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Punjab National Bank

Chapter · April 2019

DOI: 10.1007/978-981-13-7064-9_13

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Chapter 13
Punjab National Bank

13.1 Introduction

Indian banks have adequate capital and sufficiently regulated under the Reserve
Bank of India. The economic scenario of India is also much better than the other
countries. The risk assessment studies on parameters of market, credit, and liquidity
also indicate similar stability and resilience in the Indian banking sector to survive
through the global recession.
The industry off late has adopted innovative models for banking such as payment
and micro finance models of banking. The financial year 2015–16 saw 10 small
finance and 11 payment banks being principally approved for functioning by RBI.
Such novel steps being rolled by the Central Bank of India will be instrumental to
give a new shape to the Indian banking industry in the long run.

13.1.1 Market Size

The Indian banking industry is constituted by foreign banks, public and private
domestic banks, urban and rural banks, cooperative and regional banks along with
the credit institutions of cooperatives. Major share up to 80% is held by the public
sector banks. The private and other players have thus little share left for them. A total
of 26 public sector banks are functional in India in comparison to the 25 private banks.
Foreign banks are also considerable with a count of 43. Urban cooperative banks’
count runs above 1500. Rural banks are regional, 53, as well as cooperative, 93,550.

Electronic supplementary material The online version of this chapter

(https://doi.org/10.1007/978-981-13-7064-9_13) contains supplementary material, which is
available to authorized users.

© Springer Nature Singapore Pte Ltd. 2019 219

S. Dhir and Sushil, Cases in Strategic Management, Flexible Systems Management,
https://doi.org/10.1007/978-981-13-7064-9_13

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220 13 Punjab National Bank

Banking through mobile phones is also being encouraged and gaining customers
swiftly. The credit share which was less than 10% in 2014 for the Indian banking
sector has been estimated to grow up to 11–13% by the year 2017 (Standard and
Poor Report).

13.1.2 Industry Scenario of Indian Banking Industry

The banking sector in India has grown more qualitatively than quantitatively. It is
anticipated to be so for next years as well but with a decreased pace of growth. The
Vision 2020 document by Planning Commission forecasts and draft 10th FYP had
also forecasted similarly. By 2010, scheduled banks’ assets were calculated to be
INR 4,090,000 crores, which is estimated to be 65% of current GDP.
The system of Indian banking is regulated by the 1949 Banking Regulation Act
of India. The two major categories banks have been classified into are scheduled and
non-scheduled. The category of scheduled banks includes cooperative and commer-
cial banks. The commercial bank can also be classified as nationalized, private, SBI
with its group banks, and regional rural banks. This categorization will be based on
the ownership. The category of private sector banks is coming up as leaders in the
services of the Internet and mobile banking and ATM. The foreign banks are in the
offing to get ahead in the Indian banking industry.

13.2 Punjab National Bank

13.2.1 Company History

Punjab National Bank had its roots in Lahore when Lala Lajpat Rai, Babu Kali
Prasono Roy, and Sardar Dyal Singh inspired its foundation in 1894. The Indian
Companies Act of 1882 in its Act VI enshrined the bank with a capital amount
of 2 Lac. Withstanding the pressures of partition and financial crisis, the bank did
away with 40% of its deposits by closing one-third of its offices which were in West
Pakistan. Delhi became the new location for registered office by shifting it from
Lahore in June 1947. New partners as Bharat Bank and Indo Commercial bank were
added by PNB to establish a hold in the market of new India. In 1969, nationalization
by the GoI covered 13 other banks along with PNB.
The growth story of PNB comprises of mergers and takeovers. The timeline has
witnessed seven private banks being absorbed and the only merger of a nationalized
bank, New Bank, in India. PNB has also funded regional rural banks (RRBs) with
the aim to reinforce credit delivery mechanism in rural India.

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13.2 Punjab National Bank 221

In 2003, the Nedungadi Bank Ltd (e-NBL) of Kerala was merged with PNB. The
motive was satisfied the capital needs as per Basel II norms. Follow-on Public Offers
(FPOs) were also rolled out in 2005 to bring down the stake held by GoI under 6%.

13.2.2 Company Profile and Business Performance

PNB has its headquarters in New Delhi. Its offices count around 5,400 making it sec-
ond biggest nationalized bank network. Bank provides an array of services to both its
categories of clients, retail and corporate. Its products include credit cards, insurance,
private banking, consumer banking, wealth and equity management. Simultaneously,
it has met its social responsibilities along with becoming a tech-savvy organization.
Shri Sunil Mehta is currently serving as the MD and CEO of the bank.
The branches’ number near seven thousand, and the ATMs count around ten
thousand. It ranks high in most of the financial parameters as operating profit, business
across globe, and deposits. Its business has been growing at an annual rate of 5%,
and the liabilities of global deposits are on the rise with a YoY growth of 7%. The
saving deposits grow annually by 14%. The assets for PNB, net advances, grow by
around 3% annually. Retail credit has witnessed a growth of 20%, agricultural credits
by 10%, and MSME advances by 8%. The operating and net profits have also risen.
PNB has one of the highest domestic net interest margin and a CRA ratio of around
12%. The cost of deposits has fallen slightly.

13.2.3 Digital Banking

The bank has also launched many innovative digital products and services. An app to
spot ATMs and record complaints has been launched as “PNB ATM Assist.” Other
digital solutions as MobiEase and SleepEase have also been made available for touch
banking and Internet and mobile banking, respectively. Customers can also get an
instant PIN by using GreenPIN app. SMS banking has been rolled out in ten widely
spoken local languages like Punjabi, Urdu, Kannada, and others. Customers have
been provided the facility to register for mobile banking with ease across its network
of ATMs.
Online facilities for opening PF and RD accounts together with securing a locker
across the country have been made available at PNB Web site. “Book your Locker-
Anywhere in India” has made it easy for customers to locate a vacant locker in any
city. PNB has also made its brand presence on social media with Twitter and LinkedIn
accounts.

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222 13 Punjab National Bank

13.2.4 Financial Inclusion

PNB was among the first movers in rolling out Pradhan Mantri Jan Dhan Yojana
(PMJDY) and mobilizing deposits. More than a 100 lakh Rupay debit cards have
been issued by the bank, and around 135 lakh accounts were opened to mobilize
nearly two thousand crores.
The “Vitiya Jan Chetna Abhiyan” by PNB was an added attempt to impart financial
awareness across the population. Micro-ATMs were first deployed by PNB to enable
financial operations across backward locations.

13.2.5 Corporate Social Responsibility

PNB opened “Sukanya Samriddhi” accounts for women to deposit safely. Other
schemes Vanita financing, Mahila Kaushal Vikas Yojana, Power Ride and Savings
are an effort toward women empowerment. “Akshaya” branches of PNB are wholly
managed by and cater to women only.

13.2.6 Awards and Recognitions

PNB has collected many awards and accolades across domains. The major ones
include “Golden Peacock National Training Award 2016”, “Best Bank for PMJDY
(Large Bank),” “The Brand Trust Report 2016,” “RBI Rajbhasha Award,” “Agricul-
ture Leadership Award 2015,” “Most Respected Public Sector Bank,” and “Banking
Excellence Award 2015.” It ranks globally in the top 200 banks and first in the nation-
alized Indian banks. It is also the most trusted brand among banks, as per the Trust
Research Advisory

13.3 Competitor and Industry Analysis

13.3.1 Punjab National Bank Direct Competitors

There are many banks operating in India which belong to different categories such
as public sector banks, regional rural banks, foreign banks, private sector banks, and
cooperative banks.
Currently, there are 27 public sector banks; out of it 19 are nationalized. There are
many foreign banks which are having its branches in India with huge investments.
All these are the direct competitors of Punjab National Bank.

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13.3 Competitor and Industry Analysis 223

13.3.2 Comparison of Punjab National Bank and Direct

Competitors

Ratio analysis with direct competitors in the industry is shown in Exhibit 13.1.

13.3.3 Banking Industry Analysis

There are many factors affecting the banking industry in India. There is a need to do
PESTEL analysis of the industry to understand a better idea about the industry.

13.3.3.1 Factors Affecting the Industry

• Government interaction in the industry

• Labor law and tax policy
• Environmental law
• Trade restrictions
• Tariffs and political stability
• Regulation of government
• Budget and budget measures
• Foreign direct investment limits.

13.3.3.2 Economic Factors

RBI declares its six-month economic policies which have a high impact on the bank-
ing industry. Economic measures to boost economic growth will have an influence
on the savings, deposits, and other banking interaction with the customers.

13.3.3.3 Sociocultural Factors

Cultural aspects, health consciousness, population growth rate, age distribution,

career attitudes and emphasis on safety affect the investment behavior of customers
(see Exhibit 13.2).

13.3.3.4 Technological Factors

Technology plays a very important role. Using technology, new products and services
are introduced.

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224 13 Punjab National Bank

13.3.3.5 Environmental Factors

The environment in India is changing in the banking industry. Growth in the service
industry is 55%. As there is an increase in the growth in service sectors, increase in
income will increase lending and savings.

13.3.3.6 Legal Factors

There are two major factors determining the legal aspects of policy. Banking reg-
ulation Act 1949 was enacted. Intervention by RBI will intervene in smooth sharp
movements in the rupee. PNB has branches in Dubai and Hong Kong outside India.
Both countries have different external environments compared to India.

Hong Kong

• High concentration of banks, almost 70 of the 100 best banks in the world have
branches in Hong Kong
• The reason behind this situation is the tall transparency standards in the market,
and institutions are handled prudently.
• The Global Financial Centers Index (GFCI) by the Z/Yen Group listed Hong Kong
third in September 2015.
• In 2001, china became a member of WTO. From then, the government policies
have been helpful to accommodate foreign banks to establish in Hong Kong and
the Mainland.

Dubai

• The scenario in Dubai is different from the rest of the places, as recently there is
a surge of Islamic banking in that region. Most of the banks are opening Islamic
banking divisions or converted to Islamic banking itself/
• The government of UAE is concentrating on infrastructural development in UAE,
which gives banks to participate in these projects.
• It has political stability and favorable tax laws, and is also a peace-loving country.
• So PNB should try to formulate strategies which pertain to only this country.

UK

• PNB has fully owned subsidiary in UK. It has seven branches across UK.
• Political interference looms over banking sector which marks a question on the
capacity of government, and its policies and frameworks need to be reviewed.
• Recently, Brexit and other related political activities have a huge impact on the
banking sector.
• Bank strategies are being controlled by the political regulations inside UK. Econ-
omy is also an open economy. It has investment from all around the world.

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13.4 Punjab National Bank International Limited 225

13.4 Punjab National Bank International Limited

The international unit of PNB, Punjab National Bank (International) Limited

(PNBIL), was seeded in 2006 in the UK and authorized the next year to carry out the
financial services. This is a subsidiary under the Indian PNB unit. PNB connects its
branches through Core Banking Solution to ensure its services are available anytime
and anywhere. PNBIL is also backed from the Indian institution. PNBIL started with
two branches and has now grown into seven branches across the UK.
It is the fastest-growing Indian bank in London and has built an asset size above
500 million dollars. The bank has aims to improve its service and match its own
Indian targets of clearing checks in a single day.

13.4.1 The Services Offered by PNBIL

• Remittances with reach across its around seven thousand Indian branches
• Current, savings, and business accounts
• NRI and FCNR accounts with Indian branches for global currencies as Dollar,
euro, and Sterling
• Inquiry facility on your Indian accounts with the bank
• Attractive FDs
• International debit card
• Internet banking
• Cash ISA.

PNB should increase its international presence by opening offices through:

• Establishment of subsidiaries
• Branches
• Representative offices
• Joint ventures.
After the successful wholly owned subsidiary at London, Punjab National Bank
should focus toward Canada due to the tremendous presence of Punjabi population.

13.5 Plans to Expand Global Operations

“In terms of our international operations, we are now present in nine countries. We
are in the process of a few more expansions of getting into Australia in the form of
a rep (representation) office for which we have already received license and efforts
are on,” bank’s Managing Director says. “Our license for a subsidiary in Canada is
pending with the Canadian regulator and we are pursuing it. We are also pursuing our
application for upgrading our office in Oslo in Norway into a full-fledged branch,”

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226 13 Punjab National Bank

he said. He said. “We are exploring the possibility of moving in Europe, keeping
London as our international headquarters”. The bank has begun hiring consultancy
firms to aid its network with local regulators for securing branch licenses and other
necessities.
The GM for overseas expansion at PNB said, “Our proposed joint venture in
Bhutan has been finalized and very soon, we may announce the details of the new
subsidiary that is expected to have a majority stake of PNB. Since most of the power
projects in Bhutan are currently being set up by Indian companies, our new venture
is expected to reap maximum benefits. Also, we are actively looking at opening PNB
branches in countries like Sri Lanka, Bangladesh, and Pakistan since expansion
across the SAARC region is our prime focus.”
PNB has already secured approval from RBI for branches in Singapore. “The
local regulator in Singapore has cleared most of the documents required to acquire the
license for opening a branch,” said Dhawan. PNB has aimed to reach Japan, Australia,
and South Africa, and meetings are being organized with regulatory officials in
Kazakhstan for upgrading its office into a fully functional branch.
“PNB has also finalized to open full-fledged branches in Shanghai in China,
Dubai’s International Finance Centre, and Norway. We will be the first Indian bank to
open a branch in the Scandinavian region as bilateral trade between the Scandinavian
nations and India is currently pegged over $1 billion per annum,” added Dhawan.
Branch extension has been planned in Canada across Vancouver and Toronto. Similar
blueprints have been approved by the MD for Leicester and Birmingham.
Punjab National Bank has expanded in countries that have a good base of Indian
origin population. So, because of a similar customer base in these countries as in
India, there is not much of a cultural distance. But, considering the fact that a large
portion of customers for PNB belong to rural India, there emerges quite a bit of
difference between the customers in India and the regions in which PNB has already
expanded and plans to expand further.
Similarly, there is a lot of difference in the economies of the countries considering
the fact that India is relatively a closed economy.
Punjab National Bank already has a large pool skilled human resource at its
disposal, which has already gained a lot of domain knowledge in the context of the
banking sector of India. In terms of other resources, such as IT infrastructure, it is
still growing as is the Indian setup.
And this difference in the digital expertise might pose some difficulties for it when
it plans to expand in areas that are digitally ahead of India.

13.6 Moving Forward

For the current financial year, the bank’s focus is on trimming its stressed assets and
enhances asset quality. The bank is equally pertinent toward its strategy of “Retail
PNB—Digital PNB” which is driven by rallying low-cost deposits and adding to
small ticket advances’ share through technological push, thus empowering the growth
of the business.

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13.6 Moving Forward 227

In order to sustain the advantage, I as a CEO would be concentrating on some of the

factors which will be effective in generating a competitive edge over the competitors.
Operational efficiency is one area that needs to be improved. PSBs lag behind the
private players in cost management. The rocketing cost income ratios demonstrate
the same. Digital initiatives will be the beginning steps. Branch channels can be
cost analyzed to provide real costs for digital service to customers. This prevents
customers from migrating to other players. Adding front desk staff along with self-
service kiosks will help. Digitalization can hugely reduce the costs and enhance the
probability of transactions. The daily baggage is also reduced on systems. Long-term
relationships can be established by involving customers.
The opening of e-zones where customers locate kiosks have machines convenient
for customer handling, and provide video communication with the banking staff.
Technology aids ease problem identification and solution. Documents as proof can
aid service disposition.

Exhibits

EQUITY SHARE DATA

PNB Vs PNB Vs PNB Vs

AXIS SYNDICATE PNB Vs FEDERAL YES
Ratios UNITS PNB AXIS FEDERAL YES
BANK BANK SYNDICATE BANK BANK
BANK BANK BANK

Earnings per share Rs -19.6 35 -56% 23 -85% 12.3 -159% 60.2 -33%

Dividends per share Rs 0 5 0% 4.7 0% 2.2 0% 10 0%

Book value per share Rs 212.9 224.8 95% 216.1 99% 89.9 237% 327.3 65%

Avg Price / Income

X 0.5 2.8 16% 0.4 110% 1.4 33% 2.3 20%
ratio

Avg P/E ratio X -6.1 14 -44% 5.9 -103% 9.8 -62% 12.4 -49%

Dividend payout % 0 14.3 0% 20.4 0% 17.8 0% 16.6 0%

No. of employees `000 70.8 50.1 141% 29.1 243% 11 645% 8.8 805%

Total wages &

Rs m 65,645 40,193 163% 22,294 294% 9,131 719% 13,198 497%
salary

Avg. net
Rs Th -542.8 1,665.40 -33% 523.3 -104% 963.3 -56% 2,875.30 -19%
profit/employee

Exhibit 13.1 Ratio Analysis with Industry Competitors. Source www.pnbindia.in

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228 13 Punjab National Bank

INCOME DATA

Net interest income Rs m 1,64,733 1,70,650 97% 55,209 298% 24,314 678% 45,680 361%

Operating expense Rs m 1,03,499 1,06,114 98% 36,211 286% 16,752 618% 30,050 344%

Gross profit Rs m 61,234 64,537 95% 18,998 322% 7,562 810% 15,630 392%

Gross profit margin % 12.1 15.6 77% 8.8 137% 10.1 119% 11.5 104%

Profit before tax Rs m -52,931 1,26,899 -42% 19,976 -265% 15,274 -347% 37,564 -141%

Tax Rs m -16,299 43,323 -38% 4,730 -345% 5,153 -316% 12,268 -133%

Profit after tax Rs m -38,430 83,497 -46% 15,245 -252% 10,578 -363% 25,297 -152%

Net profit margin % -7.6 20.2 -38% 7.1 -107% 14.1 -54% 18.7 -41%

Debt/equity ratio X 15.6 8.6 181% 19.7 79% 9.5 164% 10.4 150%

Net Cashflow Rs m 1,87,902 -27,747 -677% 88,242 213% 2,503 7508% 6,615 2841%

Exhibit 13.1 (continued)

Geographical Economic Administrative

Cultural Distance
Distance Distance Distance

The difference
Different languages Lack of
in income/
Connectivity
Country common
Different Religions labor costs
issues
Level currency
(Bilateral/ Different Values The difference
Physical
Unilateral) in capital costs Political
norms and Distance
dispositions hostility

Low per capita

Geographical Weak Institution
Country Traditionalism income
Size
Level Closed
(Unilateral) Inscrutability Remoteness
Weak
Economy
Infrastructure

Exhibit 13.2 Factors of Influence. Source Author

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 Reference 229

Reference

www.pnbindia.in

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