PROJECT REPORT PUNJAB NATIONAL BANK

Mentor: Dr. Amarendra Sahoo Department of Banking Management

Submitted By:

Animesh Raj, Arun Kumar Pandit, Vasundhra Pandey Section - A

Analysis of Punjab National Bank

Punjab National Bank (PNB) is the second largest public bank in India after SBI in terms of branch, network and business. Currently, it has over 6 crore customers. The segments in which the business of the bank can be divided in are- Corporate Banking, Retail Banking and Treasury. The bank has 5.60% market share in deposits and 5.55% market share in credit.. PNB has wholly owned subsidiaries in Bhutan, Kazakhstan and UK. It also has a joint venture in Nepal with a local bank. The Government of India owns 56.1% stake in PNB.

Rankings

PNB figures as one of the top 5 banks in India according to "The Banker" magazine, London. The Bank ranks at 257th position amongst world's Top 1000 Banks. As per Forbes magazine, PNB tops the list of nationalized banks with a global ranking of 653. The Bank is ranked 24th Best Company amongst top 500 Indian Companies as per Economic Times. Business World recognized PNB as the 3rd best large bank and 5th Fastest Growing Bank for 2010, while Business Today ranked it as 14th Most Valuable Public Sector Company for 2010.

PNB also provides a range of financial services - life insurance, merchant banking, mutual funds, credit card, factoring, security trading, pension fund management and primary dealership in the money market - through its subsidiaries. Its subsidiaries are PNB Gilt Ltd, PNB Housing Finance Ltd, PNB Investment Services Ltd, PNB Life Insurance Co Ltd etc. PNB has also agreed in principle to buy a 30% stake in the Indian Life Insurance arm of Metlife. The deal is in its final stages of execution. PNB has kick started its corporate social responsibility activity in Mumbai under the aegis of PNB Prerna' to strengthen its ties with society.

Revenue Segregation (FY12)

Timeline Growth In 2003, PNB took over Nedungadi Bank, the oldest private sector bank in Kerala. At the time of the merger with PNB, Nedungadi Bank's shares had zero value, with the result that its shareholders received no payment for their shares. PNB also opened a representative office in London. The next year, PNB established a branch in Kabul, Afghanistan and a representative office in Shanghai. PNB also established an alliance with Everest Bank in Nepal that permits migrants to transfer funds easily between India and Everest Bank's 12 branches in Nepal. Currently, PNB owns 20% of Everest Bank. In 2005 PNB opened a representative office in Dubai. Two years later, PNB established PNBIL Punjab National Bank (International) in the UK, with two offices, one in London, and one in South Hall. Since then it has opened more branches, this time in Leicester, Birmingham, Ilford, Wembly, and Wolverhampton. PNB also opened a branch in Hong Kong. In January 2009, PNB established a representative office in Oslo, Norway. PNB hopes to upgrade this to a branch in due course. In 2010, PNB purchased a small minority stake in Kazakhstan-based JSC Dana Bank. Within the year PNB increased its ownership and now PNB owns 84% of what has become JSC (SB) PNB. The subsidiary has branches in Almaty, Astana, Kangandu, and Pavlodar. Danabank was established on 20 October 1992 in Pavlodar. Also, in January 2010, PNB established a subsidiary in Bhutan. PNB owns 51% of Druk PNB Bank, which has branches in Thimpu, Phuentsholing, and Wangdue. Local investors own the remaining shares. Then on 1 May, PNB opened its branch in Dubai's financial center. In September 2011, PNB opened a representative office in Sydney, Australia.

In December 2012 it signed an agreement with US based life Insurance company Metlife to acquire a 30% stake in MetLife's Indian affiliate MetLife India Limited. The company would be renamed PNB MetLife India Limited and PNB would sell MetLife's products in its branches

Year Ending Total Assets Advances Deposits Investments Borrowings Provisions & Contingencies Income
Interest Earned Other Income Total Income

Mar '12 458,194.01 293,774.76 379,588.48 122,629.47 37,264.27

Mar '11 378,325.25 242,106.67 312,898.73 95,162.35 31,589.69

Mar '10 296,632.79 186,601.21 249,329.80 77,724.47 19,262.37

Mar '09 246,918.62 154,702.99 209,760.50 63,385.18 4,374.36

Mar '08 199,020.36 119,501.57 166,457.23 53,991.71 5,446.56

Mar '07 3,980.80 96,596.52 139,859.67 45,189.84 1,948.86

Mar '06 3,762.79 74,627.37 119,684.92 41,055.31 6,687.18

Mar '05 3,101.44 60,412.75 103,166.89 50,672.83 2,718.29

Mar '04 3,261.18 47,224.72 87,916.40 42,125.49 1,289.06

Mar '03 3,001.75 40,228.12 75,813.50 34,030.05 662.16

Mar '02 72,914.65 34,369.42 64,123.48 28,207.17 408.57

Mar '01 63,505.10 28,029.05 56,131.13 25,128.42 673.2

Mar '00 54,128.57 22,571.72 47,483.23 22,099.07 662.43

CAGR(%)
17.86 21.82 17.34

3,326.99

2,618.46

2,421.49

1,832.85

1,580.39

1,392.08

1,442.53

1,193.90

889.43

698.21

969.58

512.73

412.02

36,428.03 4,202.60 40,630.63 4,884.20 25,848.03 9,405.85 26,028.37

26,986.48 3,612.58 30,599.06 4,433.50 18,130.28 8,367.96 19,720.99

21,466.91 3,565.31 25,032.22 3,905.36 15,238.67 5,761.36 15,915.62

19,326.16 2,919.69 22,245.85 3,090.88 14,142.53 5,026.81 12,824.59

14,265.02 1,997.56 16,262.58 2,048.76 10,029.21 3,902.55 10,467.35

11,537.48 1,343.64 12,881.12 1,540.08 7,149.74 3,926.05 9,826.31

9,584.15 1,478.23 11,062.38 1,439.31 5,721.06 3,263.15 8,758.68

8,459.85 1,854.54 10,314.39 1,410.12 4,683.04 3,257.26 7,533.51

7,779.70 1,984.68 9,764.38 1,108.69 4,056.84 3,611.26 4,425.46

7,485.01 1,320.40 8,805.41 842.2 4,294.57 2,903.70 3,438.11

6,647.87 1,035.89 7,683.76 562.39 4,135.40 1,799.22 2,665.82

5,863.48 804.18 6,667.66 458.23 3,621.10 1,871.65 2,110.29

5,154.55 727.66 5,882.21 408.14 3,218.68 1,523.85 1,705.13

16.23 14.44 16.03 21.04

Net Profit Operating Profit Operating Expenses

Reserves

17.38

Profitability Ratios
Interest Spread Adjusted Cash Margin(%) Net Profit Margin Return on Long Term Fund(%)
CASA (%) ROE(%) NIM(%)

4.51 12.8 12.09 113.95

35.34 21.05 3.01

4.67 15.39 14.56 108.49

38.45 24.45 3.22

4.46 16.52 15.64 116.11

40.85 26.59 2.95

4.18 14.6 13.76 129.83

38.83 25.84 2.85

4.18 13.72 12.68 111.52

42.99 19.58 2.88

4.4 14.1 12.53 80.76

46.16 16.03 3.31

3.94 16.35 14.5 74.57

48.99 17.01 3.32

3.67 15.64 13.84 81

46.34 22.49 3.28

4.57 13.32 11.45 126.29

45.87 26.42 3.69

5.5 11.28 9.79 149.71

46.87 25.59 3.79

4.68 8.48 7.37 170.76

44.32 21.63 3.33

5.46 8.01 6.98 184.64

44.26 21.87 3.44

5.9 7.65 6.93 205.78

44.88 23.43 3.18

-2.05 4.04 4.37 -4.44 -1.79 -1.06 70.6

Return on Net Worth(%) Adjusted Return on Net Worth(%) Return on Assets Excluding Return on Assets Including Revaluations

18.52 18.5 777.39 820.13

22.12 22.11 632.48 678.91

24.06 24.04 514.77 562.09

23.52 23.5 416.74 464.75

19 18.99 341.98 390.68

16.03 15.17 321.65 330.97

17.01 15.83 0.99 0.99

22.49 17.95 248.93 258.84

26.42 23.63 1.08 1.09

24.97 22.73 0.98 0.98

20.96 19.52 0.77 0.77

21.62 19.71 0.72 0.73

23.43
71.12

21.25 0.75 0.76

-1.59 -1.1 6.57

Management Efficiency Ratios

Net Interest Income/Total Funds Net Interest Income / Total Funds Non Interest Income / TotalFunds 9.53 4.01 0.16 5.52 2.19 1.91 1.17 0.15 9.69 5.52 0.1 0.1 8.87 4.35 0.19 4.52 2.41 2.05 1.32 0.14 9.06 4.52 0.09 0.09 9.07 4.28 0.16 4.79 2.05 2.31 1.45 0.14 9.24 4.79 0.09 0.1 9.89 4.34 0.25 5.55 2.18 2.32 1.4 0.16 10.14 5.55 0.1 0.11 8.86 4 0.13 4.86 2.08 1.96 1.14 0.15 8.99 4.86 0.09 4.35 7.88 3.96 0.12 3.92 2.43 1.53 1 0.14 8 3.92 0.08 5.48 7.23 3.6 0.1 3.63 2.27 1.29 1.06 0.15 7.33 3.63 0.07 4.75 8.52 4.61 0.41 3.91 2.7 2.17 1.24 0.18 8.94 3.91 0.09 5.28 10.24 5.81 0.06 4.42 3.65 2.03 1.18 0.22 10.3 4.42 0.1 5.97 10.79 5.29 0.06 5.5 3.5 1.69 1.06 0.23 10.86 5.5 0.11 6.06 11.17 4.76 0.06 6.41 2.53 2.17 0.83 0.24 11.24 6.41 0.11 6.07 11.28 4.74 0.08 6.54 3.07 1.62 0.78 0.26 11.36 6.54 0.11 5.85 11.73 4.63 0.07 7.1 2.97 1.64 0.82 0.28 11.79 7.1 0.12 5.81

-1.92 -2.32 -2.44

Interest Expended / Total Funds Operating Expense / Total Profit before provisions / Total Funds Net Profit / Total Funds Loans Turnover Total Income/Cap employ Interest Exp/Cap Empl % Total assets turnover ratio Assets Turnover ratio

2.77 -4.69 -1.5 -1.92 -1.39 -26.84

-0.64 -0.84

Profit And Loss Account Ratios

Interest Expended / Interest Earned Other Income / Total Income Operating Expense / Total Selling Distribution Cost Composition 63.18 1.68 22.56 0.09 56.25 2.12 26.64 0.13 60.3 1.75 22.19 0.16 63.62 2.46 21.53 0.14 61.2 1.43 23.1 0.14 52.2 1.52 30.36 0.14 51.31 1.33 31 0.2 52.64 4.62 30.19 0.19 53.41 0.62 35.44 0.11 58.27 0.57 32.26 0.09 65.47 0.57 22.48 0.11 65.24 0.68 27.06 0.07 68.64 0.58 25.18 0.07

1.95 3.29

Balance Sheet Ratios

Capital Adequacy Ratio Advances / Loans Funds(%) 12.63 77.17 12.42 78.98 14.16 77.31 14.03 80.15 13.46 76.19 12.29 72.04 11.95 64.26 14.78 61.93 13.1 57.01 12.02 57.06 10.7 56.65 10.24 53.41 10.31 50.65
3.89 -2.9 -5 -4.08 -9.08 0.59

Debt Coverage Ratios

Credit Deposit Ratio Investment Deposit Ratio Cash Deposit Ratio Total Debt to Owners Fund Financial Charges Coverage Ratio Financial Charges Coverage Ratio Post Tax 77.39 31.45 6.1 14.4 0.36 1.22 76.25 30.75 7.49 15.62 0.47 1.31 74.34 30.74 7.71 15.36 0.5 1.32 72.88 31.2 8.59 15.96 0.43 1.27 70.55 32.38 9.02 15.44 0.42 1.25 65.97 33.23 13.78 13.79 1.42 1.29 60.6 41.16 14.74 13.19 1.39 1.33 56.33 48.56 8.48 13.14 1.6 1.36 53.41 46.51 8.13 18.74 1.5 1.31 53.31 44.48 8.34 20.47 1.34 1.22 51.89 44.35 8.7 22.28 1.36 1.15 48.84 45.58 10.46 24.17 1.27 1.14 47.15 46.08 11.89 24.76 1.24 1.13

-6.81 8.49

Leverage Ratios
Current Ratio Quick Ratio 0.02 23.81 0.03 22.24 0.02 20.47 0.02 9.75 0.02 9.4 0.03 11.1 0.03 10.69 0.03 5.98 0.03 7.05 0.04 8.72 0.05 8.53 0.06 9.16 0.05 8.25
1.9 2.23 -0.35

Cash Flow Indicator Ratios

Total Assets
500,000.00 450,000.00 400,000.00 350,000.00 300,000.00 250,000.00 200,000.00 150,000.00 100,000.00 50,000.00 0.00 Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar '12 '11 '10 '09 '08 '07 '06 '05 '04 '03 '02 '01 '00 Total Assets

Advances
350,000.00 300,000.00 250,000.00 200,000.00 150,000.00 100,000.00 50,000.00 0.00 Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar '12 '11 '10 '09 '08 '07 '06 '05 '04 '03 '02 '01 '00 Advances

Deposits
400,000.00 350,000.00 300,000.00 250,000.00 200,000.00 150,000.00 100,000.00 50,000.00 0.00 Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar Mar '12 '11 '10 '09 '08 '07 '06 '05 '04 '03 '02 '01 '00 Deposits

ANALYSIS OF RECENT PERFORMANCE While in most parts of the world financial systems continue to be under strain, prospects for Indian financial system remain bright with GDP growth estimated at 8.6% in 2010-11. As India's second largest bank, Punjab National Bank is well-positioned to benefit from the improving growth prospects of the economy and deliver value to customers and shareholders. Financial year 2010-11 was an eventful year with the Bank crossing number of milestones. While total business crossed Rs. 5.55 lakh crore at the end of March 2011 compared to Rs. 4.36 lac crore last year, registering Year-on-Year (YoY) growth of 27.3%, global deposits reached Rs. 3.12 lac crore (25.5%) and global gross advances touched Rs.2.42 lac crore (29.7%). Growth in the credit was mainly driven by Retail and MSME. Under retail credit segment, Education Loans, Auto Loans and Housing Loans with growth of 24% were the major contributors. Loans to MSME sector, which is thrust area of the Bank, registered a growth of 29.3%. Bank also paid equal attention to asset quality. Gross NPA ratio stood at 1.79% at the end of March'2011. Similarly, Net NPA to Net Advances ratio stood at 0.85%. Along with increased business, Bank's productivity indicators have shown improvement. While Business per employee grew to Rs. 10.17 crore in March'2011 from Rs. 8.08 crore at the end of March' 2010, Business Per Branch showed improvement to Rs. 104.8 crore from Rs. 87.1 crore at end March'2010. Operating profit stood at Rs. 9056 crore for the FY ended 2010-11, growing by 23.6% from Rs. 7326 crore last year. Net Profit at Rs. 4433 crore registered a growth of 13.5%. Interest income rose by 33.2%, while income from Commission, Exchange and Brokerage posted growth of 21.5%. Punjab National Bank has a net interest margin (NIM) higher than the industry average due to a mix of improving yields and low cost funding base and has one of the healthiest low cost current account saving

account (CASA) ratio of 41.31%. It also enjoys the highest rating by all four domestic rating agencies and one of the few banks to boast a AAA rating on its perpetual debt issue The improved financial performance has resulted in better earnings performance. For the FY ended 2010-11, Net Interest Margin (NIM) stood at 3.96% compared to 3.57% in FY 2009-10. With better profit performance, Return on Assets (RoA) and Return on Equity (RoE) stood at 1.34% and 22.13%, respectively. Bank will continue its focus on sustaining the high earnings performance by keeping strict control on costs and revenue maximization. Bank's Capital to Risk Asset Ratio (CRAR) complying with Basel II requirements stood at 12.42 % (Tier-I capital: 8.44%; Tier- II Capital: 3.98%) at the end of March 2011. Bank is confident of successfully meeting the challenges of migrating to Basel III prescriptions.

10 YEAR X-RAY Analysis (at a glance) The total assets have increased by 431.41% over the last 10 years owing to expansion by the bank. The advances have increased by 630.272%. The deposits have plummeted by almost 400%.

The total income has risen by 361.42%. The interest income has risen by 386%. The net profit has risen by 479%. The return on networth has mushroomed by 645%. The return on assets has risen greatly. Adjusted cash margin % has risen by 1.52%.

Its CASA, the source of low cost fund, was at the six-year-average level of 42.7%. The CASA percentage of the Bank has decreased from 49% in FY06 to 35% in FY12. The high interest income and the low cost because of high CASA helped the Bank maintain the average Net Interest Margin (NIM) at the level of 3.5%. The Bank has increased its book value per share by 21% in the last 10 years, from Rs.140 in FY03 to Rs.777 in FY12. PNB managed to maintain a six-year-average ROE (Return on Equity) in excess of 20%, with RoE as on Mar12 standing at 21.05%. The non-performing assets to net advances ratio has increased from 0.17% to 1.52% in the last four years. This shows that the assets quality of the Bank has deteriorated. However this has been buffered by one of the best in the class NIM and a strong capital base -PNB has a capital adequacy ratio of 12.63% as on Mar12. In nut shell, we can say that the core operating performance of Punjab National Bank has been very good. On a cautionary note its CASA has decreased due to intensifying competition and assets quality have deteriorated over the last few years due to a downturn in the economic cycle. However the market share of PNB in both assets (loans) and liabilities (deposits) has increased. The bank has also seen a sharp increase in term deposits owing to high interest rate scenario. Hence, we conclude that the 10 YEAR X-RAY of the Punjab National Bank is Green (Very Good).

Performance of Peer Bank : Bank of Baroda

Bank of Baroda reported moderate performance on the net profit front during 1QFY2013, with a growth of 10.3% yoy to Rs.1,139cr, which was in-line with our estimates. Earnings growth was moderate despite a healthy growth of 23.0% yoy in operating profits to Rs.2,253cr, on account of higher provisioning considering continued pressures on the asset quality front. Higher loan loss provisioning during 1QFY2013, as asset quality pressures continues: For 1QFY2013, the bank witnessed healthy growth in its balance sheet, with both advances and deposits growing by more than 22% yoy each. Growth in advance was aided by strong 41.0% yoy growth in overseas loan book (partly due to INR depreciation). The banks domestic CASA growth remained moderate at 11.6% yoy. The banks domestic yield on advances declined by 6bp qoq to 11.7%, while domestic cost of deposits came in higher by 13bp qoq to 7.3%, leading to a 22bp fall in reported NIM to 3.2%. The bank witnessed a healthy 21.6% yoy growth in its non-interest income (excluding treasury), on account of significantly higher recoveries and strong growth of 55.5% yoy in other misc. income, even as income from CEB and incidental charges remained flattish. On an absolute basis, gross and net NPA levels for the bank increased sequentially, by 19.1% and 19.5%, respectively. Slippages moderated slightly qoq to Rs.1,257cr, though still remain at elevated levels considering average of ~Rs.558cr for six quarters prior to 4QFY2012. Slippages were not chunky, coming largely from Agri and SME segment (normal 1Q phenomena), of which management expects to recover atleast ~60-70% in the next few quarters. During the quarter, the bank restructured domestic loans worth Rs.771cr (substantially lower than Rs.5,139cr restructured during 4QFY2012), thereby taking its cumulative outstanding domestic restructured book to Rs.15,745cr. The bank increased its loan loss provisioning significantly (higher by more than five times on a yoy basis). Higher credit cost was partially offset by lower tax provisioning, which was partly due to higher profits from overseas business attracting lower tax rates. PCR for the bank dipped sequentially by 103bp, but remain comfortable at 79.0%. Outlook and valuation: BOB has been rerated in recent years due to healthy improvement in its core profitability. The banks current valuations at 0.8x FY2014E ABV are similar to valuations at which its peers are trading, while in our view the bank has a relatively better asset quality and earnings outlook as compared to peers.