A THESIS ON

“A STUDY ON THE PERFORMANCE OF PUBLIC SECTOR BANKS PRE AND POST FINANCIAL CRISIS.”

By JITHU J

A THESIS ON

“A STUDY ON THE PERFORMANCE OF PUBLIC SECTOR BANKS PRE AND POST FINANCIAL CRISIS.”

By JITHU J MASTERS IN BUSINESS ADMINISTRATION

A repost submitted in partial fulfillment of the requirement of the MBA program(class of 2010)
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CONTENTS 1.Review of literature 2.Industry Profile 3. Company Profile 3.1 State Bank of India 3.2 Punjab National Bank 4.Analysis and Interpretation with foot note 5.Findiongs Suggestion and Conclusion

ACKNOWLEDGEMENT

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“A Study On The Performance of Public Sector Banks Pre And Post Financial Crisis.” submitted during
This is to certify that the Management Thesis titled 3rd Semester of the MBA program (the class of 2010) embodied original work done by me

Signature of the student Name in Capitals Enroll No. Campus JITHU J 8NBBP113 ADAM SMITH INSTITUTE OF MANAGEMENT GOTTIGERE, BANGALORE

Signature of Faculty Supervisor Name in Capitals Designation Campus

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MEANING OF BANKING

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Banking in India was defined under Section 5(A) as "any company which transacts banking, business" and the purpose of banking business defined under Section 5(B),"accepting deposits of money from public for the purpose of lending or investing, repayable on demand through cheque/draft or otherwise". In the process of doing the above-mentioned primary functions, they are also permitted to do other types of business referred to as Utility Services for their customers (Banking Regulation Act, 1949). INTRODUCTION ON PUBLIC SECTOR BANKS Indian Banking sector is dominated by Public sector banks (PSBs) which accounted for 72.6% of total advances for all SCBs as on 31st March 2008. PSBs have rapidly expanded their foot prints after nationalization of banks in India in 1969 and further in 1980. Although there is a restrictive entry/expansion for private and foreign banks in India, these banks have increased their presence and business over last 5 years. Peculiar characteristic of Indian banks unlike their western counterparts such as high share of household savings in deposits (57.4% of total deposits), adequate capitalisation, stricter regulations and lower leverage makes them less prone to financial crisis, as was seen in the western world in mid FY09. The Scheduled Commercial Banks (SCBs) in India have shown an impressive growth from FY04 to the mid of FY09. Total deposits, advances and net profit grew at CAGR of 19.6%, 27.4% and 20.2% respectively from FY03 to FY08. Banking sector recorded credit growth of 33.3% in FY05 which was highest in last 2 and half decades and credit growth in excess of 30% for three consecutive years from FY04 to FY07, which is best in the banking industry so far. Increase in economic activity and robust primary and secondary markets during this period have helped the banks to garner larger increase in their fee based incomes. With in the group of banks, foreign and private sector banks grew at higher rate than the industry from FY03 to FY08 primarily because of lower base effect and rapid expansion undertaken by these banks. In FY09, overall growth in credit and deposits was led by PSBs. However, growth of private and foreign banks was significantly lower in FY09 due to their high exposure to stressed sectors and problem at parent level for foreign banks. The government had announced its intend to retain majority stake in public sector banks in its budget early this month, reversing its earlier plans of reducing the shareholding to 33 percent while retaining management control. In fiscal 2009, the government infused 16.5 billion rupees of capital into three public sector banks and is expected to infuse 21.5 billion rupees more by the end of September, Crisil said in a statement. Minister Pranab Mukherjee may announce on Monday recapitalization of public sector banks to help them meet the credit demand of productive sectors, especially those hit hard by the global financial meltdown.

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WHY I CHOOSE THIS TOPIC:Banking performance is the mirror reflection of an economy. So long as banks do their primary function of banking by lending to the constituents of economy, they stand a chance of nudging ahead. Public banks still dominate the banking systems serving the majority of people in developing countries, despite the rash of privatizations of the last 10 years and including the pickup in the last five years. The overall stance of RBIs monetary and credit policy during the year was to ensure price stability and financial system stability along with continuation of the growth momentum, emphasis on credit quality and credit delivery including financial inclusion. During 2007-08, the Bank Rate, Repo and Reverse Repo rates were kept unchanged. To manage the liquidity in the economy, RBI raised the Cash Reserve Ratio four times: in April, August and November 2007 from 6% to 7.50%. In line with liquidity tightening, PLRs and deposit rates of rnajor banks were hiked during the year. While lending rates rose to 12.25-12.75% from 12.2512.50%, deposit rates (for more than one year maturity) rose to 8.25-9.0% from 7.5-9.0% in the previous financial year. However, in the month of February 2008, to keep up the growth momentum in the economy, some banks announced cuts in their PLR and interest rate on housing loans below Rs.20 lakh. Public Sector bank means any Government Sector Bank/Institute that goes public... means that issues it share to general public. It also has a greater share of government (more than 50%) so that the main motto of social welfare other than maximizing Profit remains. A public sector bank also looks for funding developmental work in the country as the government has a majority share in it A public bank is that in which there are numerous partners or shareholders, and they elect from their own body a certain number, who are intrusted with its management. The business of banking consists chiefly in receiving deposits of money, upon which interest may or may not be allowed; in making advances of money, principally in the way of discounting bills; and in affecting the transmission of money from one place to another. Among the Public Sector Banks in India, United Bank of India is one of the 14 major banks which were nationalized on July 19, 1969. Its predecessor, in the Public Sector Banks, the United Bank of India Ltd., was formed in 1950 with the amalgamation of four banks viz. Comilla Banking Corporation Ltd. (1914), Bengal Central Bank Ltd. (1918), Comilla Union Bank Ltd. (1922) and Hooghly Bank Ltd. (1932). Oriental Bank of Commerce (OBC), a Government of India Undertaking offers Domestic, NRI and Commercial banking services. OBC is implementing a GRAMEEN PROJECT in Defraud District (UP) and Hanumangarh District (Rajasthan) disbursing small loans. This Public Sector Bank India has implemented 14 point action plan for strengthening of credit delivery to women and has designated 5 branches as specialized branches for women entrepreneurs. The following are the list of Public Sector Banks in India

Allahabad Bank
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• • • • • • • • • • • • • • • • • • •

Andhra Bank Bank of Baroda Bank of India Bank of Maharashtra Canara Bank Central Bank of India Corporation Bank Dena Bank IDBI Bank Indian Bank Indian Overseas Bank Oriental Bank of Commerce Punjab & Sind Bank Punjab National Bank Syndicate Bank UCO Bank Union Bank of India United Bank of India Vijaya Bank

REFORMS IN BANKING SECTOR CAMELS stands for Capital Adequacy, Asset Quality, Management, Efficiency, Liquidity and Systems with reference to reforms in Banking Sector.

BANKS CHOSEN FOR ANALYSIS
For the purpose of analyzing the financial performance of public sector banks . I have hereby chosen two major public sector banks namely State Bank Of India and Punjab national bank

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STATE BANK OF INDIA Introduction State Bank of India or SBI Bank , the premier Nationalized Indian Bank. State Bank of India is actively involved since 1973 in non-profit activity called Community Services Banking. State Bank of India is India's largest bank amongst all public and private sector banks operating in India. State Bank of India owns and operates the following subsidiaries and Joint Ventures The corporate center of SBI is located in Mumbai. In order to cater to different functions, there are several other establishments in and outside Mumbai, apart from the corporate center. The bank boasts of having as many as 14 local head offices and 57 Zonal Offices, located at major cities throughout India. It is recorded that SBI has about 10000 branches, well networked to cater to its customers throughout India. The eight banking subsidiaries are:
• • • • • • • •

State Bank of Bikaner and Jaipur (SBBJ) State Bank of Hyderabad (SBH) State Bank of India (SBI) State Bank of Indore (SBIR) State Bank of Mysore (SBM) State Bank of Patiala (SBP) State Bank of Saurashtra (SBS) State Bank of Travancore (SBT)

PRODUCTS AND SERVICES Personal Banking
• • • • •

SBI Term Deposits SBI Loan For Pensioners SBI Recurring Deposits Loan Against Mortgage Of Property SBI Housing Loan Loan Against Shares & Debentures SBI Car Loan Rent Plus Scheme SBI Educational Loan Medi-Plus Scheme

Other Services
• • •

Agriculture/Rural Banking NRI Services ATM Services
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• • • • • • • • • • •

Demat Services Corporate Banking Internet Banking Mobile Banking International Banking Safe Deposit Locker RBIEFT E-Pay E-Rail SBI Vishwa Yatra Foreign Travel Card Broking Services

FINANCIAL PERFORMANCE OF STATE BANK OF INDIA AND PUNJAB NATIONAL BANK
State Bank of India Balance Sheet Mar '05 Capital and Liabilities: Total Share Capital 526.3 Equity Share Capital 526.3 Share Application Money 0 Preference Share Capital 0 Reserves 23,545.84 Revaluation Reserves 0 Net Worth 24,072.14 Deposits 367,047.53 Borrowings 19,184.31 Total Debt 386,231.84 Other Liabilities & Provisions 49,578.89 Total Liabilities 459,882.87 Mar '05 Assets Cash & Balances with RBI 16,810.33 Balance with Banks, Money at Call 22,511.77 Advances 202,374.45 ------------------- in Rs. Cr. ------------------Mar '06 526.3 526.3 0 Mar '07 526.3 526.3 0 Mar '08 631.47 631.47 0 0 48,401.19 0 49,032.66 537,403.94 51,727.41 589,131.35 83,362.30 721,526.31 Mar '08 Mar '09 634.88 634.88 0 0 57,312.82 0 57,947.70 742,073.13 53,713.68 795,786.81 110,697.57 964,432.08 Mar '09

0 0 27,117.79 30,772.26 0 0 27,644.09 31,298.56 380,046.06 435,521.09 30,641.24 39,703.34 410,687.30 475,224.43 55,538.17 60,042.26 493,869.56 566,565.25 Mar '06 Mar '07

21,652.70

29,076.43

51,534.62 15,931.72 416,768.20

55,546.17 48,857.63 542,503.20

22,907.30 22,892.27 261,641.53 337,336.49

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Investments Gross Block Accumulated Depreciation Net Block Capital Work In Progress Other Assets Total Assets

197,097.91 6,691.09 4,114.67 2,576.42 121.27 18,390.71 459,882.86

162,534.24 149,148.88 7,424.84 8,061.92 4,751.73 2,673.11 5,385.01 2,676.91

189,501.27 8,988.35 5,849.13 3,139.22 234.26 44,417.03 721,526.32

275,953.96 10,403.06 6,828.65 3,574.41 263.44 37,733.27 964,432.08

79.82 141.95 22,380.84 25,292.31 493,869.54 566,565.24

Contingent Liabilities Bills for collection Book Value (Rs)

131,325.40 44,794.10 457.39

191,819.34 259,536.57 57,618.44 70,418.15 525.25 594.69

736,087.59 93,652.89 776.48

614,603.47 152,964.06 912.73

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State Bank of India Profit & Loss account Mar '05 ------------------- in Rs. Cr. ------------------Mar '06 Mar '07 Mar '08 Mar '09

12 mths Income Interest Earned Other Income Total Income Expenditure Interest expended Employee Cost Selling and Admin Expenses Depreciation Miscellaneous Expenses Preoperative Exp Capitalized Operating Expenses Provisions & Contingencies Total Expenses

12 mths

12 mths

12 mths

12 mths

32,428.00 7,119.90 39,547.90 18,483.38 6,907.35 2,634.64 752.21 6,465.82 0 11,278.18 5,481.84 35,243.40 Mar '05

35,794.93 7,388.69 43,183.62 20,159.29 8,123.04 1,853.32 729.13 7,912.15 0 11,872.89 6,744.75 38,776.93 Mar '06

39,491.03 7,446.76 46,937.79 23,436.82 7,932.58 3,251.14 602.39 7,173.55 0 13,251.78 5,707.88 42,396.48 Mar '07

48,950.31 9,398.43 58,348.74 31,929.08 7,785.87 4,165.94 679.98 7,058.75 0 14,609.55 5,080.99 51,619.62 Mar '08

63,788.43 12,691.35 76,479.78 42,915.29 9,747.31 5,122.06 763.14 8,810.75 0 18,123.66 6,319.60 67,358.55 Mar '09

12 mths Net Profit for the Year Extraordinary Items Profit brought forward Total Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualized) Earning Per Share (Rs) Equity Dividend (%) 4,304.52 0 0.34 4,304.86 0 657.87 93.75

12 mths 4,406.67 0 0.34 4,407.01 0 736.82 103.34

12 mths 4,541.31 0 0.34 4,541.65 0 736.82 125.22

12 mths 6,729.12 0 0.34 6,729.46 0 1,357.66 165.87

12 mths 9,121.23 0 0.34 9,121.57 0 1,841.15 248.03

81.79 125

83.73 140

86.29 140

106.56 215

143.67 290

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Book Value (Rs) Appropriations Transfer to Statutory Reserves Transfer to Other Reserves Proposed Dividend/Transfer to Govt Balance c/f to Balance Sheet Total

457.39

525.25

594.69

776.48

912.73

3,552.89 0.01 751.62 0.34 4,304.86

3,566.51 0 840.16 0.34 4,407.01

3,682.15 -2.88 862.04 0.34 4,541.65

5,205.69 -0.1 1,523.53 0.34 6,729.46

7,032.04 0.01 2,089.18 0.34 9,121.57

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State Bank of India Cash Flow

------------------- in Rs. Cr. ------------------Mar '05 12 mths Mar '06 12 mths Mar '07 12 mths Mar '08 12 mths Mar '09

12 mths

Net Profit Before Tax Net Cash From Operating Activities Net Cash (used in)/from Investing Activities Net Cash (used in)/from Financing Activities Net (decrease)/increase In Cash and Cash Equivalents Opening Cash & Cash Equivalents Closing Cash & Cash Equivalents

6521.6 6837.36 7625.08 10438.9 -2780.7 6039.14 -498.8 -969.25 -1134.2 -1776.1 -284.56 -856.87 -2798

14180.64 29479.73 -1651.93 5097.38 32925.18 69524.5 104403.8

461.98 9494.11 19371.1

-4248.8 5108.86 7383.89 15716.2 43566.6 39322.1 39322.1 44560 51968.7 44560 51968.7 67466.3

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State Bank of India
Quarterly Results ------------------- in Rs. Cr. -------------------

Jun '08 Sales Turnover Other Income Total Income Total Expenses Operating Profit Profit On Sale Of Assets Profit On Sale Of Investments Gain/Loss On Foreign Exchange VRS Adjustment Other Extraordinary Income/Expenses Total Extraordinary Income/Expenses Tax On Extraordinary Items Net Extra Ordinary Income/Expenses Gross Profit Interest 13,799.20 2,403.87 16,203.07 4,808.66 8,990.54 --------11,394.41 8,981.54

Sep '08 15,566.50 2,343.14 17,909.64 4,215.89 11,350.61 --------13,693.75 10,111.15

Dec '08 18,030.34 3,225.56 21,255.90 4,697.96 13,332.38 --------16,557.94 12,272.15

Mar '09 17,342.39 4,718.22 22,060.61 5,660.77 11,681.62 --------16,399.84 12,500.45

Jun '09 17,472.76 3,568.75 21,041.51 5,092.49 12,380.27 --------15,949.02 12,447.88

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PBDT Depreciation Depreciation On Revaluation Of Assets PBT Tax Net Profit Prior Years Income/Expenses Depreciation for Previous Years Written Back/ Provided Dividend Dividend Tax Dividend (%) Earnings Per Share Book Value Equity Reserves Face Value

2,412.87 --2,412.87 772.08 1,640.79 -----25.84 -634.88 48,401.19 10.00

3,582.60 --3,582.60 1,322.88 2,259.72 -----35.59 -634.88 48,401.19 10.00

4,285.79 --4,285.79 1,807.37 2,478.42 -----39.04 -634.88 48,401.19 10.00

3,899.39 --3,899.39 1,157.08 2,742.31 -----43.19 -634.88 57,312.81 10.00

3,501.14 --3,501.14 1,170.77 2,330.37 -----36.71 -634.88 57,312.81 10.00

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ANALYSIS AND INTERPRETATION Profit The Operating Profit of the Bank for 2007-08 stood at Rs. 13,107.55crore as compared to Rs.9,999.94 crore in 2006-07, registering a growth of 31.08%. The Bank has posted a Net Profit of Rs 6729.12 crore for 2007-08 as compared to Rs.4,541.31 crore in 2006-07, registering a growth of 48.18%. While Net Interest Income recorded a growth of 13.04% and Other Income increased by 28.52%. Operating Expenses increased by 6.64%. Dividend The Bank has increased dividend to 215%. Net Interest Income The Net Interest Income of the Bank registered a growth of 13.04% from Rs.15,058.20 crore in 2006-07 to Rs. 17,021.23 crore in 2007-08. This was due to growth in interest income on advances. The Net Interest Margin was at a healthy 3.07% in 2007-08. The gross interest income from global operations rose from Rs 37,242.33 crore to Rs. 48,950.31 crore during the year. This was mainly due to higher interest income on advances. Interest income on advances in India registered an increase from Rs.22,872.66 crore in 2006-07 to Rs 32,162.68 crore in 2007-08 due to higher volumes. Also average yield on domestic advances increased from 8.67% in 2006-07 to 9.90% in 2007-08. Interest income on advances at foreign offices also increased due to higher volumes. Income from resources deployed in Treasury operations in India increased by 11.03% despite decline in average yield mainly due to higher average resources deployed. The average yield, which was 6.99% in 2006-07, declined to 6.92% in 2007-08. Total interest expenses of global operations increased from Rs.22,184.14 crore in 2006-07 to Rs. 31,929.08 crore in 2007-08. Interest expenses on deposits in India during 2007-08 recorded an increase of 45.56% compared to the previous year, whereas the average level of deposits in India grew by 22.09%. This resulted in increase in the average cost of deposits from 4.69% in 2006-07 to 5.59% in 2007-08. Non-Interest Income Non-interest income stood at Rs.8,694.93 crore as against Rs.6,725.26 crore in 2006-07. During the year, the Bank received an income of Rs. 197.41 crore (Rs.598.12 crore in the previous year) by way of dividends from Associate Banks/ subsidiaries and joint ventures in India and abroad.
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Operating Expenses There was marginal decline of 1.84% in the Staff Cost from Rs.7,932.58 crore in 2006-07 to Rs 7,785.87 crore in 2007-08. Staff Cost included an amount of Rs.575.00 crore towards Wage arrears. Other Operating Expenses have also registered an increase of 23.94% mainly due to increase in expenses on rent, taxes and lighting, insurance, postage, telegrams and telephones, repair and maintenance, audit fees and miscellaneous expenditure. Operating Expenses, comprising both staff cost and other operating expenses, have registered an increase of 6.64%. Provisions and Contingencies Major amounts of provisions made in 2007-08 were as under: - Rs. 88.68 crore (write back) towards provision for depreciation on investments, excluding amortization of premium on Held to Maturity category (as against Rs.379.23 crore in 2006-07). - Rs.3,823.50 crore towards Provision for Tax, excluding deferred tax credit of Rs. 219.43 crore (as against Rs. 3,014.61 crore in 2006-07 excluding deferred tax credit of Rs. 19.83 crore). - Rs. 105.00 crore towards Fringe Benefit Tax (as against 88.50 crore in 2006-07). - Rs. 2,000.94 crore (net of write-back) for non- performing assets (as against Rs. 1,429.50 crore in 2006-07). - Rs. 566.97 crore towards Standard Assets (as against Rs. 589.19 crore in 2006-07). Including the current years provision, the total provision held on Standard Assets amounts to Rs. 2,069.38 crore. Reserves and Surplus - An amount of Rs.4,839.07 crore (as against Rs. 3,358.11 crore in 2006-07) was transferred to Statutory Reserves. - An amount of Rs. 304.35 crore (as against Rs.321.15 crore in 2006-07) was transferred to Other Reserves. - An amount of Rs. 62.18 crore was transferred to Investment Reserves.(Nil in 2006-07) - An amount of Rs. 4,075.64 crore was withdrawn from Other Reserves towards transitional liability for complying with Accounting Standard -15 (Revised) - Employee Benefits

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Assets The total assets of the Bank increased by 27.35% from Rs.5,66,565.24crore at the end of March 2007 to Rs. 7,21,526.31 crore as at end March 2008. During the period, the loan portfolio increased by 23.55% from Rs.3,37,336.49 crore to Rs. 416,768.19 crore. Investments increased by 27.06% from Rs.1,49,148.88 crore to Rs 1,89,501.27 crore. A major portion of the investment was in the domestic market in government and other approved securities. The Banks market shares in domestic advances was 15.28% as of March 2008. Liabilities The Banks aggregate liabilities (excluding capital and reserves) rose by 25.64% from Rs. 5,35,266.68

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PUNJAB NATIONAL BANK VISION "To be a Leading Global Bank with Pan India footprints and become a household brand in the Indo-Gangetic Plains providing entire range of financial products and services under one roof" MISSION "Banking for the unbanked" With over 38 million satisfied customers and 4668 offices, PNB has continued to retain its leadership position among the nationalized banks. The bank enjoys strong fundamentals, large franchise value and good brand image. Besides being ranked as one of India's top service brands, PNB has remained fully committed to its guiding principles of sound and prudent banking. Apart from offering banking products, the bank has also entered the credit card & debit card business; bullion business; life and non-life insurance business; Gold coins & asset management business, etc. Since its humble beginning in 1895 with the distinction of being the first Indian bank to have been started with Indian capital, PNB has achieved significant growth in business which at the end of March 2009 amounted to Rs 3,64,463 crore. Today, with assets of more than Rs 2,46,900 crore, PNB is ranked as the 3rd largest bank in the country (after SBI and ICICI Bank) and has the 2nd largest network of branches (4668 including 238 extension counters and 3 overseas offices).During the FY 2008-09, with 39% share of low cost deposits, the bank achieved a net profit of Rs 3,091 crore, maintaining its number ONE position amongst nationalized banks. Bank has a strong capital base with capital adequacy ratio as per Basel II at 14.03% with Tier I and Tier II capital ratio at 8.98% and 5.05% respectively as on March’09. As on March’09, the Bank has the Gross and Net NPA ratio of only 1.77% and 0.17% respectively. During the FY 2008-09, its’ ratio of priority sector credit to adjusted net bank credit at 41.53% & agriculture credit to adjusted net bank credit at 19.72% was also higher than the respective national goals of 40% & 18%. PNB has always looked at technology as a key facilitator to provide better customer service and ensured that its ‘IT strategy’ follows the ‘Business strategy’ so as to arrive at “Best Fit”. The bank has made rapid strides in this direction. Alongwith the achievement of 100% branch computerization, one of the major achievements of the Bank is covering all the branches of the Bank under Core Banking Solution (CBS), thus covering 100% of it’s business and providing ‘Anytime Anywhere’ banking facility to all customers including customers of more than 2000 rural branches. The bank has also been offering Internet banking services to the customers of CBS branches like booking of tickets, payment of bills of utilities, purchase of airline tickets etc.Towards developing a cost effective alternative channels of delivery, the bank with more than 2150 ATMs has the largest ATM network amongst Nationalised Banks. With the help of advanced technology, the Bank has been a frontrunner in the industry so far as the initiatives for Financial Inclusion is concerned. With it’s policy of inclusive growth in the Indo-Gangetic belt, the Bank’s mission is “Banking for Unbanked”. The Bank has launched a drive for biometric smart card based technology enabled Financial Inclusion with the help of

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Business Correspondents/Business Facilitators (BC/BF) so as to reach out to the last mile customer. The BC/BF will address the outreach issue while technology will provide cost effective and transparent services. The Bank has started several innovative initiatives for marginal groups like rickshaw pullers, vegetable vendors, diary farmers, construction workers, etc. The Bank has already achieved 100% financial inclusion in 21,408 villages. Backed by strong domestic performance, the bank is planning to realize its global aspirations. In order to increase its international presence, the Bank continues its selective foray in international markets with presence in Hongkong, Dubai, Kazakhstan, UK, Shanghai, Singapore, Kabul and Norway. A second branch in Hongkong at Kowloon was opened in the first week of April’09. Bank is also in the process of establishing its presence in China, Bhutan, DIFC Dubai, Canada and Singapore. The bank also has a joint venture with Everest Bank Ltd. (EBL), Nepal. Under the long term vision, Bank proposes to start its operation in Fiji Island, Australia and Indonesia. Bank continues with its goal to become a household brand with global expertise. Amongst Top 1000 Banks in the World, ‘The Banker’ listed PNB at 250th place. Further, PNB is at the 1166th position among 48 Indian firms making it to a list of the world’s biggest companies compiled by the US magazine ‘Forbes’. Financial Performance: Punjab National Bank continues to maintain its frontline position in the Indian banking industry. In particular, the bank has retained its NUMBER ONE position among the nationalized banks in terms of number of branches, Deposit, Advances, total Business, operating and net profit in the year 2008-09. The impressive operational and financial performance has been brought about by Bank’s focus on customer based business with thrust on SME, Agriculture, more inclusive approach to banking; better asset liability management; improved margin management, thrust on recovery and increased efficiency in core operations of the Bank.

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The performance highlights of the bank in terms of business and profit are shown below:
Parameters Operating Profit* Net Profit* Deposit Advance Total Business Mar'07 Mar'08 3617 1540 4006 2049 Mar'09 5744 3091 209760 154703 364463 CAGR 26.02 41.67 22.47 26.55 24.15

13986 166457 0 96597 119502 23645 285959 6

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FINANCIAL PERFORMANCE OF PUNJAB NATIONAL BANK
-- in Rs. Cr. -Mar '05 Capital and Liabilities: Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Net Worth Deposits Borrowings Total Debt Other Liabilities & Provisions Total Liabilities Assets Cash & Balances with RBI Balance with Banks, Money at Call Advances Investments Gross Block Accumulated Depreciation Net Block Capital Work In Progress Other Assets Total Assets 9,460.20 1,628.83 60,412.7 5 50,672.8 3 1,875.65 910.42 965.23 0 3,101.44 126,241. 28 23,394.5 6 1,397.14 74,627.3 7 41,055.3 1 2,106.92 1,076.69 1,030.23 0 3,762.79 145,267. 40 12,372.0 3 3,273.49 96,596.5 2 45,189.8 4 2,247.74 1,237.92 1,009.82 0 3,980.80 162,422. 50 15,258.1 5 3,572.57 119,501. 57 53,991.7 1 3,699.64 1,384.12 2,315.52 0 4,380.84 199,020. 36 17,058.2 5 4,354.89 154,702. 99 63,385.1 8 3,930.36 1,533.25 2,397.11 0 5,020.20 246,918. 62 315.3 315.3 0 0 7,533.50 312.49 8,161.29 103,166. 89 2,718.29 105,885. 18 12,194.8 0 126,241. 27 Mar '05 Mar '06 315.3 315.3 0 0 8,758.68 302.38 9,376.36 119,684. 92 6,687.18 126,372. 10 9,518.93 145,267. 39 Mar '06 Mar '07 315.3 315.3 0 0 9,826.31 293.85 10,435.4 6 139,859. 67 1,948.86 141,808. 53 10,178.5 1 162,422. 50 Mar '07 Mar '08 315.3 315.3 0 0 10,467.3 5 1,535.70 12,318.3 5 166,457. 23 5,446.56 171,903. 79 14,798.2 3 199,020. 37 Mar '08 Mar '09 315.3 315.3 0 0 12,824.5 9 1,513.74 14,653.6 3 209,760. 50 4,374.36 214,134. 86 18,130.1 3 246,918. 62 Mar '09

Balance Sheet

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Contingent Liabilities Bills for collection Book Value (Rs)

33,674.7 3 13,372.4 6 248.93

39,860.4 0 18,878.9 1 287.79

52,884.8 9 21,815.5 9 321.65

80,606.8 8 23,448.9 9 341.98

79,270.6 5 31,941.4 3 416.74

Profit & Loss account

-- in Rs.
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Cr. -Mar '05 Income Interest Earned Other Income Total Income Expenditure Interest expended Employee Cost Selling and Admin Expenses Depreciation Miscellaneous Expenses Preoperative Exp Capitalised Operating Expenses 4,453.11 2,121.23 4,917.39 2,114.97 6,022.91 2,352.45 8,730.86 12,295.30 2,461.54 2,924.38 8,459.85 1,854.54 10,314.3 9 9,584.15 1,478.23 11,062.3 8 11,537.4 8 1,343.64 12,881.1 2 14,265.0 2 19,326.16 1,997.56 2,919.69 16,262.5 8 22,245.85 Mar '06 Mar '07 Mar '08 Mar '09

618.28 183.28

638.79 186.65

1,032.50 194.8

884.19 170.23

1,406.42 191.06

1,528.37

1,765.27

1,738.38

1,966.98

2,337.80

0 3,257.26

0 3,263.15

0 3,926.05

0 3,902.55

0 5,026.81

Provisions & Contingencies Total Expenses

1,193.90 8,904.27 Mar '05

1,442.53 9,623.07 Mar '06

1,392.08 11,341.0 4 Mar '07

1,580.39 1,832.85 14,213.8 0 19,154.96 Mar '08 Mar '09

12 mths

12 mths

12 mths

12 mths

12 mths

28

Net Profit for the Year Extraordionary Items Profit brought forward Total Preference Dividend Equity Dividend Corporate Dividend Tax

1,410.12 0

1,439.31 0

1,540.08 0

2,048.76 0

3,090.88 0

0 1,410.12 0 174.18

0 1,439.31 0 189.18

183.49 1,723.57 0 409.89

15.52 2,064.28 0 409.89

0 3,090.88 0 630.61

23.48

26.53

63.11

69.66

107.17

Per share data (annualised) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs) Appropriations Transfer to Statutory Reserves Transfer to Other Reserves Proposed Dividend/Transfer to Govt Balance c/f to Balance Sheet Total

44.72

45.65

48.84

64.98

98.03

30 248.93

60 287.79

100 321.65

100 341.98

200 416.74

1,212.46

-1,512.23

435.06

596.14

1,155.46

0

2,552.34

800

988.59

1,190.00

197.66

215.71

473

479.55

737.78

0 1,410.12

183.49 1,439.31

15.52 1,723.58
29

0 2,064.28

7.64 3,090.88

COMPETITION
Last Price SBI 2,448.40 Market Cap.
(Rs. cr.)

Net Interest Income 63,788.43

Net Profit 9,121.24

Total Assets 964,432.08

155,444.07

30

PNB

864.15

27,246.87

19,326.16

3,090.88

246,918.62

FINANCIAL INTERPRETATION AND ANALYSIS I. Financial Results 1. Profit & Loss Account 1 • Net profit for the first half of the current financial year 2007-08 amounted to Rs 963.55 Cr, compared to Rs 872.51 Cr during the first half of FY 2006-07, registering a y-o-y growth of 10.4%. 2 • Operating Profit of the bank (excluding loss incurred on transfer of securities to HTM portfolio) during the half year ended September 2007 increased to Rs 1788 Cr, compared to Rs 1778 Cr during the half year ended September 2006. However, on accounting for the loss of Rs 497.74 Cr incurred on transfer of securities to HTM portfolio, the Operating Profit of the bank amounted to Rs 1290 Cr during the first half year ended September 2007. The transfer of securities was done during the first quarter of FY 2007-08 to de-risk the investment portfolio of the bank from interest rate risk. In the current environment, higher pressure on Net Interest Margin & NPAs and the need for additional provisioning for pension, gratuity & leave encashment for staff of the bank under projected unit credit method (PUCM) resulted in lower operating profit of the bank. 1 • Total income of the bank increased to Rs 7228 Cr during April-September 2007, compared to Rs 5596 Cr during April-September 2006, registering a y-o-y growth of 29.2%. 0 - Non-Interest income through commission, exchange and brokerage increased by 17.4 % to Rs 540 Cr during the first half of FY 2007-08 from Rs 461 Cr during the first half of FY 2006-07. Total expenses (excluding provisions) amounted to Rs 5938 Cr during the half year ended September 2007, compared to Rs 4204 Cr during the half year ended September 2006, registering a y-o-y growth of 41.2%. 1 Net Interest Margin has declined to 3.49% during April- September 2007 from 3.86% during April- September 2006. 2 Yield on Advances of the bank has improved to 10.20% during April-September 2007 from 8.95% during April- September 2006. 3 Due to the overall firming of interest rates, the Cost of Deposits of the bank increased to 5.55% during the first half of FY 2007-08 from 4.35% during the first half of FY 2006-07. 4 Yield on Investment of the bank has declined to 6.88% during April- September 2007 from 7.09% during April- September 2006. 5 Return on Assets stood at 1.13% at the end of September 2007. 6 Capital to Risk Asset Ratio (CRAR) at the end of September 2007 at 12.58%. Bank is ready for Basel II compliance.

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2. Balance Sheet 1 • Total Business of the bank increased by 19.3% on y-o-y basis to Rs 251474 Cr at the end of September 2007 compared to Rs 210755 Cr as at the end of September 2006. 2 • Total Deposits at the end of September 2007 amounted to Rs 149980 Cr, compared to Rs 128415 Cr as at the end of September 2006 registering a growth of 16.8 % on y-o-y basis. CASA accounted for 43.91 % of the total deposits of the bank at the end of September 2007. 3 • Advances at the end of September 2007 amounted to Rs 101494 Cr, compared to Rs 82340 Cr as at the end of September 2006, registering a y-o-y growth of 23.3 %. 0 Retail credit constituted 23.3% of Gross Credit of the bank, as at the end of September 2007. It increased by 21.8% to Rs 24100 Cr at the end of September 2007 from Rs 19794 Cr at the end of September 2006. Education loan is the main thrust area of the bank, showing an increase of 35% to Rs 1155 Cr, while loan to traders increased by 46% to Rs 7889 Cr. Priority sector advances increased to Rs 41,709 Cr at the end of September 2007, compared to Rs 36,615 Cr as at the end of September 2006, registering a Y-O-Y growth of 13.9%. Ratio of PS advances to adjusted net bank credit continued to remain much higher at 42.38% against national goal of 40%. The bank has opened more than 3 lakh No Frill accounts under PNB Mitra Scheme and has issued more than 24,000 General Credit Cards. Credit to Agriculture was Rs 18,942 Cr at the end of September 2007, compared to Rs 16570 Cr as at the end of September 2006 showing Y-O-Y growth of 14.3%. Agricultural advances as percent to adjusted net bank credit at around 18.3% was higher than the national goal of 18%. To facilitate disbursal of credit to the farmers, the bank has issued 1,29,433 Kisan Credit Cards (KCCs) during April-September 2007 taking the cumulative number to 22.48 lakh KCCs. The bank's advances to the Small Enterprises at the end of September 2007 stood at Rs 11,789 Cr, compared to Rs 9606 Cr as at the end of September 2006, recording a Y-O-Y growth of 22.7%. Ratio of Small Enterprises advances to adjusted net bank credit stood at 11.98% at the end of September 2007. II. Information Technology 1 • Core Banking Solution (CBS) has been implemented in 2791 Service Outlets (SOLs) at 935 centres, covering 83% of bank's total business, facilitating around 2.23 Cr customers with "anytime and anywhere" banking. • National Electronic Fund Transfer (NEFT) is operational in 2280 branches. • The bank has 2353 RTGS and 1395 SFMS branches. III. International Operations

2 3

32

1

• Total Export-Import turnover of the bank increased to Rs 30,506 Cr in half year ended September 2007 as compared to Rs 24,848 Cr in the half year ended September 2006, registering a y-o-y growth of 22.8 %. • PNB’s Hong Kong branch is likely to be operational in the month of November, 2007. The bank is in the process of upgrading its Representative Office at Shanghai into a branch and to establish presence at Singapore (OBU) and Canada (Subsidiary). PNB is also exploring possibilities for its presence in Bhutan through JV route.

2

33

IV. NPA Management 1 • At the end of September 2007, the ratio of Net NPAs to net Advances was 1.86 %, while Gross NPAs to Gross Advances of the bank stood at 4.57 % at the end of September 2007. V. New Business Initiatives of the Bank 1 • Bank launched a pilot project on financial inclusion at Neemrana, Distt. Alwar, Rajasthan and endeavors to launch it at 9 more places, viz at Chandigarh, Taran Taran, Saharanpur & Balia, Dehradun, Ranchi, Mayur Bhanj, Gaya and Patna. 2 • Under Financial Inclusion, the bank plans to cover 30,000 villages, 15 million households and 75 million people by 2010.

3 • PNB’s 8 Farmers’ Training Centres (FTCs) trained 1, 09,614 persons till September 2007. The FTC introduced a scheme, called Kisan Bandhu whereby 5 local youth have been inducted and trained at each FTC, who are actively pursuing the task of financial inclusion by visiting the doorstep of villagers. 4 • PNB has introduced PNB Baghban, a Reverse Mortgage Loan Scheme for senior citizens and 49 cases involving an amount of around Rs 18 Cr have already been sanctioned. VI. Recognition : First Half of FY 2007-08 : 1 • According to ‘The Banker’, a London based Magazine (July 2007), PNB is placed at 255th place, amongst top 1000 Banks in the World. 2 • PNB was bestowed Golden Peacock Award for Excellence in Corporate Governance by the Institute of Directors for the FY 2006-07. 3 • CIO 100 Awards (2007) by IDG Media Pvt Ltd for Best IT Implementation.

34

CONCLUSION Indian Public Sector Banks have been operating in different economic and political conditions for several decades – earlier as Private Sector Banks and now in Public Sector subsequent to their nationalization. They have been functioning as commercial and profit oriented establishments for long period but due to the developmental policies of the Government of India, profit making was given a go-by. The transition in political and 19 economic conditions in the country took place in later years of eighties and simultaneously technological and legal changes have also gained importance. Thanks to the Financial Sector Reforms initiated during early nineties, the focus has shifted to productivity, profitability, efficiency, transparency, etc in order to make them work on high standards competing with new Private Sector and Foreign Banks. However, the story does not end here. Radical changes in accounting, deregulation of interest rates, close follow up of non performing assets, introduction of prudential norms, voluntary retirement of old generation staff, concern for total customer care, professional managements, have made the managements (including the GOI) to turn to generate surpluses and make these banks self-sufficient even by approaching the Capital Market. Corporate Governance in Banks is an accepted phenomenon today. With these developments and by taking full advantage of Information Technology in the entire banking system, Public Sector Banks will gear up and reach to their pinnacle in performance and delivering the expected levels of service in about 4 –5 years from now. The managements of these 27 banks will give a thorough look into all the aspects of study, diagnose the reasons for the outcomes, and assess their strengths and weaknesses so as to initiate corrective or remedial measures, wherever warranted.

35

References [1] Altunbas, Y. and Chakravarthy, S.P. (2001), “Frontier Cost Functions and Bank Efficiency”, Economic Letters, Vol.72, Issue 2, pp.233-241 [2] Arun Shourie (2003), “Before the Whining Drowns it Out, Listen to the New India”, The Indian Express, http://www.indianexpress.com/full_story.php?content_id=29666, August 15 [3] Ashok H. Advani (2000), “India’s Best Banks”, Business India, Feb. 7-20, [4] American Banker (1998), “First Call’s Analyst Consensus Rankings”, Vol.163, Issue 136, pp.30-31 [5] American Banker (1998), “First Call’s Analyst Consensus Rankings”, Vol.163, Issue 50, pp.38-39 [6] Andrew Sheng (1991), “The Art of Bank Restructuring: Issues and Techniques”, Working Paper, Economic Development Institute of the World Bank, Washington, D.C., June. [7] A.V. Aruna Kumari (2002), “Economic Reforms and Performance of Indian Banking: A Cross Structural Analysis”, Indian Economic Panorama, A Quarterly Journal of Agriculture, Industry, Trade and Commerce, Special Banking Issue, pp.19-21 [8] Banker (2003), “Top 1000 World Banks”, Vol.153, Issue 929, p.187-222, Business Source Premier [9] Bank Indices (2001), Professional Banker, July, pp.42-45 [10] Banking & Finance (2002), India’s Best Banks, Vol.3, No.6, Jan.-Feb., pp.9-16 [11] Bhattacharyya, Arunava; Lovell, C.A.K. and Sahay, Pankaj (1997), “The impact of liberalization on the productive efficiency of Indian commercial banks”, European Journal of Operational Research, Vol. 98, Issue 2, pp.332-346 [12] Blount, Ed (2001), “A New Breed of Banker: the ‘Risk Pillar’ Strategist”,Vol.93, Issue 6, pp.42-48

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