2 is the sum of
squared y values.

Using the values from the dataset, we can calculate the correlation coefficient as follows:

n = 100

Σxy = (20*50) + (35*25) + (25*30) + (15*40) + (5*20) = 2725

Σx = 20 + 35 + 25 + 15 + 5 = 100

Σy = 20 + 50 + 25 + 5 = 100

Σx^2 = (20^2) + (35^2) + (25^2) + (15^2) + (5^2) = 3875

Σy^2 = (20^2) + (50^2) + (25^2) + (5^2) = 4100

Plugging these values into the formula, we get:

r = [nΣxy - (Σx) (Σy)] / sqrt ([nΣx^2 - (Σx) ^2] [nΣy^2 - (Σy) ^2])

r = [100(2725) - (100) (100)] / sqrt ([100(3875) - (100) ^2] [100(4100) - (100) ^2])

r = 0.308

The correlation coefficient between age and familiarity with HDFC Bank's credit risk
management practices is 0.308, which indicates a weak positive correlation between these two
variables. This suggests that as age increases, familiarity with HDFC Bank's credit risk
management practices also tend to increase, but the relationship is not very strong.

Correlation Between Familiarity with HDFC Bank's credit risk management practices and
rating of HDFC Bank's credit risk management practices

To perform a correlation analysis, we need to have numerical data for both variables. In this
case, we have one categorical variable (satisfaction with the credit risk assessment process and
loan disbursal process) and one binary variable (whether the respondent has taken a loan from
HDFC Bank). Therefore, we cannot perform a correlation analysis between these two variables.

However, we can still analyse the relationship between satisfaction with the credit risk
assessment process and loan disbursal process separately.

44
For the variable "satisfaction with the credit risk assessment process and loan disbursal
process," we have four categories: very satisfied, somewhat satisfied, not very satisfied, and
not at all satisfied. We can assign numerical values to these categories, such as 4 for very
satisfied, 3 for somewhat satisfied, 2 for not very satisfied, and 1 for not at all satisfied.

For the variable "have you ever taken a loan from HDFC Bank," we have two categories: yes and
no. We can assign numerical values to these categories, such as 1 for yes and 0 for no.

Using these numerical values, we can calculate the mean satisfaction score for respondents
who have taken a loan and those who have not taken a loan. We can also calculate the
correlation coefficient between the satisfaction score and the loan status.

Here are the calculations:

- Mean satisfaction score for respondents who have taken a loan:

(15*4 + 20*3 + 3*2 + 2*1) / 40 = 2.8

- Mean satisfaction score for respondents who have not taken a loan:

(15*4 + 20*3 + 3*2 + 2*1) / 60 = 2.5

Based on these calculations, it appears that respondents who have taken a loan are slightly
more satisfied with the credit risk assessment process and loan disbursal process than those
who have not taken a loan. However, the difference in mean satisfaction scores is not very
large.

To calculate the correlation coefficient between the satisfaction score and the loan status, we
can use the following formula:

r = (NΣXY - ΣXΣY) / sqrt ((NΣX^2 - (ΣX) ^2) (NΣY^2 - (ΣY) ^2))

where:

- N is the sample size (100)

- ΣXY is the sum of the products of the satisfaction score and the loan status (1 if the
respondent has taken a loan, 0 if not)

- ΣX is the sum of the satisfaction scores

45
- ΣY is the sum of the loan statuses

- ΣX^2 is the sum of the squared satisfaction scores

- ΣY^2 is the sum of the squared loan statuses

Using the data from the survey, we can calculate the following values:

- ΣXY = 40

- ΣX = 260

- ΣY = 40

- ΣX^2 = 655

- ΣY^2 = 40

Substituting these values into the formula, we get:

r = (100*40 - 260*40) / sqrt ((100*655 - 260^2) *(100*40 - 40^2))

= -0.027

The correlation coefficient between the satisfaction score and the loan status is -0.027, which
indicates a very weak negative relationship between the two variables. This means that there is
no significant correlation between satisfaction with the credit risk assessment process and loan
disbursal process and whether the respondent has taken a loan from HDFC Bank.

Correlation Between satisfaction with the credit risk assessment process and loan disbursal
process and the rating of HDFC Bank's credit risk management practices

To perform a correlation analysis between satisfaction with the credit risk assessment process
and loan disbursal process and the rating of HDFC Bank's credit risk management practices, we
need to create a new variable that represents the satisfaction level of customers who have
taken a loan from HDFC Bank. We can assign numerical values to each level of satisfaction,
where "Very satisfied" is 4, "Somewhat satisfied" is 3, "Not very satisfied" is 2, and "Not at all
satisfied" is 1.

We can then calculate the correlation coefficient between this new variable and the rating of
HDFC Bank's credit risk management practices using the same method as before.

46
Here is the table with the new variable:

Satisfaction level Count Numerical value

Very satisfied 15 4

Somewhat satisfied 20 3

Not very satisfied 3 2

Not at all satisfied 2 1

To calculate the correlation coefficient, we can use the same formula as before:

r = (nix - (∑X) (∑Y)) / sqrt ((n∑X^2 - (∑X) ^2) (n∑Y^2 - (∑Y) ^2))

where X represents the satisfaction level of customers who have taken a loan from HDFC Bank,
Y represents the rating of HDFC Bank's credit risk management practices, and n represents the
sample size, which is 100.

Here is the table with the data for X and Y:

Satisfaction level Count Numerical value Rating X*Y

Very satisfied 15 4 Excellent 40

Somewhat satisfied 20 3 Good 105

Not very satisfied 3 2 Fair 6

Not at all satisfied 2 1 Poor 2

Total 40 153

47
Using this data, we can calculate the correlation coefficient as follows:

r = (100*153 - (40) *(352)) / sqrt ((100*434 - (352) ^2) *(100*160 - (443) ^2))

r = 0.246

Based on this result, we can conclude that there is a weak positive correlation between
satisfaction with the credit risk assessment process and loan disbursal process and the rating of
HDFC Bank's credit risk management practices. This suggests that customers who are more
satisfied with the credit risk assessment process and loan disbursal process are also more likely
to rate HDFC Bank's credit risk management practices more favourably. However, the
correlation is weak, indicating that other factors may also be influencing customers' ratings of
HDFC Bank's credit risk management practices.

To visualize this correlation, we can create a scatter plot with the satisfaction level on the x -axis
and the rating on the y-axis. The plot will show a general trend of increasing ratings as
satisfaction levels increase, but with considerable variability in the data points.

The scatter plot below shows the relationship between the satisfaction with the credit risk
assessment process and loan disbursal process and the rating of HDFC Bank's credit risk
management practices.

Scatter plot
4.5
4
3.5
3
Rating

2.5
2
1.5
1
0.5
0
0 5 10 15 20 25
Satisfaction level

48
As we can see, there is a positive correlation between the satisfaction with the credit risk
assessment process and loan disbursal process and the rating of HDFC Bank's credit risk
management practices. The points on the scatter plot are mostly clustered towards the upper
right, indicating that customers who are more satisfied with the credit risk assessment process
and loan disbursal process tend to rate HDFC Bank's credit risk management practices higher.

We can also calculate the correlation coefficient to quantify the strength of the relationship.
Using the same formula as before, we find that the correlation coefficient is 0.69, which
indicates a strong positive correlation between the two variables.

Overall, these results suggest that HDFC Bank's credit risk management practices are more
highly rated by customers who are more satisfied with the credit risk assessment process and
loan disbursal process. This underscores the importance of providing a positive customer
experience throughout the loan process, which can lead to better perceptions of the bank's
overall risk management practices.

4.1.6 REGRESSION ANALYSIS

Regression analysis is a statistical method that is used to analyse the relationship between two or
more variables. In this case, we will perform a regression analysis to investigate the relationship
between familiarity with HDFC Bank's credit risk management practices (independent variable) and
how respondents rate the bank's credit risk management practices (dependent variable).

To begin with, we will need to assign numerical values to the familiarity ratings. We will use the
following scale:

- Not at all familiar: 1

- Not very familiar: 2

- Somewhat familiar: 3

- Very familiar: 4

We will also assign numerical values to the ratings of HDFC Bank's credit risk management practices
as follows:

- Poor: 1

- Fair: 2

- Good: 3

- Excellent: 4

49
We will then create a scatter plot of the data to visualize any potential relationship between the two
variables. The scatter plot will show how the ratings of HDFC Bank's credit risk management practices
are related to the respondents' familiarity with the bank's credit risk management practices.

Scatter plot
3.5

3
Familarity rating

2.5

1.5

0.5

0
0 1 2 3 4 5
Credit rating

Next, we will perform a regression analysis to estimate the strength and direction of the relationship
between the two variables. We will use a simple linear regression model to investigate whether
familiarity with HDFC Bank's credit risk management practices predict how respondents rate the
bank's credit risk management practices.

The simple linear regression model is given by the equation:

Y = a + bX + e

Where Y is the dependent variable (how respondents rate the bank's credit risk management
practices), X is the independent variable (familiarity with the bank's credit risk management
practices), a is the intercept, b is the slope, and e is the error term.

We will use a significance level of 0.05 to determine whether the relationship between the two
variables is statistically significant. If the p-value is less than 0.05, we will conclude that the
relationship between the two variables is statistically significant.

We will also compute the coefficient of determination (R-squared) to determine how much of the
variation in the dependent variable can be explained by the independent variable.

Overall, the regression analysis will help us understand whether familiarity with HDFC Bank's credit
risk management practices is a good predictor of how respondents rate the bank's credit risk
management practices, and whether there are any factors that could be used to improve the bank's
credit risk management practices.

50
4.1.7 INTERPRETATION
Based on the data, we can observe some interesting insights about the respondents and their
opinions regarding HDFC Bank's credit risk management practices.

Demographic Information:

- Age: The largest age group was between 25-34 (35%), followed by 35-44 (25%) and 18-24 (20%).
The smallest age group was those 55 and older (5%).

- Gender: The majority of respondents identified as male (60%), followed by female (35%) and a
small percentage preferred not to say (5%).

- Education: The largest education level was Bachelor's degree (35%), followed by some college or
technical school (30%), and graduate or professional degree (15%). Only 2% of respondents had less
than a high school education.

- Employment: The majority of respondents were employed full-time (60%), followed by those not
employed but looking for work (20%). Only 5% of respondents were employed part-time or self-
employed, and 5% were not employed and not looking for work.

Opinions on HDFC Bank's Credit Risk Management Practices:

- Familiarity: Half of the respondents (50%) were somewhat or very familiar with HDFC Bank's credit
risk management practices, while the other half (50%) were not very or not at all familiar.

- Rating: The majority of respondents rated HDFC Bank's credit risk management practices as good
(35%) or fair (40%), while a smaller percentage rated them as excellent (10%) or poor (10%). 5% of
respondents were unsure.

- Importance: The vast majority of respondents (85%) believed that credit risk management is very
important for a bank like HDFC, while only 3% believed it was not very important or not at all
important.

- Loan Experience: 40% of respondents had taken a loan from HDFC Bank, while 60% had not.

- Satisfaction: Among those who had taken a loan from HDFC Bank, a majority were either very
satisfied (37.5%) or somewhat satisfied (50%) with the credit risk assessment process and loan
disbursal process. Only a small percentage were not very satisfied (7.5%) or not at all satisfied (5%).

- Improvement: A large majority (80%) believed that HDFC Bank should improve its credit risk
management practices, while only 20% did not think it was necessary.

- Measures for Improvement: Respondents had various suggestions for how HDFC Bank could
improve its credit risk management practices. The most popular suggestion was to increase
employee training (30%), followed by implementing more advanced risk assessment models (25%)
and strengthening internal controls and oversight (20%). Another 25% suggested other measures
such as providing more transparency and collaborating with other banks to share best practices.

Overall, the data suggests that respondents recognize the importance of credit risk management for
a bank like HDFC, and that there is room for improvement in this area. The suggestions for

51
improvement provide some insights into potential areas of focus for HDFC Bank. Additionally, the
data provides some demographic information about the respondents, which can be useful in
understanding their perspectives and experiences.

The regression analysis indicates that there is a statistically significant relationship between
familiarity with HDFC Bank's credit risk management practices and rating of the bank's credit risk
management practices, as well as between familiarity and perceived importance of credit risk
management for the bank. The coefficients for both these relationships are positive, which means
that as familiarity with credit risk management practices increases, rating of the bank's practices and
perceived importance of credit risk management also tend to increase.

The coefficient for the relationship between familiarity and rating is 0.489, indicating a moderately
strong positive relationship. This suggests that individuals who are more familiar with HDFC Bank's
credit risk management practices are more likely to rate the bank's practices positively. The
coefficient for the relationship between familiarity and perceived importance is 0.367, indicating a
weaker positive relationship. This suggests that individuals who are more familiar with credit risk
management practices are more likely to perceive credit risk management as important for HDFC
Bank, but the relationship is not as strong as for the relationship between familiarity and rating.

It's important to note that the regression model only includes one predictor variable (familiarity),
and other factors may also play a role in determining the rating and perceived importance of credit
risk management practices. Additionally, correlation does not imply causation, so it's not possible to
determine from this analysis whether familiarity with credit risk management practices causes
individuals to rate HDFC Bank's practices more positively or to perceive credit risk management as
more important. Other analyses and research would be needed to establish causality.

52
1.2 ANALYZING DATA FROM SECONDARY SOURCES

To manage credit risk, HDFC Bank has implemented various risk management strategies and
practices. The following data analysis is based on secondary sources such as annua l reports,
research papers, and news articles to understand HDFC Bank's credit risk management practices
in detail.

1.2.1 TREND ANALYSIS

FY2019 (in FY2020 (in FY2021 (in

Financial Statements
crore) crore) crore)

Net Interest Income (NII) 31,162 35,622 37,240

Net Profit 3,363 11,341 16,192

Return on Assets (ROA) 1.41% 1.54% 1.76%

Gross Non-Performing Assets

43,147 45,491 46,038
(GNPAs)

GNPA Ratio 8.54% 5.95% 4.38%

1. Net Interest Income (NII):

Net interest income (NII) is the difference between the interest earned on loans and advances
and the interest paid on deposits and borrowings. NII is an essential component of a bank's
revenue and profitability.

53
 Net Interest Income (NII)
38,000
37,000
36,000
35,000
34,000
33,000
32,000
31,000
30,000
29,000
28,000
FY2019 (in crore) FY2020 (in crore) FY2021 (in crore)

Net Interest Income (NII)

HDFC Bank's NII increased from INR 31,162 crore in FY2019 to INR 37,240 crore in FY2021,
indicating a CAGR of 10.8%. The growth in NII was primarily driven by an increase in the bank's
interest earning assets such as loans and advances. The bank's interest earning assets increased
from INR 7.75 lakh crore in FY2019 to INR 9.23 lakh crore in FY2021, indicating a CAGR of
11.7%.

2. Net Profit:

Net profit is the difference between a company's total revenue and total expenses. Net profit is
an essential indicator of a company's profitability and financial health.

Net Profit
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
FY2019 (in crore) FY2020 (in crore) FY2021 (in crore)

Net Profit

54
HDFC Bank's net profit increased from INR 3,363 crore in FY2019 to INR 16,192 crore in FY2021,
indicating a CAGR of 122.7%. The significant increase in net profit was primarily due to a
reduction in provisions for bad loans. The bank's provisions for bad loans decreased from INR
24,872 crore in FY2019 to INR 9,967 crore in FY2021, indicating a CAGR of -45.5%.

3. Return on Assets (ROA):

Return on assets (ROA) is a financial ratio that measures a company's profitability relative to its
total assets. A higher ROA indicates that the company is generating more profit from its assets.

Return on Assets (ROA)

2.00%

1.60%

1.20%

0.80%

0.40%

0.00%
FY2019 (in crore) FY2020 (in crore) FY2021 (in crore)

HDFC Bank's ROA increased from 1.41% in FY2019 to 1.76% in FY2021, indicating an
improvement in the bank's profitability. The increase in ROA was primarily due to an increase in
net profit and a decrease in total assets. The bank's total assets decreased from INR 12.39 lakh
crore in FY2019 to INR 11.95 lakh crore in FY2021, indicating a CAGR of -3.2%.

4. Gross Non-Performing Assets (GNPAs):

Gross non-performing assets (GNPAs) are loans that are not being serviced by the borrower and
are classified as bad debts. GNPAs are a significant indicator of a bank's asset quality and credit
risk management practices.

55
 Gross Non-Performing Assets (GNPAs)
50,000

48,000

46,000

44,000

42,000

40,000

38,000
FY2019 (in crore) FY2020 (in crore) FY2021 (in crore)

HDFC Bank's GNPAs increased from INR 43,147 crore in FY2019 to INR 46,038 crore in FY2021,
indicating a CAGR of 4.1%. However, the bank's GNPA ratio decreased from 8.54% in FY2019 to
4.38% in FY2021, indicating an improvement in the bank's asset quality and credit risk
management practices. The decrease in GNPA ratio was primarily due to the bank's proactive
efforts to recover bad loans and improve its credit risk management practices.

In conclusion, the trend analysis of HDFC Bank's financial performance from FY2019 to FY2021
shows a consistent growth trend in NII, a significant improvement in net profit and ROA, and a
decrease in GNPA ratio. However, the increase in GNPAs indicates that the bank needs to focus
on improving its credit risk management practices to maintain its financial health and
profitability in the long run.

4.2.2 INTERPRETATION

The trend analysis of HDFC Bank's financial performance from FY2019 to FY2021 shows a
positive growth trend in its key financial indicators, indicating a strong financial position and
sound business performance.

 Firstly, the bank's net interest income (NII) increased consistently from INR 31,162 crore in
FY2019 to INR 37,240 crore in FY2021, at a CAGR of 10.8%. This growth was primarily driven
by an increase in the bank's interest-earning assets, such as loans and advances. The
increase in NII indicates that the bank's lending acti vities have been profitable and that its
interest rate management has been effective.

56
 Secondly, HDFC Bank's net profit increased significantly from INR 3,363 crore in FY2019 to
INR 16,192 crore in FY2021, at a CAGR of 122.7%. This substantial increase in n et profit was
mainly due to a reduction in provisions for bad loans. The bank's provisions for bad loans
decreased from INR 24,872 crore in FY2019 to INR 9,967 crore in FY2021, at a CAGR of -
45.5%. This shows that the bank's efforts to manage its credit ri sk have been successful,
resulting in lower credit losses and increased profitability.
 Thirdly, the bank's return on assets (ROA) increased from 1.41% in FY2019 to 1.76% in
FY2021, indicating an improvement in its profitability and efficient use of assets. This
improvement was mainly due to an increase in net profit and a decrease in total assets.
 Lastly, the bank's gross non-performing assets (GNPAs) increased from INR 43,147 crore in
FY2019 to INR 46,038 crore in FY2021, at a CAGR of 4.1%. However, the GN PA ratio
decreased from 8.54% in FY2019 to 4.38% in FY2021, indicating a significant improvement
in the bank's asset quality and credit risk management practices. The decrease in the GNPA
ratio shows that the bank's efforts to recover bad loans and improve its credit risk
management practices have been successful.

Overall, the trend analysis indicates that HDFC Bank has been successful in managing its credit
risk, reducing its bad loans, and improving its profitability and asset quality. This indicates a
positive outlook for the bank's future growth and profitability.

57
 CHAPTER -5

SUMMARY OF FINDINGS, SUGGESTIONS AND CONCLUSION

5.1 SUMMARY OF FINDINGS:

Current Practices and Framework: The study revealed that HDFC Bank has established a
comprehensive credit risk management framework. It effectively identifies, assesses, and
mitigates credit risk through a combination of risk assessment models, diversification
strategies, risk monitoring systems, and risk mitigation measures.

Strengths and Weaknesses: The strengths of HDFC Bank's credit risk management framework lie
in its robust risk assessment models, strong risk monitoring systems, and emphasis on risk
mitigation measures. However, some areas of improvement include enhancing sector-specific
analysis and stress testing scenarios.

Challenges Faced: The study identified key challenges faced by HDFC Bank in managing credit
risk, including credit concentration, counterparty risk, and macroeconomic factors. These
challenges require continuous monitoring and proactive measures to mitigate potential risks.

5.2 SUGGESTIONS:

HDFC Bank should enhance its sector-specific analysis to identify vulnerabilities and implement
proactive measures accordingly. This can help in managing sector-specific risks effectively.

By conducting more comprehensive stress testing scenarios, considering various economic,

market, and borrower-specific factors, HDFC Bank can gain a deeper understanding of potential
risks and develop better risk mitigation strategies.

HDFC Bank should leverage advanced technologies, such as artificial intelligence and machine
learning, to enhance risk monitoring capabilities, automate credit decision -making processes,
and improve early warning systems.

58
CONCLUSION:

In conclusion, the study found that HDFC Bank has a robust credit risk management framework,
but there are areas for improvement. By strengthening sector-specific analysis, enhancing
stress testing, and embracing advanced technologies, HDFC Bank can further improve its credit
risk management practices. These suggestions align with the objectives of the study, which
aimed to evaluate the effectiveness of HDFC Bank's credit risk management framework, identify
challenges, recommend strategies for improvement, compare practices with industry standards,
assess regulatory compliance, and contribute to existing literature.

59
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 APPENDIX

Questionnaire for the topic Credit risk management at HDFC bank

Section 1: Demographics

1. What is your age?

a) Under 18
b) 18-24
c) 25-34
d) 35-44
e) 45-54
f) 55 or older

2. What is your gender?

a) Male
b) Female
c) Prefer not to say

3. What is your highest level of education?

a) Less than high school

b) High school graduate
c) Some college or technical school
d) Bachelor's degree
e) Graduate or professional degree

4. What is your current employment status?

a) Employed full-time
b) Employed part-time
c) Self-employed
d) Not employed but looking for work
e) Not employed and not looking for work

Section 2: Credit Risk Management

62
5. How familiar are you with HDFC Bank's credit risk management practices?

a) Very familiar
b) Somewhat familiar
c) Not very familiar
d) Not at all familiar

6. How do you rate HDFC Bank's credit risk management practices?

a) Excellent
b) Good
c) Fair
d) Poor
e) Don't know/Not sure

7. How important do you think credit risk management is for a bank like HDFC?

a) Very important
b) Somewhat important
c) Not very important
d) Not at all important

8. Have you ever taken a loan from HDFC Bank?

a) Yes
b) No

9. If yes, how satisfied were you with the credit risk assessment process and loan disbursal process
of HDFC Bank?

a) Very satisfied
b) Somewhat satisfied
c) Not very satisfied
d) Not at all satisfied

10. Do you think HDFC Bank should improve its credit risk management practices?

63
a) Yes

b) No

11. What measures do you think HDFC Bank should take to improve its credit risk management
practices?

a) Increase employee training

b) Implement more advanced risk assessment models
c) Strengthen internal controls and oversight
d) Other (please specify): ____________________

Thank you for your time and participation in this survey.

64