Profitability

Profitability of PNB

Manish Mahajan

Roll No. 06232 Pranab Rungta

Roll No. 062

T. A. Pai Management Institute

The Indian Banking sector has undergone a sea change in the past decade with the implementation of the ongoing banking sector reforms. The sector, over the years has become more efficient with the implementation of prudential norms for asset classification and improved thrust on technology advancement. The PSBs still dominate the sector with 75% of the market share of business and profits. The new private sector banks with their technology driven business model are fast catching up with the PSBs. The last two years has seen banks book windfall gains in treasury profits. With the interest rates hardening up, banks need to focus on core profit growth. The retailisation of the banksÐ'ÐŽÐ'¦ balance sheet has seen banks improve their asset mix with

home loans, auto loans and personal loans.

Banking Scenario

The year 2006-07 witnessed orderly trends in the financial market, although there was tightening of liquidity towards the third quarter of the year. The stance of the monetary policy of the RBI was to maintain price stability and credit quality and at the same time to ensure the productive use of the credit. RBI and the Finance Ministry have been stressing on need for rebalancing of portfolios to ease out pressures on overheated sectors like housing, commercial real estate,etc. and the need to syncronise credit growth with deposit growth.

Credit demand continued to record strong growth outpacing the deposit growth. RBI was successful in bringing a marginal reduction in non food credit growth to 28% in 2006-07 from 31.8% in 2005-06. This has been achieved by stiffer monetary tightening measures like hike in cash reserve ratio (CRR) by 150 basis points and raising the repo rate to 7.75%. Aggregate deposits rose by 23% during 2006-07.

Demand for higher bank credit (upto Dec 2006) was mainly led by industry that accounted for almost 35% of incremental non-food credit followed by personal loans (28.7%), services (23.7%) and agriculture (12.2%). In order to protect asset quality in the light of high credit growth, RBI has doubled the provisioning requirement from 1% to 2% for standard assets in some of the sectors like commercial real estate sector, outstanding credit card receivables, loans and advances qualifying as capital market exposure, and personal loans (excluding residential housing loans).

Commercial banks' appetite for Government paper revived during 2006-07. Their investment in Government and other approved securitites increased by Rs 74, 706 crore in 2006-07 as compared to a decline of Rs 22, 809 crore in 2005-06.

Punjab National Bank (PNB) has the uniqueness of being the first bank to have been started solely with Indian capital in 1895 at Lahore. The bank was nationalized in July 1969 along with 13 other banks. The Central Government holds about 58% stake and institutional investors hold about 37% while Indian public holds balance 5% stakes in the bank. As the government is near to the minimum threshold limit, it leaves a little scope for for significant dilution or capital rising thereon. Mr K.C.Chakrabarty has been appointed as Managing Director and Chairman of the bank on June 04, 2007. Prior to joining PNB, he was Managing Director and Chairman of Indian Bank. From a small beginning, the bank has grown into one of the largest banks in India with a wide branch network and client base. PNB is the top nationalized banks in the country with a market share of 5.2%. Acquisitions have also enabled the bank to achieve growth. It has strong experience in managing takeovers. PNB has so far acquired 7 banks in the past.

The bank has a large network of geographically well-diversified branches, which enables it to raise low cost and long-term deposits. Its major presence is in northern part of India in the states of Punjab, Haryana, Uttar Pradesh, Madhya Pradesh and Bihar. With its head office in New Delhi, the bank operates through 4,118 branches and 421 Extension Counters & around 1,092 ATMs spread throughout the country. BankÐ'ÐŽÐ'¦s ATM sharing arrangement with other banks enables its customers to have access to 23,000 ATMs across the country. PNB is also meeting its social responsibility by identifying 31 of its branches for rural credit. More than 65% of the branches are in rural and semi-urban areas. Domestically, it will continue to put focus on Indo Genetic Belt.

PNB has an overseas branch at Kabul. In Kabul, only two banks have presence namely PNB and HSBC. The bank has also recently converted its representative office at London into a wholly owned subsidiary. In addition bank has representative offices at Almaty (Kazakhstan), Shanghai (China) and Dubai (UAE). It plans to shortly open a branch at Hong Kong for which it already holds a license, Subsidiary at Canada and an offshore banking unit at Singapore. It is also looking to expand in other markets like UK and Singapore.

PNB's banking services range from corporate to personal banking, industrial and trade finance to international banking. PNB also has a presence in financing agricultural and the small-scale industries sectors. Apart from normal banking services it also provides other services like traders finance, EXIM finance, providing various types of loans, locker facilities, tax collections, depository schemes, electronic fund transfer etc. PNB handles worldwide transaction through its relationship with leading international banks. It has Rupee drawing arrangements with exchange companies in the Gulf and in Singapore. PNB also offers FOREX dealing services. PNB facilitates online payment for railway reservation and utility bill payment service that allows Internet banking account holders to pay their telephone, mobile, electricity, insurance and other bills.

Following are the initiative underway:

Ð'Ñ"Ð"¦ Technology to be used for mass banking

Ð'Ñ"Ð"¦ In process of setting data warehouse which will help cross selling BankÐ'ÐŽÐ'¦s product

Ð'Ñ"Ð"¦ Repositioning of Subsidiaries

Ð'Ñ"Ð"¦ Thrust on Low Cost Deposits

Ð'Ñ"Ð"¦ Focus on Agriculture and SME segment

Analysis