Applying the CAMELS Performance Evaluation Approach for HDFC Bank
COMPANY OVERVIEW
HDFC Bank Limited is an Indian banking and financial services corporation with its headquarters
in Mumbai. As of April 2021, it is India's largest private sector bank by assets and the world's
tenth largest bank by market capitalization. It has a market capitalization of $122.50 billion,
making it the third largest firm on the Indian stock exchanges. It is India's ninth largest
employer, employing roughly 120,000 people.
HDFC Bank was established in 1994 as a subsidiary of the Housing Development Finance
Corporation and is headquartered in Mumbai, Maharashtra, India. Manmohan Singh, the then
Union Finance Minister, launched the company's first corporate headquarters and a full-service
branch at Sandoz House in Worli.
As of 30 June 2019, the bank's distribution network includes 5,500 branches in 2,764 cities. In
fiscal year 2017, it installed 430,000 point-of-sale terminals and issued 23,570,000 debit cards
and 12 million credit cards. It had 1,16,971 permanent employees as of March 21, 2020.
Products and services
HDFC Bank provides wholesale banking, retail banking, treasury, auto loans, two-wheeler loans,
personal loans, property loans, consumer durable loan, lifestyle loan, and credit cards, among
other products and services. Payzapp and SmartBUY are two other digital solutions available.
Mergers and acquisitions
In February 2000, HDFC Bank and Times Bank amalgamated. This was the first merger of two
private banks in the category of New Generation private sector banks. Bennett, Coleman and
Co. Ltd., also known as The Times Group, India's largest media conglomerate, founded Times
Bank.
HDFC Bank bought Centurion Bank of Punjab (CBoP) in 2008. HDFC Bank's board of directors
approved the $95.1 billion acquisition of CBoP, making it one of India's biggest financial
mergers.
In 2021, the bank bought a 9.99 percent ownership in FERBINE, a Tata Group-backed firm that
will run a pan-India umbrella entity for retail payment systems akin to the National Payments
Corporation of India.
In September 2021, the bank partnered with Paytm to provide a line of credit cards powered by
Visa's worldwide card network.
Listings and shareholding
HDFC Bank's equity shares are listed on both the Bombay Stock Exchange (BSE) and the
National Stock Exchange of India (NSE).
Company Background
HDFC Bank Ltd Banks - Private Sector
BSE Book Div & Yield Market Cap (Rs. P/E EPS Face
ISIN Demat
Code Value % Cr.) Value
23.3 63.2
INE040A01034
500180 414.16 0.44 820747.17 9 9 1
Incorporation Year 1994
HDFC Bank House,Senapati BapatMarg Lower Parel,
Registered Office Mumbai,
Maharashtra-400013
Telephone 91-22-66521000/3976 0000
Fax 91-22-24960737
Chairman Atanu Chakraborty
Managing Director Sashidhar Jagdishan
Company Secretary Santosh Haldankar
Auditor MSKA & Associates
Face Value 1
Market Lot 1
Listing BSE,Luxembourg,MSEI ,New York,NSE
Datamatics Financial Services
Plot No B-5 MIDC ,Part B Cross Lane ,Marol Andheri(E) ,Mumbai-
Registrar
400093
CAMELS ANALYSIS
Regulators, analysts, and investors must evaluate each bank's financial status on a regular basis.
Banks are graded on a number of factors, including their financial and non-financial
performance. CAMELS is an abbreviation for one of the most widely utilised evaluations.
• A method for grading banks on a variety of criteria depending on their financial and non-
financial performance.
• Each letter denotes a distinct performance category.
C stands for Capital Adequacy.
A stands for Assets quality
M stands for Management quality
E stands for Earnings
L stands for Liquidity
S stands for Sensitive to the market
Capital Adequacy:
Capital adequacy is a useful and simple technique to assess the various aspects of a bank's
quality. It aids in the examination of various factors such as interest, dividend policy, and capital
level in the HDFC bank, and it is classified into different grades based on the overall capital
situation, such as well-capitalized, adequately capitalised, undercapitalized, significantly
undercapitalized, and critically undercapitalized.
Assets' Quality:
This section of CAMEL examines the various investment policies and risks to which HSBC Banks'
assets are subjected. It's crucial to consider the current state of the investment or asset quality,
as well as the likelihood of future asset quality deterioration.
Quality of management:
This CAMEL component is difficult to assess, but it is the most critical factor to consider because
it determines how well the organisation will respond to various financial crises or hardship in
the banking industry. Internal controls, management and the board of directors, as well as
other management-related factors are assessed, and subsequently grades are issued.
Earnings:
The show business earns well and is rising. The CAMELS framework looks for a return on assets
and determines whether the return is sufficient to support future projects, stay competitive,
and raise money if necessary. The score is determined by previous performance.
Liquidity:
This is an important feature of the CAMELS, which examines Liquidity in a larger sense. Interest
rate risk and liquidity management are two parts of this study. The danger of any detrimental
changes in an interest rate, as well as their impact on earnings, are analysed using CAMELS
frameworks. This is accomplished through a thorough examination of the bank's balance sheet,
interest rate exposure, and risk management quality. The banks' liquidity management, as well
as their balance sheet structure and any contingency plans for meeting liquidity and managing
excess liquidity and cash flows, are all evaluated.
Sensitive to the market:
The CAMEL framework's final component is this. The susceptibility of a bank's investment and
other assets to market swings is assessed. This is included in the CAMLE to examine the impact
of unexpected and abrupt changes in the interest rate on the Bank's earnings. It also considers
the sensitivity of market-based price fluctuations, such as those in equities FX and commodities.
Results and analysis
CAMEL Calculation:
HDFC Bank:
Capital Adequacy Ratio:
The capital adequacy ratio of the banks is good and they are keeping at more than 6% of the
Total Assets. The below table shows the Capital Adequacy for the last three years.
Capital Adequacy 2021 2020 2019
Total Capital/Equity 170,986.0 149,206.3
203721 0 5
Total Assets 1746871 1,530,511 1,244,541
11.66% 11.17% 11.99%
Assets Quality:
The Quality of assets increased to $3.4 Billion which was a result of a change in assets quality.
This change in asset quality was due to a change in the portfolio mix.
Quality of Assets 2021 2020 2019
Total Loan 1470548 1292131 1040226
Total Assets 1,530,51 1,244,54
1746871 1 1
84.18% 84.42% 83.58%
The above table shows the ratio of total loans to total assets which can be used to measure the
quality of the assets. If we look at the ratio, which shows the quality of assets are pretty much
better and banks have maintained at 84%.
Management quality:
Management quality 2021 2020 2019
Operating Expenses 32722.63 30697.53 26119.37
Total Assets 1746871 1,530,511 1,244,541
Interest Expenses 55978.66 58626.4 50728.83
Deposits 1335060.2 1147502. 923140.93
3
Operating expenses/Total Assets 1.87% 2.01% 2.10%
Interest expenses /Deposits 4.19% 5.11% 5.50%
The above tables show the ratios which help to understand the quality of operation and
management. The operating expenses were only 1.99% on average over the three year period
which shows management at the bank is good and able to manage banking operations.
Earnings:
The below tables shows the ROA and ROE which shows the earnings of the bank.
Earnings 2021 2020 2019
Return on Assets 1.78 1.71 1.69
Return on Equity 15.27 15.35 14.12
The earning shows that Banks has enough profitability or capital for the growth and investment
into future projects. We see that there is an increasing trend in the return on assets as well as
return on equity. The tables show that return on equity has decreased over the period but the
return on assets has increased over the period.
Liquidity
The Liquid coverage ratio % is 7.82% in 2019, 5.93% in 2018 and 16.26% in 2017. The quality of
Liquid assets is also good which is increasing year by year. As of 2019, Tier one capital has
increased from 9.99% from 11.9%
2021 2020 2019
Liquid Assets / Total
7.29% 6.29% 5.07%
Deposits
Liquid Asset 97340.73 72205.12 46763.62
1335060. 1147502. 923140.9
Total Deposit
2 3 3
2021 2020 2019
Loans / Total Deposits 10.15% 12.60% 12.68%
Loans 135,487.3 144,628.54 117,085.12
2
Total deposit 1335060.2 1147502.3 923140.93
Loans to total deposits have decreased in 2021 to 10.15% as compared to 12.68% in 2019.
Sensitive to the market
BETA is a good measure of risk in the market. The Beta of the stock is 1.09 which shows that
HDFC is less volatile and sensitive to the market risk. Banks have exposure to the credit risk
which is a major part of its portfolio and it has exposure to derivatives. The diversification o site
lending portfolio, various global products ensures that they do not depend on one specific
region for the growth.
Conclusion:
The Financial crises have exposed the risk level in the banking sector across the world. It
becomes very important for the regulators, supervisors, and key market players to assess the
robustness of the banking sector to identify any risk and implement a solution to it. The CAMEL
framework provides tools or ratio which helps to evaluate the financial stability of the bank in
relation to capital adequacy, earnings, quality of assets, quality of management, and market
sensitiveness of the bank.
In this report, the performance of HDFC Bank Limited has been evaluated using the CAMEL
framework. The results of analysis or evaluation show that the bank maintains an adequacy
capital level under tier 1 capital requirement and liquidity is good at the banks i.e. they keep
more than 7% of the liquid assets in case of any unfortunate event. The quality of assets at
HDFC banks better and during 2021 it has increased to a restructuring of its portfolio. The
sensitivity to market risk has been low for good banks. Overall the CAMELS analysis shows that
HDFC is more stable in terms of capital adequacy, earnings, quality of assets, and market
sensitivity.
