Risk Management In The Hdfc Bank Finance Essay

Housing Development Finance Corporation Limited is the 1 of the private bank of India is more popularly known as HDFC Bank Ltd, was established in the twelvemonth 1994, as a portion of the liberalisation of the Indian Banking Industry by Reserve Bank of India ( RBI ) . It was one of the first Bankss to have an ‘in rule ‘ blessing from RBI, for puting up a bank in the private sector. The bank was incorporated with the name ‘HDFC Bank Limited ‘ , with its registered office in Mumbai. The undermentioned twelvemonth, it started its operations as a Scheduled Commercial Bank. Today, the bank self-praises of every bit many as 1412 subdivisions and over 3275 ATMs across India.


In 2002, HDFC Bank witnessed its amalgamation with Times Bank Limited ( a private sector bank promoted by Bennett, Coleman & A ; Co. / Times Group ) . With this, HDFC and Times became the first two private Bankss in the New Generation Private Sector Banks to hold gone through a amalgamation. In 2008, RBI approved the merger of Centurion Bank of Punjab with HDFC Bank. With this, the Deposits of the incorporate entity became Rs. 1,22,000 Cr, while the Progresss were Rs. 89,000 Cr and Balance Sheet size was Rs. 1,63,000 Cr.


HDFC Bank has ever prided itself on a extremely automated environment, be it in footings of information engineering or communicating systems. All the subdivisions of the bank self-praise of on-line connectivity with the other, guaranting speedy financess transfer for the clients. At the same clip, the bank ‘s subdivision web and Automated Teller Machines ( ATMs ) allow multi-branch entree to retail clients. The bank makes usage of its up-to-date engineering, along with market place and expertness, to make a competitory advantage and construct market portion.


At present, HDFC Bank self-praises of an authorised capital of Rs 550 Cr ( Rs5.5 billion ) , of this the paid-up sum is Rs 424.6 Cr ( Rs.4.2 billion ) . In footings of equity portion, the HDFC Group holds 19.4 % . Foreign Institutional Investors ( FIIs ) have around 28 % of the equity and about 17.6 % is held by the ADS Depository ( in regard of the bank ‘s American Depository Shares ( ADS ) Issue ) . The bank has about 570,000 stockholders. Its portions find a listing on the Stock Exchange, Mumbai and National Stock Exchange, while its American Depository Shares are listed on the New York Stock Exchange ( NYSE ) , under the symbol ‘HDB ‘ .



NRI Banking

Savingss Histories

Rupee Savings Histories

Salary Histories

Rupee Current Histories

Current Histories

Rupee Fixed Deposits

Fixed Deposits

Foreign Currency Deposits

Demat Account

Histories for Returning American indians

Safe Deposit Lockers

Quickremit ( North America, UK, Europe, Southeast Asia )


IndiaLink ( Middle East, Africa )

Recognition Card games

Cheque LockBox

Debit Card games

Telegraphic / Wire Transportation

Prepaid Card games

Fundss Transfer through Cheques / DDs / TCs

Investments & A ; Insurance

Common Fundss

Forex Servicess

Private Banking

Payment Servicess

Portfolio Investment Schemes




Payment Servicess





Standard atmosphere



InstaQuery, ATM, PHONE Banking


While Indian Bankss have limited direct exposure to the international markets for mortgage linked securities, they are improbable to be wholly insulated from the convulsion in the planetary fiscal markets. Reduced handiness of planetary finance through external commercial adoptions on the dorsum of lifting hazard antipathy in the planetary markets could impact domestic growing, peculiarly investings in capacity enlargement. This in bend could hold some impact on demand for domestic recognition.

Lower capital influxs could besides impact domestic liquidness, which has mostly been a map of external capital influxs for most of 2007-08 with the ratio of net foreign exchange assets to reserve money systematically transcending 100 % . The initial moderateness in bank recognition growing rates in 2007- 08 seems to hold been mostly confined to the retail section ( lodging, consumer durable goodss and car loans ) . It is possible that the moderateness in growing in 2008-09 could be more broad-based, impacting both retail and certain sweeping sections, due to tendencies in ingestion and capital formation. This has obvious deductions for the recognition portfolio of the banking system. A low 2.1 % growing in the capital goods constituent of the index of industrial production ( IIP ) for January 2008 seems to bespeak a farther diminution in investing demand traveling frontward which could impact overall recognition growing for the banking system, peculiarly in term loans and undertaking finance.

Rising planetary trade good monetary values created inflationary force per unit areas for most of 2007-08. A benign base-effect and the suppression in the crude oil merchandise monetary values kept headline sweeping monetary value rising prices in a comfort zone for the first three quarters of the twelvemonth. However, given the focal point on pull offing implicit in monetary value force per unit areas instead than headline rising prices, pecuniary policy showed no marks of easing in 2007-08.Thus Bankss operated in an environment where the cardinal bank did non let any excess liquidness in the system, ensuing in involvement rates staying house.

Despite the chance of a lag in the planetary economic system, trade good monetary value force per unit areas, peculiarly those in nutrient and mineral oils, show small mark of slaking. As the base-effect wears off, headline rising prices is likely to rage up to good over 7 % . So, rising prices concerns are likely to act upon pecuniary policy stance traveling frontward and the chance of an economic lag need non imply immediate pecuniary moderation. Therefore, the operating environment of Bankss in 2008- 09 could be a combination of slower recognition growing and some upward prejudice in involvement rates.


We know that recent the fiscal takes every industry in fiscal every bit good as non-financial houses and authorities industries besides so for this to command the this types of status, it is need for assorted signifiers of hazard direction. Fiscal mishaps are barely a new phenomenon, but the celerity with which economic entities can acquire into problem is. The nest eggs and loan ( S & A ; L ) crisis in the united provinces. Means sub-prime crisis, the chief industry which is affected by this is Banking industry. So Risk direction is the chief demand for the Bankss to get the better of this type of crisis.

Banks and similar fiscal establishments need to run into extroverted regulative demand for hazard measuring and capital. However, it is a serious mistake to believe that run intoing regulative demands is the sole or even the most of import ground for set uping a sound, scientific hazard direction system.

Risk direction is the procedure by which directors satisfy these demands by placing cardinal hazard, obtaining consistent, apprehensible, operational hazard steps, taking which hazard to cut down and which to increase and by what means, and set uping processs to supervise the ensuing hazard place.


Hazard, in context, may be defined as decreases in house value due to alter in the concern environment. The major beginnings of value loss are identified as:

Market hazard

Recognition hazard

Operational hazard

Performance hazard

Legal hazard

Liquid hazard

Foreign Exchange hazard

Counterparty hazard

Volatility hazard

Colony hazard

Concentration hazard

Interest rate hazard


All the factors which consequence a bank it all consequence the industry but there are some factor which first consequence banking sector so it consequence Bankss, for illustration the pecuniary policy of a state. If there is alteration in the pecuniary policy in the state so it effects the whole banking sector. For illustration at the clip of subprime crisis the Govt. of India change the pecuniary policy of India so that it gives benefit to the banking sector, like CRR cut down by near about 200 footing points it increase the liquidness in the market near about more than Rs 100000 Cr. Come in the market and it help the Bankss to carry through the demand of the Bankss.

So there are some factors which consequence whole the banking sector. It depends that it consequence positive or negative. Some clip some factor consequence positive for the some Bankss and negative for the some Bankss. The chief factor are: –

External factor: – like alteration in foreign market

Internal factor: – like alteration in fiscal sector in the state


For these type of hazards, what are the necessary HDFC bank processs that must be in topographic point to transport out equal hazard direction? What techniques are apply to both bound and pull off the different types of this risk.for this HDFC bank has large-scale hazard direction systems. The direction of HDFC on a sequence of stairss to implement a hazard direction system. These can be seen as incorporating the following four parts:

Standards and studies

Position bounds or regulations,

Investing guidelines or schemes,

Incentive contracts and compensation.

In general, these tools are established to mensurate exposure, define processs to pull off these exposures, limit single places to acceptable degrees, and promote determination shapers to pull off hazard in a mode that is consistent with the HDFC ‘s ends and aims. To see how each of these four parts of basic hazard direction techniques achieves these terminals, we elaborate on each portion of the procedure below.

( I ) Standards and Reports

In this HDFC do the all the fiscal studies and criterions for control the hazard, HDFC hazard direction techniques involves two different conceptual activities, i.e. , standard scene and fiscal coverage. They are listed together because they are the sine qua non of any hazard system. Underwriting criterions, hazard classifications, and criterions of reappraisal are all traditional tools of hazard direction and control. Consistent rating and evaluation of exposures of assorted types are indispensable to understand the hazards in the portfolio, and the extent to which these hazards must be mitigated or absorbed. The standardisation of fiscal coverage is the following ingredient. Obviously outside audits, regulative studies, and evaluation bureau ratings are indispensable for investors to estimate plus quality and house degree hazard. These studies have long been standardized, for better or worse. However, the demand here goes beyond public studies and audited statements to the demand for direction information on plus quality and hazard position. Such internal studies need similar standardisation and much more frequent coverage intervals, with day-to-day or hebdomadal studies replacing for the quarterly GAAP cyclicity.

( two ) Position Limits and Rules

A 2nd technique which is usage by HDFC for internal control of active direction is the usage of place bounds, and/or minimal criterions for engagement. In footings of the latter, the sphere of hazard pickings is restricted to merely those assets or counterparties that pass some prespecified choice criterion. Then, even for those investings that are eligible, bounds are imposed to cover exposures to counterparties, credits, and overall place concentrations relative to assorted types of hazards. While such bounds are dearly-won to set up and administrate, their infliction restricts the hazard that can be assumed by any one person, and hence by the organisation as a whole. In general, each individual who can perpetrate capital will hold a chiseled bound. This applies to bargainers, loaners, and portfolio directors. Drumhead studies show bounds every bit good as current exposure by concern unit on a periodic footing. In big organisations with 1000s of places maintained, accurate and timely coverage is hard, but even more indispensable. After HDFC acquire a benefit in the hereafter at the clip of roll uping the money from the creditors.

( three ) Investment Guidelines and Schemes

HDFC 3rd technique to command the hazard direction is Investment guidelines and recommended places for the immediate hereafter. Here, schemes are outlined in footings of concentrations and committednesss to peculiar countries of the market, the extent of coveted asset-liability mismatching or exposure, and the demand to fudge against systematic hazard of a peculiar type. The bounds described above lead to inactive hazard turning away and/or variegation, because directors by and large operate within place bounds and prescribed regulations. Beyond this, guidelines offer steadfast degree advice as to the appropriate degree of active direction, given the province of the market and the willingness of senior direction to absorb the hazards implied by the aggregative portfolio. Such guidelines lead to tauten degree fudging and asset-liability matching. In add-on, securitization and even derivative activity are quickly turning techniques of place direction unfastened to participants looking to cut down their exposure to be in line with direction ‘s guidelines.

( four ) Incentive Schemes

To the extent that direction can come in incentive compatible contracts with line directors and do compensation related to the hazards borne by these persons, so the demand for luxuriant and dearly-won controls is lessened. However, such incentive contracts require accurate place rating and proper internal control systems. Such tools which include place poster, hazard analysis, the allotment of costs, and puting of required returns to assorted parts of the organisation are non fiddling. Notwithstanding the trouble, good designed systems align the ends of directors with other stakeholders in a most desirable way.6 In fact, most fiscal fiascos can be traced to the absence of incentive compatibility, as the instances of the sedimentation insurance and rebel bargainers so clearly illustrate.


Taking on assorted types of hazard is built-in to the banking concern. Sound hazard direction and equilibrating risk- wages tradeoffs are hence critical to a Bankss success. Business and gross growing have therefore to be weighed in the context of the hazards implicit in the Banks concern scheme. Of the assorted types of hazards the Bank is exposed to, the most of import are recognition hazard, market hazard ( which includes liquidness hazard and monetary value hazard ) and operational hazard. The designation, measuring, monitoring and direction of hazards remain a cardinal focal point country for the Bank. For recognition hazard, distinguishable policies and procedures are in topographic point for the retail and sweeping concerns. In retail loan concerns, the recognition rhythm is managed through appropriate front-end recognition, operational and aggregation procedures. For each merchandise, plans specifying client sections, underwriting criterions, security construction etc. , are specified to guarantee consistence of recognition purchasing forms. Given the coarseness of single exposures, retail recognition hazard is managed mostly on a portfolio footing, across assorted merchandises and client sections. For sweeping recognition exposures, direction of recognition hazard is done through mark market definition, appropriate recognition blessing processes, ongoing post-disbursement monitoring and remedial direction processs. Overall portfolio variegation and reappraisals besides facilitate extenuation and direction.


Increase our market portion in Indias spread outing banking and fiscal services industry by following a disciplined growing scheme concentrating on equilibrating quality and volume growing while presenting high quality client service.

Leverage our engineering platform and unfastened salable systems to present more merchandises to more clients and to command operating costs.

Maintain high criterions for plus quality through disciplined recognition hazard direction.

Develop advanced merchandises and services that attract our targeted clients and address inefficiencies in the Indian fiscal sector.

Continue to develop merchandises and services that cut down our cost of Fundss.

Focus on healthy net incomes growing with low volatility. Fiscal Performance


Right scheme for the right merchandises.

Superior client service vs. rivals.

Great Brand Image.

Merchandises have required accreditation.

High grade of client satisfaction.

Good topographic point to work

Lower response clip with efficient and effectual service.

Dedicated work force taking at doing a long-run calling in the field.