A Research Report On

Punjab National Bank

COMPILED BY :-
SIDDHARTH C SHAH
ABHIMANYU CHOUDHARY
NEHA SHARMA
ANJUM GOYAL
 Punjab National Bank
Punjab National Bank is the third largest bank in India .

Second largest bank with 5000 branches ,server over 30 million

customer

One of the Big Four Banks of India, along with ICICI Bank, State Bank
of India and Canara Bank .

The bank enjoys strong fundamentals, large franchise value and

brand image.

It also entered the credit card, debit card; bullion business; life and
non-life insurance; Gold coins & asset management business, etc.
 NUMBER ONE position among the nationalized banks in terms of number of
branches, Deposit,

The Bank has been able to maintain its stakeholders’ interest by posting an
improved NIM of 3.57% in Mar’10 (3.52% Mar’09) and a Return on Assets of
1.44% (1.39% Mar’09).

The Earning per Share improved to Rs 123.98 (Rs 98.03 Mar’09) while the Book
value per share improved to Rs 514.77 (Rs 416.74 Mar’09).
 The performance highlights of the bank in terms of
business and profit are shown below
Mar'09 Mar'10
Parameters Mar'09 CAGR (%)
Operating
7326
Profit 4006 5690 22.29

3091
Net Profit 2049 3905 23.98

Deposit 166457 209760 249330 14.42

119502
186601
Advance 154703 16.01

Total Business 285959 364463 435931 15.09

Punjab National Bank: ‘Most efficient public
bank’
1) PNB’s loan growth is set to remain robust at 25% in FY11 .
2) NIMs, after being resilient in Q4 FY11, are anticipated to witness a
modest correction .
3) In the longer term, PNB sees NIM at 3.5-3.7%, a conservative band in
our view.
4) RoA and RoE are estimated to remain impressive at 1.3-1.4% and 23-
25% respectively over FY10. We expect the bank to deliver a 20% PAT
CAGR in the aforesaid period.
 Key Financial Points
Years 2006 2007 2008 2009 2010

Net profit 1,439.31 1,540.08 2,048.76 3,090.88 3,905.36

Years 2006 2007 2008 2009 2010

EPS 45.65 48.84 64.98 98.03 123.86
Years 2006 2007 2008 2009 2010

Net 310.53 383.89 505.09 694.81 777.82

operating
profit per
share

Years 2006 2007 2008 2009 2010

Deposit 119,684.92 139,859.67 166,457.23 209,760.50 249,329.80

Years 2006 2007 2008 2009 2010

Operating 57.00 74.53 109.81 151.48 191.63
profit per
share
Years 2006 2007 2008 2009 2010
Return on 17.010 16.03 19.00 23.52 24.06
net worth

Years 2006 2007 2008 2009 2010

Return on 0.99 330.97 390.68 464.75 562.09
asset
including
revaluation
 A Fundamental Approach
Towards PNB
4 FY11; could witness modest correction in the
medium term
 PNB does not see its NIM being materially impacted in the near term and

expects a rather modest correction of 10-15bps over the next two quarters
from current level of 4% (post adjusting for one-time interest income in Q3
FY11).
 Over the longer term, bank expects NIM to settle in the range of 3.5-3.7%. We

believe this margin outlook is conservative given bank’s superior CASA and
higher proportion of floating advances. Traditionally, PNB’s margin
management has been much better than other PSBs.
How does a Fundamental Approach LEADS ?
Capital adequacy comfortable to support
long term growth
PNB is not expecting significant recapitalization proceeds from
the Government as the latter’s stake in the bank is near 58%.

Further, bank has substantial headroom of ~Rs70bn to raise

capital for supporting growth.

PNB is not expecting significant recapitalization proceeds from

the Government as the latter’s stake in the bank is near 58%.
RoA to remain at impressive 1.3-1.4%; in-line
with some high quality private banks

PNB’s RoA at 1.3% is the best amongst PSBs. Superior RoA has been driven by
robust business growth, handsome NIMs and better operating efficiency.

RoE, on the other hand, is likely to be sustained in the range of 23-25%. PNB’s
RoA and RoE profile is in-line with some of the high quality private banks.

The current RoA fully reflects the headwinds of higher pension and loan-loss
provisioning. Even as margins are expected to come-off, we believe RoA would be
sustained above 1.3% in the medium term aided by moderation in opex growth
and reduction in credit charge.
 Yoa may see a decent uptick over the
next two quarters

 Over the past six months, PNB has increased BPLR by 200 bps and

Base Rate by 150 bps.

 It is expected to improve by 15-20bps in Q4 FY11.

 As a significant portion of these increases was announced in

December and January, the reported YoA was flat QoQ in Q3 FY11.
 81% of the bank’s advances are floating - 59% linked to BPLR

and 22% linked to Base Rate – and therefore get immediately re-
priced.
 Rural branches take more time to
breakeven

 While urban branches turn around in the first year of operation,

the bank says its rural branches take 2-3 years to break-even
despite significantly lower overheads.
 The break-even period for rural branches is elongated by

substantially lower interest income and time lag (typically 6-

month) in receiving interest subvention from the government
 Also, rural depositors usually park money in longer term

deposits fetching higher rates.

 Additional pension provision for retirees in Q4
FY11; contemplating on reversing gratuity
provisions
 About 35,000 of PNB’s employees have opted for pension 2 nd option.

 The pension liability towards this got crystallized at Rs36bn (earlier

estimated Rs25bn) in FY11. Resultantly, the bank increased pension

provisioning to Rs2.35bn from Rs1.25bn in Q2 FY11 to take
 Annual provisioning to Rs 7.2bn .

 However, like other banks, PNB is contemplating on reversing

substantial gratuity provisions made during the year

GRAPHICAL REPRESENTATION