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Directors Report of Punjab National Bank

Mar 31, 2017

DIRECTORS’ REPORT 2016-17

The Bank''s Global Business reached Rs,1041197 crore as at the end of March''17 reflecting a growth of 7.9% on a yearly basis. While the Global Deposits of the Bank at Rs,621704 crore grew by 12.4%, Global Net Advances recorded growth of 1.7% to reach Rs,419493 crore as on 31st March''17. The Bank recorded a CASA growth of 26.5% and the share of CASA to domestic deposits increased to 46%.

In terms of Bottom-line parameters, the Bank''s Operating Profit increased from Rs,11339 crore as on 31st MarchRs,16 to Rs,14565 crore as on 31st March''17.

In this backdrop, your Directors take pleasure in placing the Bank’s Annual Report for FY’17 along with its audited Annual Financial Statements.

Our Performance A. Financial Highlights A.1. Balance Sheet

(Rs, crore)

Parameters

31st March’ 16

31st March’17

Growth (%)

Total Business

965377

1041197

7.9

Deposits

553051

621704

12.4

Net Advances

412326

419493

1.7

A. 2. Profit

(Rs, crore)

Parameters

FY’16

FY’17

(%)

Operating Profit

11339

14565

28.4

Provisions

15313

13240

-13.5

Net Profit

-3974

1325

-

A.3. Key Ratios

(%)

Particulars

FY’16

FY’17

Cost of Funds

4.93

4.60

Yield on Funds

7.28

6.74

Return on Equity (Net Worth)

-ve

3.52

Net Interest Margin (Domestic)

2.95

2.69

Return on Assets

-ve

0.19

Cost to Income Ratio

46.79

41.57

B. Operational Highlights

i. PNB crossed the Total Business Figures of Rs,10 lakh crore. CASA deposits of the Bank also crossed Rs,2.6 lakh crore mark.

ii. PNB Tab Banking: Saving Bank Account opening through Tablet PC Based Solution was launched to provide quality services to HNIs and NRIs at their door step. It caters to HNI customers and family members, salary accounts of educational institutions, corporate bodies & remotely placed Army cantonments.

iii. Retail Asset Processing Cell (RAPC): The Bank has revamped the Retail Credit Dispensation Model and replaced the existing model with RAPC model from

01.04.2016. RAPCs undertake all the activities from receipt of loan application through branches till sanction of retail loan which has resulted in qualitative improvement in loan processing.

iv. Back office for account opening: To strengthen our KYC system, the Bank has started opening saving and current account at centrally located Back office at each Zone.

v. For bringing more efficiency, Financial Inclusion Division (FID) and Priority Sector & Lead Bank Division (PS&LB) were merged to form Agri Business & Financial Inclusion Division. Retail Assets Division (RAD) and Resources Mobilization Division (RMD) were merged to form Retail Banking Division.

vi. PNB wallet named as “PNB Kitty” was launched.

vii. PNB also introduced Contactless Credit Cards namely “PNB Wave and Pay”. Another mobile application, PNB Yuva was launched for the youngsters.

viii. ATM Profitability Model has been designed for effective functioning of ATMs.

ix. Mr. Virat Kohli, a young and energetic Indian cricketer has been chosen as brand ambassador of the Bank because of his mass appeal to the youth of the country.

x. Sector 10, Dwarka Metro Station in New Delhi was branded as PNB Dwarka Metro Station.

C. Asset Quality

The Bank''s Gross NPA stood at Rs,55370 crore in FY''17 (FY''16: Rs,55818 crore) and the Net NPA stood at Rs,32702 crore in FY''17 (FY''16: Rs,35423 crore). In terms of ratios, Gross NPA ratio stood at 12.53% in FY''17 (FY''16: 12.90%) and Net NPA ratio stood at 7.81% in FY''17 (FY''16: 8.61%).

Gross NPA as well as Net NPA percentage has come down. PCR has also improved from 51.06% in FY''16 to 58.57% in FY''17. In absolute terms also both Gross NPA and Net NPA as on 31.03.17 reduced as compared to 31.03.16.

Initiatives taken during FY’17

- During the year, bank initiated “Pan India Recovery Drive” (PIRD) giving targets for each quarter to each Circle and Zone. These PAN India drives were successful in increasing cash recovery and up gradation during the year.

- The Bank also organized Mega Rin Mukti Shivirs for giving impetus to recovery in small advances to expedite the pace of settlement during the year.

- As on March''17, 1009 borrowers were declared as willful defaulters as per RBI guidelines.

- One Time Settlement (OTS) was also explored as a tool for expediting recovery during FY''17; OTS in 90165 accounts was approved, Rs,906 crore were recovered in approved OTS cases.

- NPA accounts as on 31.03.17 with aggregate outstanding of Rs, 2981 crore were upgraded to standard category. Total cash recoveries in NPA accounts amounted to Rs,10677 crore.

D. Industrial Restructuring

- Under the Scheme for Sustainable Structuring of Stressed Assets (S4A), the Bank mandated 12 accounts with outstanding of Rs, 2955 crore as on 31.03.2017.

- During FY''17, the Bank invoked Strategic Debt Restructuring (SDR) in 9 accounts with outstanding of Rs, 2564 crore as on 31.03.2017.

- During FY''17, 5/25 scheme was implemented in 10 accounts with outstanding of Rs,2334 crore as on 31.03.2017.

- Out of the existing 76 Corporate Debt Restructuring (CDR) restructured accounts (with outstanding Rs,11251 crore as on 31.03.2017), in 14 accounts, PNB was assigned the role of Monitoring Institution. During the current year, the successful exit was finalized in 4 CDR accounts with outstanding of Rs,285 crore on payment of recompense amount.

- The Bank has adopted the policy for New Framework for Revival and Rehabilitation (FRR) of MSMEs w.e.f.

14.07.2016. During FY''17, 12 accounts were restructured under FRR for MSME with outstanding of Rs,77 crore.

- For MSMEs, which cannot be covered under CDR/ SDR/S4A/FRR, the Bank put in place a transparent mechanism for restructuring of debts of potentially viable units. During FY''17, 21 accounts were restructured with outstanding of Rs,2804 crore.

E. Digitalization: Towards ‘Digital PNB’

Moving towards cashless society and paperless banking, the Bank undertook several initiatives to provide better, prompt and efficient services to the customers.

Alternative Delivery Channels:

a. Internet Banking: As on 31.03.2017, around 0.93 crore customers (retail and corporate) were enrolled in internet banking service. During this year, many new features were added which included Debit card hot listing and Digital signature as a second factor of authentication for doing transactions in Retail and Corporate Internet Banking.

b. Mobile Banking: As on 31.03.2017, the Mobile Banking Users were 0.71 crore.

c. SMS Alert Services: As on 31.03.2017, around 4.65 crore customers subscribed to SMS Alert Services. The service was further extended to 5 RRBs. OTP and SMS alert was introduced in multilingual languages.

d. ATMs: During FY''17, 1218 new ATMs were installed and as an outcome, the total ATM network reached 10681. E-Surveillance systems were installed at ATM sites.Solar UPS were installed to decrease the downtime of ATMs on account of electricity failure. ESQ ATM Monitoring System was installed for on line ATM monitoring and to take prompt corrective/preventive actions in case ATM gets down.

Some of the new initiatives taken during FY''17 are given as under:

- Launch of UPI (Unified Payment Interface) and BHIM:

A mobile based banking application, called UPI was launched wherein the customers were able to access their Bank accounts opened with different Banks in a single App. Total number of Users Registered as on 31.03.2017 were 467475.

Number of PNB accounts registered for BHIM (Mobile app based on UPI) as on 31.03.2017 are approximately 600000.

- Aadhaar Enabled Payment System: Number of transaction carried out was 90.96 lakh and total amount transacted was ''3740.23 crore as on FY''17.

- PNB Kitty: Number of users registered for PNB Kitty, a mobile wallet, as on 31.03.2017 were 87144.

- Green PIN for Debit Card: Green Pin facility was launched to curb physical pin printing for debit card except PMJDY accounts. The Bank saved approximately Rs, 43.00 crore under this green initiative.

- Business Debit Card: Business Debit Card was launched with enhanced transaction limit permitting withdrawal up to Rs,1 lakh from ATMs and e-commerce transaction up to Rs,3 lakh.

- Virtual Card: All wallet users are issued a virtual debit card. This virtual card can be used for e-Commerce transactions.

- Bank introduced Card to card fund transfer facility to transfer funds from one debit card to another debit card.

- Self Service Kiosk: The Bank installed 2561 Cash Deposit /Multifunction Kiosk (including PNB Cash Acceptor cum ATM), and 3378 Pass Book updating Machines across the country. The machines installed in E-lobby are made available to customers 24*7. A real time monitoring tool was implemented for effective monitoring and to reduce the down time.

F. Management Information System

As per RBI guidelines the Bank implemented Standardized Approach for Credit Risk under Basel-III through LADDER (Loans and Advances Data Desk for Evaluation & Reports) system thus enabling calculation of Risk Weighted Assets (RWAs) in respect of Loans & Advances.

During FY''17, 1534885 Credit Information Reports (CIRs) of prospective borrowers under Consumer category and 31555 CIRs under Commercial category were drawn from CIBIL, Experian, High Mark & Equifax databases.

Around 4.70 lakh Immovable Properties (IP) & Movable properties were registered with Central Registry of Securitization Asset Reconstruction and Security Interest of India (CERSAI) by Bank till March''17.

A total of 47 scenarios were implemented in Anti Money Laundering (AML) solutions. AML solution for five Regional Rural Banks (RRBs), which are sponsored by PNB, was implemented successfully.

The Bank has one of the largest branch networks of 6937 as on 31.03.2017. To fulfill the banking needs of unbanked areas, 178 new branches were added to the vast network of branches during the year.

International Presence

At present, Bank has its overseas presence in 9 countries by way of 4 branches (2 Hong Kong, 1 Dubai and 1 OBU-Mumbai), 2 Subsidiaries (London and Bhutan),1 Associate (Kazakhstan), 1 Joint Venture (Nepal) and 4 Representative Offices (Sydney-Australia, Shanghai-China, Dhaka-Bangladesh and Dubai-UAE).

H. International Banking

The foreign exchange turnover was Rs,140814 crore for FY''17 with a growth of 5.18% on YoY basis. The Bank also has an International Service Branch in New Delhi for handling inward remittances. During FY''17, the Bank handled remittance business of more than Rs,58147 crore, showing a growth of nearly 0.45% YoY.

The Bank has Rupee Drawing Arrangements (RDA) with 36 Exchange Houses (30 in the Gulf, 2 in Singapore, 2 in the USA, 1 in Australia and 1 in Canada) to facilitate remittance from NRIs.

I. Operations

Organizational Restructuring: A four tier structure was introduced from 01.04.2016 with Zonal offices linking Head Office to Circle Offices and branches.

Employee Suggestion Scheme: Around 460 suggestions were perused and cash incentives were given to 14 Staff members for suggestions accepted/implemented under the Employee Suggestion Scheme.

Demonetization exercise: At the time of demonetization, the Bank issued regular guidelines, installed suitable checks in Core Banking System and scrutinized irregularities. Steps were taken to ensure proper implementation of guidelines/ directives received from RBI/MOF. The field functionaries were sensitized on handling of Specified Bank Notes and introduction of new series of currency notes and mobile ATMs were placed in Hospitals, Railway Stations, Joggers'' parks, Markets, Business establishments and Offices, etc. Bank could mobilize huge amount of CASA due to the goodwill created during the period.

PNB Tab Banking: Saving Bank Account opening through Tablet PC Based Solution was launched as a step further to provide quality services to HNIs and NRIs at their door step. It caters to HNI customers and family members, salary accounts of educational institutions, corporate bodies & remotely placed Army Cantonments.

Retail Asset Processing Cell (RAPC): The Bank has revamped the Retail Credit Dispensation Model and replaced the existing model with the introduction of RAPC model made effective from 01.04.2016. RAPCs undertake all the activities from receipt of loan application through branches till sanction of retail loan.

Back office for account opening: To strengthen our KYC system, the Bank has started opening saving and current account at centrally located Back office at each Zone

J. Indian Accounting Standards (IND AS)

The Bank has commenced the process of IND AS (Indian Accounting Standards) implementation for FY''17 and made a diagnostic study to identify the differences between the current accounting framework and IND AS. Bank has quantified the impact and filed the pro-forma financial statements for the half year ended September 2016 with the Reserve Bank of India.

K. New Initiatives Division

The Bank already has its presence on Twitter and LinkedIn. Further, the Bank opened official Face book page for the public, in the name of ‘Punjab National Bank, HO, New Delhi''. Virtual debit cards were made available on mobile app PNB Kitty.

L. Business Diversification

- Mutual Fund: During FY''17, the Bank mobilized total amount of Rs, 4545 crore, Asset under Management (AUM) stood at Rs,814 crore and brokerage earned was Rs, 4 crore.

- Insurance Business

1. Life Insurance Business: Bank''s earnings from Life-Insurance business during FY''17 amounted to Rs,110 crore as against Rs,86 crore during FY''16, showing growth of 28%. Total Business mobilized under Life Insurance since inception was Rs,4152 crore from 566667 policies and thus total earnings amounted to Rs,358 crore.

2. Non-Life Insurance Business: The revenue earned during FY''17 was Rs, 28 crore as against Rs, 25 crore during FY''16, showing a growth of 15%. Under ‘PNB-Oriental Royal Mediclaim'', a customized health insurance policy, 181913 policies were sourced during FY''17 as against 158175 policies sourced during FY''16.

- Depository Services: The Bank earned an income of Rs,76 lakh during FY''17 for providing Depository Services.

- Online Trading Services: An income of 28 lakh was received from Associates on account of Online Trading Activities during FY''17.

- Merchant Banking: During FY''17, the Bank handled more than 454000 Application Supported by Blocked Amount (ASBA) applications against 85 issues, blocking an amount of Rs,2597 crore and earning Notional Income more than Rs,6.15 crore.

- Credit Card: Among the PSBs, the Bank is the largest issuer of credit cards and achieved a growth rate of 31% in issuance of credit cards in FY''17. To enhance the security level of Bank''s credit cards, EMV Chip cards with PIN were issued. As a result of issuance of credit cards, the Bank''s fee based income increased to Rs,14 crore.

- PNB Genie, an app full of features was launched. It will act as single point destination for cardholders to operate their PNB Credit Card seamlessly and without hassles.

- PNB National Electronic Toll Collection: PNB

FASTag program is part of National Electronic Toll Collection (NETC) initiative rolled out by NPCI. FASTag is a simple to use, reloadable tag which enables automatic deduction of toll charges

- Merchant Acquiring Business: The Bank installed 38841 PoS terminals and integrated 217 Internet Payment Gateways.

M. Government Business

The Bank partnered with India Post Payments Bank (IPPB)

and provided technology platform alongwith managerial support

at their offices opened in Ranchi and Raipur.

Centralised on-line Collection & Disbursement (COCD)

Portal was developed for the Government for collecting Interest subsidy, Margin Money, CGTMSE Fee, etc. This facility will also benefit weavers to get instant Margin Money Credit directly to their accounts. Other developments are as under:

1. New Pension Scheme (NPS) was made live in offline mode i.e. application will be collected through the Branches which are acting as POP-SP (Point of Presence-Service Provider).

2. NPS contribution was made live through on-line mode for existing PRAN (Permanent Retirement Account Number) holders.

3. EPFO collections were made live through on-line mode and generation of Electronic Verification Code (EVC) for Income Tax return filing.

4. Non-Tax Revenue Portal (NTRP) was introduced to facilitate all banks'' customers to pay their dues (other than taxes) to GoI and Payment of Equalization Levy through IBS (Online and Offline - both).

5. To bring efficiency in pension disbursement, following facilities were introduced:

- Pension slips were made available in the pension server.

- An e-lobby cum veteran facilitation centre was set up at DiAV, Delhi Cantt. & at Chandimandir, Chandigarh.

- PCDA allocated space for setting up Centralized Pension Processing Cell (CPPC) at Allahabad in its campus.

N. Treasury Operations

Gross Domestic Investment as on 31st March''17 stood at Rs, 183297 crore up from Rs, 154727 crore as on 31st March''16 and registered a YoY growth of 18.46%. The average investment as on 31st March''17 was Rs,175774 crore as against Rs,162548 crore in the corresponding period last year. Interest income from investment portfolio increased from Rs,11935 crore for FY''16 to Rs, 12439 crore for FY''17. Total Trading Profit (including derivative) increased from Rs, 999 crore for FY''16 to Rs, 2654 crore for FY''17.

Fixed Income (SLR/NSLR): During FY''17, Bank booked a Trading Profit of Rs,2214 crore from sale of investments in fixed income up from Rs,504 crore during the corresponding period of previous year.

Equity: The Bank booked Rs,168 crore Trading Profit in Equity segment and Dividend income of Rs,96 crore.

Forex: Net Forex income decreased from Rs,1320 crore during FY''16 to Rs,1155 crore during FY''17. However, Exchange Profit from treasury operations increased from Rs,386 crore in FY''16 to Rs,547 crore in FY''17.

O. Customer Care

Initiatives undertaken during FY''17 for improvement in customer service included:

- Four Sub-Committee meetings were conducted.

- The Standing Committee on Customer Service held four meetings.

- Officials of the Bank made 1353 incognito visits to branches pan India. Circle Offices took corrective steps to plug the loopholes pointed out by the visiting officials.

Due to increased transparency, the number of complaints received during FY''17 increased to 35257 as compared to 29654 complaints received during FY''16. 217 complaints were outstanding as on 01.04.2016 and out of total number of 35474 complaints, 35159 complaints were redressed as on 31st March''17. The number of complaints pending as on 31.03.2017 was 315 which have since been resolved.

Two awards were passed by office of the Banking Ombudsman during FY''17. Appeals were filed against the two awards. Appellate Authority has set aside one award passed by Banking Ombudsman, Kanpur while decision is pending under second appeal.

P. Implementation of Official Language Policy

For FY''17, the Bank achieved all the targets in the parameters fixed by the Govt. of India, Ministry of Home Affairs, Department of Official Language.

During FY''17, the Bank received more than 120 awards for its excellent performance in the use of Hindi which included prestigious Rajbhasha Kirti Shield - a top most award scheme of Govt. of India, besides RBI Rajbhasha Shield (Consolation Prize in region ‘A'' & ‘C'', Third Prize in region ‘B'' and Second Prize for PNB PRATIBHA in Bilingual Magazine Category) and other Regional Level Awards of Ministry of Home Affairs.

Articles received under various competitions organized during the year 2016, were compiled in the book ‘PNB PRAVAH-Sarjna Ke Naye Aayam’.

Q. PNB’s Subsidiaries and Regional Rural Banks a. PNB Gilts Limited

The Bank has an ownership of 74.07% in PNB Gilts Limited as on 31.03.2017. During FY''17, Company fulfilled all its obligations as a Primary Dealer in both primary and secondary market. During the year, its Profit before Tax stood at Rs, 257 crore, which is the highest since inception. It made an impressive Trading Profit of Rs,186 crore due to increased churning of portfolio which led to total secondary market outright turnover of Rs,6.5 lakh crore as against Rs, 3.8 lakh crore in FY''16.

b. Punjab National Bank International Limited (PNBIL)

PNBIL is a wholly owned subsidiary of Punjab National Bank. Total Business of the Company decreased from $2,834 million as at 31st March 2016 to $2,212 million as at 31st March 2017, a year-on-year decrease of 21.95% due to the consolidation exercise undertaken.

The Operating Profit before provisions, tax and dividends for FY''17 decreased by 47.26% to $20.05 million from $38.26 million in FY''16. The Total Income decreased by $19.16 million (35.20%) from $54.43 million to $35.27 million. Net Interest Income fell by $12.59 million and Net Trading Income by $6.65 million. The expenditure to income ratio increased to 43.16% from 29.71% despite slight reduction in cost due to lower income.

Gross impaired advances increased to $299.39 million ($144.99 million in 2016) leading to additional impairment provisions of $153.39 million. The net impaired advances increased to $40.83 million in 2017 from $36.37 million in 2016. As a result, the Company declared a loss before tax of $133.34 million.

The Company had a CRAR of 21.70% as on 31st March''17, and met all other CET1 and Tier 1 regulatory capital requirements (PNB infused $100 million).

c. Punjab National Bank Investment Services Limited (PNBISL)

PNB has 100% ownership in PNBISL. During the year ended March''17, the Company earned fee based income of Rs,9.03 crore with a total income of Rs,12.14 crore. Profit before Tax for FY''17 stood at Rs,6.33 crore as against Rs,6.12 crore for FY''16.

d. DRUK PNB Bank Ltd. Bhutan

PNB has 51% ownership in DRUK PNB Bank Ltd. Bhutan. The Bank is currently operating with a network of 6 branches and 18 ATMs. Profit of the Bank increased from Rs,22 crore during FY''16 to Rs,25 crore during the FY''17, showing a YoY growth of 15.25%. Total Business of the Bank stood at Rs,1435 crore, as on 31.03.2017. CASA Ratio of the Bank stood at 57.38% as on 31.03.2017.

Gross Non Performing Loans (NPL) Ratio of the Bank decreased to 3.30% as on 31.03.2017 from 3.96% as on 31.03.2016. The Net NPL ratio of the Bank stood at 1.99% as on 31.03.2017. The Return on Equity (ROE) as on 31.03.2017 stood at 15.99% and Earning per share was ''3.92 as on 31.03.17.

e. PNB held 51% share in PNB Housing Finance Ltd

(PNBHFL) a subsidiary of the Bank. Subsequent, to the IPO of PNBHFL on 06.11.2016 this changed to 39.08%

f. Regional Rural Banks

At present, five RRBs are sponsored by the Bank. These RRBs are operating in five States, namely, Bihar, Haryana, Himachal Pradesh, Punjab and Uttar Pradesh covering 75 districts with a network of 2386 branches.

S.N

Name of Regional Rural Banks / Other Associates

Proportion of Ownership (%)

1

Madhya Bihar Gramin Bank, Patna

35

2

Sarva Haryana Gramin Bank, Rohtak

35

3

Himachal Gramin Bank, Mandi

35

4

Punjab Gramin Bank, Kapurthala

35

5

Sarva UP Gramin Bank, Meerut

35

The aggregate paid-up capital of these Regional Rural Banks is Rs, 199 crore. Central Government, State Governments and PNB contributed in paid-up capital of these RRBs in the ratio of 50:15:35 respectively. The Bank''s contribution towards capital of these RRBs is Rs,69.76 crore. The combined Net worth of RRBs as on 31st March''17 is Rs, 3479 crore.

Performance of RRBs as on 31.03.2017

(Amt. in Rs,crore)

Performance of RRBs

31st

March’16

31st

March’17

YoY

Growth

%

Aggregate Deposits

33492

40092

19.71

Aggregate Advances

19832

21792

9.88

Aggregate Net Profit

286.21

279.96

-2.18

Branches under CBS

100%

100%

Profit Per Employee (Rs, lakh)

3.28

3.13

-4.57

No. of Loss Making Branches (being 12 month old or more)

84

127

R. Awards and Accolades

During FY''17, in recognition of its performance and initiatives,

PNB received various awards, some of which are:

1. Best MSME Bank Award-Winner (Large Category) by CIMSME.

2. Vigilance Service Excellence Award 2016-17 by Institute of Public Enterprises (IPE) Hyderabad.

3. BFSI Tech Maestro Awards 2016 in Application category for four node cluster by Bitstream Mediaworks Pvt. Ltd.

4. National Payments Excellence Awards 2016 for Aadhaar Enabled Payments System (AEPS) by National Payments Corporation of India (NPCI).

5. Outlook Money Awards 2016- Education Loan Provider (Runners Up) by Outlook Money.

6. CSR Initiatives & Business Responsibility Award-Runner-Up (Large Category) by CIMSME.

S. Future Business Plan of the Bank

Against the backdrop of robust macroeconomic stability, demonetization derailed the growth momentum partially. With the Government reforms measures, however, opportunities across all segments are expected to increase. The Bank did well in challenging situation. The asset quality improved but profitability and credit emerged as other big challenges. The Bank has the potential to deliver more to the shareholders and the strategy for FY''18 is designed to deliver that potential.

For the next year, the focus areas and objectives would be profitability with stable growth, improvement in asset quality, reduction in risk-weighted assets, sustenance of CASA growth momentum and acceleration in pace of digitalization to align businesses more closely around the needs of the customers. For credit, the Bank will target semi-urban and rural areas where the Bank has significant presence and focus will be on small ticket advances in MSME, Agriculture, Retail, etc. The focus will continue to be maintained on getting qualitative accounts rather than quantitative numbers.

Technology is transforming the way Bank reaches its customers. Increasingly, customers connect with the Bank through smart phones, laptops, tablets and other mobile devices. This is an opportunity we are determined to avail. The Bank through digitization of internal processes will bring in benefits of reduced cycle time, fewer exceptions and lesser costs resulting in greater efficiency. Also, under present circumstances digitalization offers business potentials in terms of installing POS machines, introducing new credit and debit cards, e-wallets, etc.

Looking ahead, we see FY''18 as another year of challenges, of disciplined implementation of our Strategy to build on the momentum and make decisive progress towards better growth and higher profitability. With focus on cashless economy, Bank will constantly innovate and come up with faster solution for every business need.Hopefully, FY''18 will be a year where the Bank will take a quantum leap when it comes to digitalization and retail and will emerge as PNB Retail Express on Digital lines.

T. Directors’ Responsibility Statement

The Directors confirm that in the preparation of the annual accounts for the year ended 31st March''17:

- The applicable Accounting Standards have been followed along with proper explanation relating to material departures, if any;

- The accounting policies, framed in accordance with the guidelines of the Reserve Bank of India, were consistently applied;

- Reasonable and prudent judgment and estimates were made so as to give a true and fair view of the state of affairs of the Bank at the end of the financial year and of the profit of the Bank for the year ended 31st March''17;

- Proper and sufficient care was taken for the maintenance of adequate accounting records in accordance with the provisions of applicable laws governing banks in India, and;

- The accounts have been prepared on the principle of “going concern” basis.

U. Acknowledgement

The Board expressed thanks to the Government of India, Reserve Bank of India, Securities and Exchange Board of India, Stock Exchanges, Bank''s customers, public and the shareholders for valuable support, continued patronage and confidence reposed in the Bank.

The Board wishes to place on record its appreciation for the valuable contribution made by the members of the Bank''s staff at all levels and look forward to their continued involvement in achieving the future goals.

For and on behalf of Board of Directors Sunil Mehta

Managing Director& CEO


Mar 31, 2015

Dear Members,

2014-15

The Financial year 2015 was a challenging year for Punjab National Bank. Amid the challenges, your Bank made significant achievements and aligned its business strategy to the macroeconomic scenario of the country. The core strategy of the Bank was ''Profitable Growth from the grass-roots'' by garnering low cost deposits on the liability side and extending qualitative credit on the assets side. Due to this strategy, the Bank stands tall amongst its competitors in terms of Domestic Business, Domestic Deposits, Domestic Advances, CASA Deposits and Operating Profit during FY''15.

During FY''15, the Bank has crossed several milestones i.e., Rs. 8.80 lakh crore Global Business, Rs. 6.00 lakh crore Global Assets, Rs. 5 lakh crore Global Deposits, Rs. 1.80 lakh crore CASA Deposits and Rs. 1 lakh crore Overseas Business. The Bank''s Global Business reached close to Rs. 8.82 lakh crore as at end of March''15 reflecting a growth of 10.1% on yearly basis. The Bank''s International business crossed the landmark of Rs. 1,00,000 crore and reached Rs. 1,00,785 crore while recording a robust YoY growth of 37.2%. While the Global Deposits of the Bank at Rs. 5.01 lakh crore grew by 11.1%, Net Advances recorded growth of 9.0% to reach Rs. 3.81 lakh crore as on 31st March 2015.

In terms of Bottom-line parameters, the Bank''s Operating Profit increased from Rs. 1 1384 crore as at 31st March''14 to Rs. 1 1955 crore as at 31st March''15. However due to higher provisions, the Net Profit stood at Rs. 3062 crore. In terms of key ratios, Net Interest Margin at over 3% for the Financial Year ended March''15 remained one of the highest amongst nationalized banks. Further, the CRAR of the Bank at 12.21% stood above the stipulated level.

To summarize, Financial Year 2014-15 was a year in which we focused on further strengthening our businesses, bottom line parameters, network, technological capabilities and operating parameters. With continued improvements in its key financial parameters, vast network, large customer base and a healthy capital position, the Bank has created a platform for achieving and sustaining robust growth in the future.

In this backdrop, your Directors take pleasure in placing the Bank''s Annual Report for 2014-15 along with its audited annual financial statements.

OUR PERFORMANCE

A. FINANCIAL HIGHLIGHTS

A.1. BALANCE SHEET

( Rs. crore)

Particulars 31st Mar''14 31st Mar''15 Growth (%)

Total Business 800666 881913 10.1

Deposits 451397 501379 11.1

Advances 349269 380534 9.0

A.2. PROFIT

< Rs. crore)

Mar''14 Mar''15 (%)

Parameters

11384 11955 5.0 Operating Profit

8042 8893 10.6 Provisions

3343 3062 -8.4 Net Profit

A.3. KEY RATIOS

(%)

Particulars 2013-14 2014-15

Cost of Funds 5.20 5.14

Yield on Funds 8.31 8.00

Return on Equity 9.69 8.12

Net Interest Margin 3.44 3.15

Return on Assets 0.64 0.53

Cost to Income Ratio 45.06 46.74

Operating Expenses to Average Working Funds 1.79 1.81

Operating Profit to Average Working Funds 2.19 2.06

Earnings per share (Rs)* 18.78 16.91

Book value per share (Rs)* 190.50 203.24

Provision Coverage Ratio 59.07 58.21

CRAR - Basel III 11.52 12.21

* Face Value of share after splitting is Rs. 2/-

B. OPERATIONAL HIGHLIGHTS

- Towards bringing efficiency in pension disbursement, the Bank introduced a new facility i.e. Digital life certificate. Further, the Bank started working in coordination with the Government to be in pilot run of e-PPOs (Electronic Pension Payment Orders). In order to avoid delay in submission of Life Certificates by Pensioners in November every year, the Bank initiated the process of sending SMS reminders to pensioners to submit Life Certificate and taking lead in developing life certificate schemes.

- A new system driven Preventive Monitoring System (Early Warning) was operationalised in the Bank w.e.f. July 201 4 for better monitoring of borrowers'' financial health and taking timely action for reduction/containment of NPAs.

- The Bank was under parallel run for adoption of Foundation Internal Rating Based Approach (FIRB) for Credit Risk and The Standardized Approach (TSA) for Operational Risk. The Bank also submitted formal Letter of Intent for adoption of Advanced Measurement Approach (AMA) for Operational Risk and Internal Models Approach (IMA) for Market risk.

- The Bank initiated the concept of designating certain major cities as Pragati cities where all branches were opened under Pragati Model. Presently three cities namely Bhopal, Noida and Patiala have attained Pragati City status.

- Moving towards digitalization, the Bank developed another platform for redemption of card loyalty points earned on usage of debit cards known as "PNB Rewardz Mobile App". With the help of this Mobile App, customers can register for PNB Rewards, check their reward points, redeem online and get alerts for deals & discounts.

- The Bank put in place a proper marketing structure and separate vertical based on "Feet on Street" concept to acquire fresh business. This would facilitate the effective publicity of products of the Bank.

C. DIVIDEND

The Board of Directors in its meeting held on 8th May 2015 recommended dividend of Rs. 3.30 per equity share of Rs. 2 each (i.e. 165%) for FY''15.

16. Right To Information Act

The Right to Information Act was implemented by the Bank. The relevant information as per Right to Information Act was posted on the Bank''s website (www.pnbindia.in). During FY''15, the Bank received 7517 applications and provided requisite information to 5388 applicants and 2121 applications were found exempted under the provisions of the Act. 224 applications were outstanding as on 31.03.2015 for disposal within the prescribed timeframe.

17. Implementation of Official Language Policy

The Bank has always been leading in the area of i mplementation of Official Language as in other areas of the Bank. The Bank achieved almost all the targets in all parameters fixed by the Govt. of India, Ministry of Home Affairs, Department of Official Language for the year 2014-15. All the bilingual CBS and HRMS computers were under Hindi Interface. By adopting this bilingual system, implementation of Rajbhasha increased a lot. In addition, the Bank used Unicode fonts for Hindi correspondence etc. at all levels.

During FY''15, the Bank was awarded with 34 awards for its excellent performance in the use of Hindi which includes some of very significant awards namely Indira Gandhi Rajbhasha Shield - a top most award scheme of Govt. of India, RBI Rajbhasha Shield and other Regional level awards of Ministry of Home Affairs. In addition, Town Official Language Implementation Committees situated in different locations of the country and other Non-Govt. Organizations also awarded the Bank offices. The Bank successfully convened the Town Official Language Implementation Committees constituted by Govt. of India in Delhi, Bharatpur, Kanpur, Chandigarh, Dharamshala, Sriganganagar, Bulandshahar, Dehradun, Gorakhpur, Kurukshetra, Rohtak, Muzaffarnagar and Hoshiarpur.

The third sub-committee of Committee of Parliament on Official Language visited the Ernakulum Circle Branch Office- Kottayam of the Bank on 19th January, 2015 and Draft & Evidence Committee of Parliament on Official Language inspected Delhi Bank Narakas Members on 1st April, 2015, convenor of Delhi TOLIC being Punjab National Bank. The Committee not only expressed satisfaction but also appreciated the efforts made by the Bank for progressive use of Hindi.

The Bank celebrates ''Hindi Maah'' in the month of September every year. Various competitions were organised at all India, local and Circle levels in which staff members of all cadres participate enthusiastically. The winners are awarded with prizes in the Rajbhasha Function. Bank has its own Lala Lajpat Rai Rajbhasha Shield Yojana for its various HO Divisions and Circle Offices, Training Centres, Zonal Audit Offices, etc. Under the scheme, every year offices were awarded with prizes for doing excellent work in the area of Rajbhasha implementation. This year also, the Bank organised Hindi Maah & other programmes/competitions and awards & prizes were given. Fifth collection of articles received in the competitions on creative writing is going to be published. Under Moulik Hindi Pustak Lekhan Yojana of the Bank, cash incentives were awarded to the staff members for writing original books in Hindi on Banking and Non-banking subjects. All the staff members including the employees retired from the Bank''s services, participated under this scheme.

18. Customer Care

The Bank continues to lay greater emphasis on providing prompt and efficient service to its customers. With a view to achieve this end, the Bank has established Customer Care Centre at each Circle Office and Head Office. Customer Care Centre at Head Office is headed by a General Manager, who is assisted by a Deputy General Manager, two Chief Managers and several other officers. Every endeavour is made to redress the complaints within the timeframe fixed under the Grievance Redressal Policy formulated by the Bank and complainant is invariably apprised of the response of the Bank. In the Bank, systems and procedures are reviewed at regular intervals to remove systemic deficiency, if any, which help in further improving the customer service.

Due to constant efforts made by the Bank to improve the customer service, the number of complaints received during FY''15 came down from 38,869 in FY''14 to 29,759. Out of total number of 29,951 complaints, 192 complaints were outstanding as on 01.04.2014 and 29759 complaints were received during FY''15. The number of complaints redressed was 29,778 as at 31st March 2015. 1 73 complaints were pending as on 31.03.2015, which stood resolved.

The number of unimplemented awards as at 01.04.2014 was 4. The awards passed by Banking Ombudsman during FY''15 were 7 while the awards implemented during same period were 10. One award remained unimplemented as at 31st March 2015, in respect of which appeal was filed with the Appellate Authority.

Initiatives undertaken during the year for improvement in customer service

- The Bank constituted a team of officials at Customer Care Centre at Head Office to pay incognito visit to branches in Delhi NCR area to assess their standard of service. Deficiencies pointed out by the visiting officials are being shared with the concerned branch and the Circle Office for taking corrective steps for removal of the same. Similar system was introduced in other Circle Offices of the Bank on pan India basis. This helped in further improvement in customer service.

- The Bank established state-of-the-art Contact Centres at Gurgaon and Noida to provide tele-banking services to its customers on 24 x 7 x 365 basis through two renowned Service Providers viz., (i) M/s Aegis Limited and (ii) M/s Mphasis Limited. In addition to above two Primary Sites, the Bank established two Secondary Contact Centres at Mangalore and Bhopal to provide tele-banking services to its customers in regional languages also.

- The Bank publishes a monthly magazine titled "Customer Speak" in which gist of the selected complaints made by the customers is published and the action taken and resolution provided to the complainant is also mentioned. Besides, the Bank''s guidelines on important issues pertaining to customer service are highlighted for the benefit of the field staff.

- Theme Based Meetings were conducted in all branches on a common date at monthly intervals to bring about awareness of the Bank''s products and schemes and for improving knowledge and skills of the field staff.

19. PNB''s Subsidiaries and Regional Rural Banks

a. PNB Housing Finance Limited (PNBHFL)

FY''15 was a year of high growth once again under all the parameters. The Company achieved good growth in fresh loans, outstanding loan book, profitability and it further reduced Non-Performing loans. The Company''s Total Loans sanctioned during the year were Rs.15,076 crore showing YoY growth of 71% in FY''15. During the year, the total loan disbursements was Rs. 9440 crore showing YoY growth of 72% in FY''15. The Loans outstanding as on 31st March 2015 was Rs. 16,819 crore registering the growth of 59% over FY''14.

The Company''s Gross Non-Performing Assets stood at 0.20% while Net Non-Performing Assets stood at 0.07% which was lowest in the Industry. Profit before Tax stood at Rs. 295.46 crore, showing YoY growth of 68% over FY''14. The Profit after Tax reached at Rs. 196.11 crore showing YoY growth of 54% over FY''14.

The Company faced tough competition in the market, with regard to declining margins and takeover of portfolio by the competitors. This challenge was met with efficient funds management and improved service to the customers. The Company improved the borrowing mix during the year, which has enabled it not only to reduce borrowing cost but also better net interest margin as compared to last year. Public deposits of the Company grew by over 186% at Rs. 4897 crore. The deposits contributed over 28% of the loan assets as compared to 16% a year ago.

The Company introduced online state-of-art Enterprise System Solution. The Company will soon introduce web enabled services for its customers and business associates. During the year, the Company opened six new branches taking the total network to 38 branches. These branches were supported by 15 zonal and regional underwriting hubs. The hub structure scalable up to 60-65 branches would enable future growth of business. By 31st March 2015, the Company was 5th largest Housing Finance Company and 2nd largest deposit taking Housing Finance Company.

b. PND Gilts Limited

During FY''15, Indian financial markets continued to be guided by a host of varying factors, like commitment to inflation management, reasonable stability on currency front, current account deficit under control and on fiscal consolidation path. Further, fast changing geo-political landscape, weakening commodity prices including plummeting crude prices, weakening Euro Zone economy, signs of strengthening US economy, growth slowdown in China and positive macro economic developments in India were shaping the contours of Indian financial markets. In the wake of these developments, a revised liquidity management framework was introduced to manage liquidity condition on an ongoing basis while the statutory liquidity ratio (SLR) was reduced to 21.5% of NDTL. In tune with the falling retail inflation, RBI also cut the repo rate by 50 bps to 7.50%. As a result of all these factors, the yield on ten year Sovereign benchmark paper declined to the level of 7.74% as on 31st March 2015.

Against the above developments, PNB Gilts Ltd. fulfilled all its obligations as a primary dealer in both the Primary and Secondary markets. Profit before Tax (PBT) amounted to Rs. 134 crore as against Rs. 91 crore in FY''14 The increase in profit was due to the company''s extra vigilance on market movement with a suitable trading strategy within the risk parameters set by the Board to keep the market risk under check. The trading income amounted to Rs. 76 crore during FY''15 as against Rs. 31 crore in FY''14. Further the total outright turnover increased to Rs. 4.71 lakh crore as against Rs. 3.08 lakh crore in FY''14. This is the highest turnover achieved by the company since inception. The Total Net worth of the company stood at Rs. 718.06 crore as on 31st March 2015.

c. Punjab National Bank International Limited (PNBIL)

During FY''15, Total Business of PNBIL increased from $2818 million (as on 31st March 2014) to $ 2975.1 7 million (as on 31st March 2015), registering a YoY growth of 5.58%.

Deposits increased to $1421 million (2014: $1331 million), while Advances increased to $1554 million (2014: $1487 million), registering YoY growth of 6.74% and 4.50%, respectively. The major growth under deposits came in retail deposits, which grew from $683 million to $722 million. Operating Profit went up from $27 million to $41 million, registering growth of 52%. Total Comprehensive Income attributable to equity shareholders was $ 9.91 million (2014: $8.63 million). Offering basic banking products and relationship banking continues to be the strong selling point for the Bank. The Indian Rupee (INR) Remittance scheme of the Bank stabilized and gained popularity among the ethnic population. The Bank built a strong brand image in the UK market.

Cash ISA product launched by PNBIL with variants of Variable Rate Cash ISA and Fixed Rate Cash ISA, has gained popularity and the Company attracted over USD 100 million deposits under the scheme. Helpline service established by the Bank during previous year has stabilized and contributed in improving the customer service. The Bank switched over from Maestro Card to contact-less Master card. Debit card holders of PNBIL have the option to withdraw money from any ATM having Master Card logo. PNBIL is the first Indian Bank to issue contactless debit card and few among the local banks to do so. Strategic integration, parental support, continuous innovation, customer centric approach, niche positioning and competitive advantage in its targeted customer base are the key strengths the Bank is enjoying in UK. The Bank has in place well defined and clearly laid down policies on Risk Management, Audit and Compliance. The Bank has its own dedicated treasury at London and a back office in India. The Bank complies with all regulatory and capital adequacy guidelines of Prudential Regulation Authority of UK.

d. Punjab National Bank Investment Services Limited (PNBISL)

PNB Investment Services Ltd. (PNBISL) is a wholly owned subsidiary of Punjab National Bank. It is engaged in providing Merchant Banking and other Corporate Advisory services in the streams of Financial Appraisal/Techno-Economic viability Study, Debt Syndication and undertaking Corporate Debt Restructuring (CDR) besides providing Trusteeship services to various Corporate Clients.

The Company is having Corporate Office at Mumbai and registered office at Delhi. At both these offices all gamut of services are being rendered. The Company is also having three other Representative Offices at Chennai, Hyderabad and Ahmedabad. Besides generating business leads for Mumbai and Delhi Offices, these Representative Offices also undertake Security Trustee and Loan Syndication activities. Chennai Representative Office is also equipped to handle conducting of Techno-economic viability studies.

In the financial year ended on 31st March 2015, the overall performance of the Company was good. During the year ended March 2015, the Company earned total fee based business income of Rs. 11.13 crore as against last year corresponding fee of Rs. 8.08 crore registering YoY growth of about 38%. Total Income of the Company increased from Rs. 11.15 crore to Rs. 14.53 crore at a growth rate of 30%. Profit before tax, during this period, improved from Rs. 8.06 crore to Rs. 10.70 crore, registering YoY growth of 33%.

During the period, the Company under Merchant Banking stream filed Draft Red Herring Prospectus (DRHP) for one of reputed company engaged in Infrastructure development for its proposed Initial Public Offer (IPO). The Company was also in process of conducting due diligence for filing DRHP in another Merchant Banking assignment of a reputed company engaged in Automobile components for its proposed IPO. During the period, the ambit of CDR Advisory Services was increased to cover bilateral restructurings apart from restructuring under CDRa EG aegis. The Company is now planning to further expand the scope of the services to include debt resolution through take-out financing, refinancing options and providing corporate advisory services to arrange finance for big Infrastructure Projects, which could not achieve commercial operation as envisaged at the time of their financial closure. Further, the Company was also planning to take steps for providing corporate advisory services to the lenders and borrowers through rectification route under JLF mechanism, where the private equity/strategic capital is to be arranged.

With slew of reform and forward looking Central budget coupled with supporting Monetary policy, of the Regulator Bank, there is a positive outlook in financial and Stock Markets. PNBISL is confident to get benefit of the positive sentiments and hopeful to do better in FY''16. The Company was also in process of strengthening its team through recruitment of some senior officials under Merchant Banking and Restructuring segments and is confident to get many more Merchant Banking assignments to broaden its visibility in the financial market.

The Company aims to blossom into an Investment Bank by offering the entire gamut of investment banking and corporate advisory services like venture capital advisory, project advisory, buy and sell-side advisory, accessing financial markets to raise capital and restructuring advisory.

e. Regional Rural Banks

As on 31st March 2015, five RRBs, sponsored by Punjab National Bank, were operating in five States, namely, Bihar, Haryana, Himachal Pradesh, Punjab and Uttar Pradesh covering 74 districts with a network of 2144 branches.

The aggregate paid-up capital of these Regional Rural Banks stood at Rs. 199.30 crore. Central Government, State Governments and PNB contributed in paid-up capital of these RRBs in the ratio of 50: 15: 35 respectively. The Bank''s contribution towards capital of these RRBs was Rs. 69.76 crore. The combined net worth of PNB sponsored RRBs as on March 2015 was Rs. 2809.85 crore.

During FY''15, the Aggregate Business of all RRBs increased from Rs. 40531 crore to Rs. 45630 crore showing a growth of Rs. 5099 crore (12.58%). The Aggregate Deposits and Aggregate Advances as on 31.03.2015 stood at Rs. 29194 crore (YoY 14.01%) and Rs. 16436 crore (YoY 10.13%), respectively. The Aggregate Net Profit of the RRBs as on 31.03.2015 stood at Rs. 331.25 crore (YoY 9.05%). All the sponsored RRBs are in Profit.

The Gross NPAs of the RRBs stood at Rs. 692 crore (4.21% of Total Advances) during the period. Further, Net NPAs stood at Rs. 338 crore (i.e. 2.15% of Net Advances) as on 31.03.2015.

During the year, 217 new branches were opened by RRBs, taking the Total Network of branches to 2144 with all being on CBS and total numbers of employees stood at 8675.

Progress in opening of accounts under Pradhan Mantri Jan Dhan Yojana (PMJDY) as on 31.03.15 was 23,88,792 accounts, out of which RuPay debit cards were issued in 5,34,122 accounts. Balance outstanding in these accounts stood at Rs. 354.9 crore. The survey of allotted wards & Sub Service Areas (SSAs) was completed by all RRBs in time.

The RRBs sponsored by the Bank actively participated in economic development of the areas of their presence. With the implementation of Core Banking Solution (CBS), rural customers also received the benefits of latest technology, thus providing services to the rural poor under Financial Inclusion Plan at their doorsteps.

RRBs also opened NRE/NRO accounts. The facility of NEFT, RuPay ATM cards & KCC cards, KIOSK banking solution (KBS) under Financial Inclusion Plan, Aadhaar Payment Bridge System (ABPS) under DBT, etc., were also being provided to customers in all the RRBs. The Bank achieved all the SOI targets given by the Ministry of Finance, Govt. of India, DFS to the Bank for March 2015.

Performance of RRBs as on 31.03.2015

(Amt. In Rs. Crore)

S. No. Performance of RRBs Mar''14 Mar''15 YoY (Audited) (Audited) growth%

1 Aggregate deposits 25607 29194 14.01

2 Aggregate Advances 14924 16436 10.13

3 Aggregate Net Profit 304 331 9.05

4 Branches under CBS 100% 100% -

5 Profit Per Employee (Rs lakh) 3.98 4.04 1.52

No. of Loss Making 41 93 -

Branches (being 12 month old or more)

20. Awards and Accolades

During Financial Year 2015, in recognition of its performance and initiatives, PNB received various awards, some of which are: -

- BFSI Awards for Bank with leading Financial Inclusion Initiatives 2015 by ABP News.

- IBA Banking Technology awards 2014-15 for the Bank with "Best Risk Management Initiatives" by Indian Banks'' Association.

- Corporate Vigilance Excellence Award 2014-15 by Institute of Public Enterprises, Hyderabad.

- IBA Banking Technology Awards 2014-15 for the bank with "Best Training and Human Resources, e-Learning initiatives (PSU)" -Second Runners Up by Indian Banks'' Association.

- Skoch Renaissanace Award for people management: Skill Development & Employment generation - Certificate for Commendable Contribution.

- MSME Banking Excellence Awards 2014- Best Bank for Financial inclusion -Runners Up by Chambers of Indian Micro Small and Medium Enterprises.

- Banking Frontiers: Inspiring Work Place by Banking Frontiers Magazines.

- Golden Peacock Business Excellence Award 2014 by Institute of Directors.

- Golden Peacock Innovative Product/Service Award 2014 by Institute of Directors.

- Pradhan Mantri Jan Dhan Yojana Awards for Excellence by Federation of Trade Services.

- PSU Awards - Financial Inclusion and Payment Systems Award by Elets Technomedia Pvt. Ltd.

21. Board of Directors

As on 31.03.2015, there were 8 Directors on the Board of the Bank including 3 whole time Directors i.e. Managing Director & Chief Executive Officer and two Executive Directors. During FY''15, the following changes took place in the composition of Board of Directors:

- Shri K. R. Kamath demitted the office of Chairman & Managing Director of the Bank w.e.f. 28.10.2014 on completion of his tenure of five years on 27.10.2014.

- Shri Rajesh Aggarwal was appointed in place of Shri Anurag Jain as Government of India Nominee Director on the Board of the Bank w.e.f. 29.01.2015.

- Shri Gauri Shankar, Executive Director entrusted with additional Charge of the Managing Director & Chief Executive Officer of the Bank for a period of three months, assumed charge of the office w.e.f. 09.02.2015.

- Shri B.B. Chaudhry, Shri M.A. Antulay, Shri M.N. Gopinath and Shri D.K. Singla, Directors completed their tenure on the Board of the Bank during FY''15.

- Dr. Sunil Gupta and Smt. Aradhana Misra, Directors resigned from the Board of the Bank during FY''15.

The Board wishes to place on record its appreciation for the valuable contribution made by Shri K.R. Kamath, CMD, Shri Anurag Jain, Shri B.B. Chaudhry, Shri M.A. Antulay, Smt. Aradhana Misra, Dr. Sunil Gupta, Shri M.N. Gopinath and Shri D.K. Singla, Directors.

22. Directors'' Responsibility Statement

The Directors confirm that in the preparation of the annual accounts for the year ended March 31, 2015: -

- The applicable Accounting Standards have been followed along with proper explanation relating to material departures, if any;

- The accounting policies, framed in accordance with the guidelines of the Reserve Bank of India, were consistently applied;

- Internal financial controls have been laid down by the Bank for ensuring orderly conduct of business;

- Reasonable and prudent judgment and estimates were made so as to give a true and fair view of the state of affairs of the Bank at the end of the financial year and of the profit of the Bank for the year ended March 31, 2015;

- Proper and sufficient care was taken for the maintenance of adequate accounting records in accordance with the provisions of applicable laws governing banks in India, and

- The accounts have been prepared on the principle of "going concern" basis.

23. Acknowledgement

The Board expressed thanks to the Government of India, Reserve Bank of India, Securities and Exchange Board of India, Stock Exchanges, Bank''s customers, Public and the shareholders for valuable support, continued patronage and confidence reposed in the Bank.

The Board wishes to place on record its appreciation for the valuable contribution made by the staff of the Bank at all levels and look forward to their continued involvement in achieving the future goals.

For and on behalf of Board of Directors

(Gauri Shankar) Managing Director & CEO


Mar 31, 2013

To The Members

PNB has delivered a satisfactory performance during FY''13 despite challenging macroeconomic environment. Bank continued to be one of the leading nationalized banks with more than 80 million valued customers. During the FY''13, Bank has crossed various new landmarks of Rs. 7 lakh crore Business, Rs. 3 lakh crore Net Advances, Rs. 3 lakh crore Total Domestic Core Deposits, Rs. 1.50 lakh crore CASA Deposits and Rs. 30,000 crore Networth. This performance is combined with the highest Net Interest Margin, consistently higher Return on Equity, Book Value per share and Price to Earnings ratio. This performance was largely due to the Bank''s focus on ''Building a Superior Customer Experience'' with thrust on Retail, SMEs, Agriculture, Inclusive approach to Banking, Cost effective Organizational Structure, Better Asset Liability Management, prudent Risk Management, strengthening Recovery Mechanisms and various Cost Control Measures.

Today, PNB has a countrywide presence with a network of more than 5800 branches and more than 6000 ATMs that provide its 80 million customers a unique banking experience. This has also earned the Bank strong brand equity and customers'' loyalty. Further to take the customer experience to new heights, Bank has initiated a number of revitalization activities such as Centralized Public Grievances Redressal Mechanism and appointment of Chief Customer Service Officer who will work as Internal Ombudsman for resolution of customers'' grievances.

The exemplary performance has been duly recognized by the market. During the FY''13, Bank has been recognized as the "Best Public sector Bank" by CNBC TV 18. The Bank has also been recognised as the ''Most Socially Responsive Bank'' consecutively for second year by Business World and PwC. Further, The Sunday FINWIZ 2012 finds Bank the "Best Banker in Agriculture Credit (Large)". PNB has recently been conferred with National Award for excellent performance in lending under PMEGP Scheme of KVIC in North Zone by MSME Ministry, GOI. Bank has been awarded "Golden Peacock Business Excellence Award 2013" by Institute of Directors. Apart from this, the Bank has also been bestowed the IBA Banking Technology Awards 2012 under the categories of "Best Use of Business Intelligence" and "Best Risk Management and Security Initiatives".

In this backdrop, your Directors take pleasure in placing the Bank''s Annual Report for 2012-13 along with its audited annual financial statements.

OUR PERFORMANCE

1. FINANCIAL HIGHLIGHTS

1. BALANCE SHEET

(Rs. crore)

PARTICULARS 2011-12 2012-13 Growth (%)

Capital and Reserves 27815 32677 17.5

Total Business 673363 700285 4.0

Deposits 379588 391560 3.2

Low Cost Deposits (Savings and Current) 134129 153344 14.3

Advances 293775 308725 5.1

Retail Credit 29196 31310 7.2

Priority Sector Credit 95898 91427 -4.7

Agricultural Credit 45917 38055 -17.1

1.2. PROFIT

(Rs. crore)

PARTICULARS FY 2011-12 FY 2012-13 Growth (%)

Operating Profit 10614 10907 2.8

Provisions 5730 6160 7.5

Net Profit 4884 4748 -2.8

1.3 INCOME & EXPENDITURE

(Rs. crore)

PARTICULARS FY 2011-12 FY 2012-13 Growth (%)

Interest Income 36476 41893 14.9

- Intrest/discount and advances/bills 28435 31855 12.0

- Income on Investments 7739 9530 23.1

Non-Interest Income 4203 4216 0.3

Commission, Exchange and Brokerage 2375 2337 -1.6

Net Interest Income 13414 14857 10.8

Total Income 40679 46109 13.3

Interest Expended 23062 27037 17.2

Interest Paid on Deposits 21396 25501 19.2

Total Operating Expenses 7003 8165 16.6

Establishment Expenses 4723 5675 20.1

Total Expenses 30064 35202 17.1

1.4. KEY RATIOS

(Percentage)

PARTICULARS 2011-12 2012-13

Cost of Funds 5.62 5.70

Yield on Funds 8.89 8.83

Return on Equity 18.52 15.19

Net Interest Margin 3.84 3.52

Return on Assets 1.19 1.00

Cost to income Ration 39.75 42.81

Operating Expenses to Average Working Funds 1.71 1.72

Operating Profit to Average Working Funds 2.59 2.30

Earnings per share 154.02 139.52

Book value per share 777.35 884.03

Ratio of Net NPAs to Net advances 1.52 2.35

NPA Coverage ratio 62.73 58.83

CRAR-Basel II 12.63 12.72

2. OPERATIONAL HIGHLIGHTS

- Under PNB Pragati-Organizational Transformational Exercise of the Bank, operational excellence is one of the important pillars amongst three pillars on which this programme stands.

- The Bank has expanded its Wealth Management Services by forming PNB MetLife India Insurance Co. Ltd. after acquiring 30% stake in MetLife India Insurance Company Ltd.

- The Bank has set up its Corporate Office Building named ''PNB Pragati Tower'' housing the integrated Treasury office and Circle Office at Bandra Kurla Complex, Mumbai.

- The Bank has expanded its international presence to Sydney, Australia its 10th international destination. Further, the Bank is exploring possibilities for establishing its presence in Maldives, South Africa, Bangladesh, Myanmar and Singapore.

- The Bank is steadily adding to the kitty of its products and services. PNB RuPay Card is one such step in this direction.

- The Bank has launched PNB Express Money Remit Card and approximately 1 5,000 cards have been issued so far to beneficiaries of Inward remittance from Middle East.

- The Bank also modified the existing schemes and launched several new schemes of loans for meeting the growing aspirations of customers.

3. DIVIDEND

The Board of Directors has recommended a dividend of 270% for the year 2012-13.

4. CORPORATE GOVERNANCE

The Bank is committed to best practices in corporate governance by adhering to high standards of transparency and accountability in the interests of all the stakeholders.

As a listed entity, the Bank is complying with various regulatory requirements and with the government guidelines on the matters relating to corporate governance, which has been examined by the Statutory Central Auditors.

PNB follows practices that provide its financial stakeholders a high level of assurance on the quality of corporate governance. These best practices are reaffirmed by CGR-2 rating of the rating agency, ICRA Ltd., reflecting a high level of assertion on the quality of corporate governance of the Bank.

5. BOARD OF DIRECTORS

During the Year 2012-13, the following changes took place in the composition of Board of Directors:

- Shri S.R. Bansal was appointed as an Executive Director of the Bank on 18.06.2012.

- Shri N.S. Vishwanathan was appointed in place of Shri Jasbir Singh as RBI Nominee Director on 06.09.2012.

6. Details of various meetings held up to 31st March, 2013:

S. Meeting Number of S. Meeting Number of No. meetings No. meetings held held

1 Board Meeting 12 11 Share Transfer 25 Committee

2 Management 14 12 Shareholders''/ 6 Committee Investors'' Grievances Committee

3 Committee of 4 13 Directors Promotion 3 Directors to review Committee vigilance and non-vigilance cases

4 Audit Committee 11 14 Appellate and - of Board Reviewing Authority

5 Risk Management 4 15 Steering Committee 4 Vision 2013

6 Special Committee 9 16 Nomination Committee - of Board to Monitor and Follow Fraud cases of Rs. 1.00 crore and above

7 IT Committee of the 4 17 Insurance Joint - Board Venture Committee

8 P.A. Committee 9 18 Head Office 40 Credit Approval Committee Level-III

9 Remuneration 2 19 Election of - Committee Shareholders Directors - Voting by Public Sector Banks

10 Customer Service 4 20 Committee of 1 Committee Board to monitor the progress in recovery

- Shri M.P. Singh ceased to be Workmen Employee Director on 27.01.2013 on completion of his tenure on the Board of the Bank.

- Shri T.C. Jhalani was appointed as Workmen Employee Director on the Board of the Bank vide notification dated 08.03.2013.

- Shri Pradeep Kumar ceased to be Non Workmen Employee Director on 14.02.2013 on completion of his tenure on the Board of the Bank.

The Board welcomed Shri S.R. Bansal, Executive Director, Shri N.S. Vishwanathan, RBI Nominee Director and Shri T.C. Jhalani, as Workmen Employee Director on the Board of Directors of the Bank. The Board also wishes to place on record its appreciation for the valuable contribution made by Shri Jasbir Singh, RBI Nominee Director, Shri M.P. Singh, Workmen Employee Director and Shri Pradeep Kumar as Non-workmen Employee Director.

7. ACKNOWLEDGEMENTS

The Board of Directors thanks the Government of India, Reserve Bank of India, Securities and Exchange Board of India, Stock Exchanges, Bank''s customers, public and the shareholders for the valuable support, continued patronage and confidence reposed in the Bank.

The Board wishes to place on record its appreciation for the valuable contribution made by the members of the Bank''s staff at all levels and look forward to their continued involvement in achieving the future goals.

For and on behalf of Board of Directors

Chairman & Managing Director


Mar 31, 2012

PNB remained frontrunner in the Indian Banking with its Total Business, Total Deposits and Total Advances growing over 21% on YoY basis. This is higher than the growth achieved by the Banking System in India. This performance is combined with the consistently higher Book Value per Share and Earnings per Share. This impressive performance was largely due to the Bank's focus on 'Building a Customer Experience' with thrust on Retail, SMEs, Agriculture, Students, Inclusive approach to Banking, Cost effective Organizational Structure, Better Asset Liability Management, prudent Risk Management, strengthening Recovery Mechanisms and various Cost Control Measures.

We believe that Customer Experience is not just about Customer Service. It is also about physical as well as emotional elements. When both these elements are measured against customers' expectations, one can have the Best Customer Experience. For this, 'Customer Loyalty' is our watchword. Today PNB has a country wide presence with a network of 5670 branches and more than 6000 ATMs that provide its 7.2 crore customers a unique banking experience. This has also earned the Bank a strong brand equity and customers' loyalty.

PNB is amongst India's most trusted brands and features at the 25th place amongst the Top 50 most valuable corporate brands by Brand Finance-ET and 195th amongst top 500 global banks as per Brand Finance Global Banking 500 for 2011. More importantly, during 2011-12, PNB has been recognized as the 'Best in Corporate Social Responsibility (CSR) Overall' by World HRD Congress and been recognized as the 'Best Socially Responsive Bank' by Business World & PwC. Besides, Golden Peacock National Training Award has also been conferred upon the Bank by the Institute of Directors. Above all, the Bank was recognized as the 'Best Bank' by Business India.

In this backdrop, your Directors take pleasure in placing the Bank's Annual Report for 2011-12 along with its audited annual financial statements.

OUR PERFORMANCE

1. FINANCIAL HIGHLIGHTS

1.1. BALANCE SHEET

(Crore)

Particulars 2010-11 2011-12 (%)/Growth (%)

21509 27818 29.3

Capital & Reserves

555005 673363 21.3

Total Business

312899 379588 21.3

Deposits

120325 134129 11.5

Low cost Deposits (Savings and Current)

242107 293775 21.3

Advances

23621 29196 23.6

Retail Credit

75652 95898 26.8

Priority Sector Credit

40.67 40.70 -

-% of Adjusted Net Bank Credit (ANBC)

35462 45917 29.5

Agricultural credit

- 19.30 19.34 -

-% of Adjusted Net Bank Credit (ANBC)

1.2. PROFIT

(Crore) 2010-11 2011-12 Particulars FY 2010-11 FY 2011-12 Growth (%)

9056 10614 17.2

Operating profit

4622 5730 24.0

Provisions

4433 4884 10.2

Net profit

1.3. INCOME & EXPENDITURE

(Crore)

2010-11 2011-12 (%)

Particulars FY 2010-11 FY 2011-12 Growth (%)

26986 36428 35.0

Interest income

- 21105 28447 34.8

- Interest/discount on advances/bills

- 5638 7692 36.4

- Income on investments

3613 4203 16.3

Non-interest income

2045 2375 16.1

Commission, Exchange & Brokerage

11807 13414 13.6

Net Interest Income

30599 40631 32.8

Total Income

15179 23014 51.6

Interest expended

- 13795 21396 55.1

- Interest paid on deposits

6364 7003 10.0

Total Operating expenses

- 4461 4723 5.9

- Establishment expenses

21543 30016 39.3

Total Expenses

9056 10614 17.2

Operating profit

4622 5730 24.0

Provisions and contingencies

4433 4884 10.2

Net profit

Note: Difference in totals is due to rounding off

1.4 KEY RATIOS

(Percentage)

PARTICULARS 2010-11 2011-2012

4.57 5.62

Average cost of funds

8.12 8.89

Average yield on funds

22.13 18.52

Return on Equity

3.96 3.84

Net Interest Margin

1.34 1.19

Return on Assets

41.27 39.75

Cost to Income Ratio

1.91 1.71

Operating expenses to Average Working Funds

2.72 2.59

Operating profit to Average Working Funds

140.6 154.2

Earnings per share (Rs)

632.5 777.4

Book value per share (Rs)

0.85 1.52

Net NPAs to Net advances

73.21 62.73

Provision Coverage Ratio

12.42 12.63

CRAR - Basel II

2. OPERATIONAL HIGHLIGHTS DURING THE YEAR

- Bank has expanded its wealth management services by foraying into Life Insurance business and tie-up with Metlife India Insurance Company Ltd.

- Bank has expanded its international foray to 10th destination viz. Sydney, Australia. Further we are exploring possibilities for presence in Maldives, South Africa, Bangladesh, Myanmar, Singapore and Brazil.

- Taking forward its mission of "Banking for the unbanked", under Financial Inclusion Plan, Bank has covered all its 4588 villages allotted under the Swabhiman campaign of Govt. of India through Business Correspondents.

- Bank has made a positive contribution towards community by further streamlining its CSR activities. Towards this, 'PNB Prerna', an association/body of wives of top executives of the Bank to carry forward the CSR agenda of the Bank, has completed one year of its existence.

- Bank is establishing e-lobbies for providing 24 x 7 banking Services and is also opening GenNext Branches to cater to the needs of younger generation.

- Bank has made its technology platform more robust with necessary up-gradations. It has successfully migrated to next version of Finacle (7.0.25) for better Customer service.

- Various customer friendly initiatives were introduced by the Bank to provide quality experience to our esteemed customers, like Introduction of Cash Deposit machines, Self Service passbook printing terminals, SMS alerts, 'PNB Welcome Kit' for HNI / salaried account holders, etc.

- Bank continued its expansion by adding over 450 branches and 950 ATMs during the year.

- Bank introduced many new customized offers targeting special customer segments like new education loan scheme 'PNB Pratibha', MSME schemes like 'PNB weavers Credit card' and 'PNB Super Trade', new term deposit product like 'PNB 1111 days', 'prospective senior citizen scheme', etc.

3. DIVIDEND

The Board of Directors has recommended a dividend of 220% for the year 2011-12.

4. CORPORATE GOVERNANCE

The Bank is committed to best practices in Corporate Governance by adhering to high standards of transparency, accountability, ethical business practices, operational efficiencies and social responsiveness for maximizing interest of all the stakeholders.

As a listed entity, Bank is complying with various regulatory requirements. Bank has complied with the guidelines of Reserve Bank of India and SEBI on the matters relating to Corporate Governance, which has been examined by the Statutory Central Auditors.

PNB follows practices that provide its financial stakeholders a high level of assurance on the quality of Corporate Governance. These best practices are reaffirmed by CGR-2 rating of the rating agency, ICRA Ltd reflecting a high level of assertion on the quality of corporate governance of the Bank.

5. BOARD OF DIRECTORS

As on 31.03.2012, there are 12 Directors on the Board of the Bank including 3 whole time Directors, i.e Chairman and Managing Director and two Executive Directors.

During the Year 2011-12, the following changes took place in the composition of Board of Directors:

- Shri M.A. Antulay, part time non official Director was re- appointed on 20.05.2011.

- Shri M.V. Tanksale, Executive Director demitted the office on

28.06.2011 on his elevation as Chairman & Managing Director of Central Bank of India.

- Smt. Usha Ananthasubramanian was appointed as Executive Director of the Bank on 18.07.2011.

- Shri Anurag Jain, GOI Nominee Director was nominated by the Govt. of India on 03.08.2011 in the position earlier held by Smt. Ravneet Kaur.

- Shri B.B. Choudhary, Director under Chartered Accountant category, was appointed by the Govt. of India on 23.09.2011.

- Shri V.K. Mishra, part time non official Director ceased to be Director on the Board of the Bank w.e.f. 05.12.2011 on completion of his tenure.

- Shri D.K. Singla, Shri T.N. Chaturvedi and Shri G.R. Sundaravadivel, Shareholder Directors, demitted their offices on 27.12.2011 on completion of their tenure on the Board of the Bank.

- 3 new Shareholder Directors namely, Shri M.N. Gopinath, Shri D.K. Singla and Dr. Sunil Gupta have been elected as Shareholder Directors in the EGM held on 20.03.2012.

The Board welcomes Smt. Usha Ananthasubramanian, Executive Director, Shri Anurag Jain, Shri B.B. Choudhary and Shri M.A. Antulay (re-nominated), Shri M.N. Gopinath, Shri D.K. Singla (re-elected) and Dr. Sunil Gupta, as Directors on the Board of the Bank. The Board also wishes to place on record its appreciation for the valuable contributions made by Shri M.V. Tanksale, the then Executive Director, Shri V.K. Mishra, Shri T.N. Chaturvedi and Shri G.R. Sundaravadivel, the Directors.

6. Details of various meetings held up to 31st March, 2012:

S. Meeting Number of S. Meeting Number of No. Meetings No. Meetings held upto held upto March, 2012 March, 2012

1 Board Meeting 13 11 Share Transfer 24 Committee

2 Management 19 12 Shareholders'/ Investors' 6 Committee Grievances Committee

3 Committee of Directors 4 13 Directors Promotion 1 to review vigilance & Committee non-vigilance cases

4 Audit Committee of Board 11 14 Appellate & Reviewing - Authority

5 Risk Management 4 15 Steering Committee 4 Committee Vision 2013

6 Special Committee of 9 16 Nomination Committee 1 Board to Monitor and

Follow Fraud cases of Rs. 1.00 crore and above

7 IT Committee of the Board 4 17 Insurance Joint Venture 5

Committee

8 PA. Committee 6 18 Organisational 2

Transformation &

Business Excellence

Programme

9 Remuneration Committee 1 19 Credit Approval Committee 8

10 Customer Service Committee 4

7. ACKNOWLEDGMENTS

The Board of Directors thank the Government of India, Reserve Bank of India, Securities and Exchange Board of India, Stock Exchanges, Bank's customers, public and the shareholders for valuable support, continued patronage and confidence reposed in the bank.

The Board also wishes to place on record its appreciation for the valuable contribution of the members of the Bank's staff at all levels and look forward to their continued involvement in achieving the future goals.

For and on behalf of Board of Directors CHAIRMAN AND MANAGING DIRECTOR


Mar 31, 2011

Punjab National Bank with a rich legacy spanning 117 years has emerged as the second largest bank in the country. Today, PNB is a well established brand with a strong technological base touching the lives of millions of customers. The Bank has worked assiduously to build its front line position, constantly reinventing itself to keep pace with the changing banking landscape and customer preferences. While successfully managing change, the Bank has remained deeply rooted in the principles of good banking. Resultantly, the fundamentals of the Bank have strengthened which augur well for a bright future.

A network of 5189 branches, 5050 ATMs and a customer base of over 60 million add considerably to the franchise value the Bank enjoys. Technology has played an important role in expanding its franchise value through customer acquisition and retention, carrying out faster and efficient financial transactions in a secure manner and in improving customer convenience.

The awards and recognitions received by the Bank bear testimony to the efforts and initiatives to remain highly customer-focused, adoption of good business practices and extending the reach to the unbanked. It is also a reflection of how the Bank has been able to successfully pursue business opportunities with acumen while continuing to fulfill its social responsibilities.

Organization Structure

Pursuit of strategy requires that organization structure is closely aligned with business goals. During the year, Bank took various measures aimed at improving organization structure to support effective execution of strategy. The Retail Banking Division was bifurcated into Retail Assets Division and Resource Mobilization Division. Further, the Retail Hubs were reorganized into Retail Asset Branches (RAB) to meet the requirements of the retail borrowers and ensure faster delivery of retail credit. Presently, 73 RABs are functioning successfully. Budgeting process was further strengthened by linking with systems growth in a particular area as well as available potential. To face the HR challenges in a proactive manner, routine administrative functions relating to human resource management were hived-off into a separate Personnel Administration Division.

Your Directors take pleasure in placing the Banks Annual Report for 2010-11 along with its audited annual financial statements.

OUR PERFORMANCE

1. FINANCIAL HIGHLIGHTS

1.1 BALANCE SHEET

(Rs Crore) 2009-10 2010-11 Growth %

PARTICULARS

Capital & Reserves 17723 21509 21.36

Total Business 435931 555005 27.31

Deposits 249330 312899 25.50

Low cost Deposits (Savings and Current) 101850 120325 18.14

Advances 186601 242107 29.75

Retail Credit 19214 23621 22.94

Priority Sector Credit 63769 75652 18.63

-% of Adjusted Net Bank Credit (ANBC) 40.55 40.67 -

Agreecultural Credit 30207 35462 17.40

-% of Adjusted Net Bank Credit (ANBC) 19.53 19.3 -

1.2 PROFIT

(Rs Crore)

PARTICULARS FY 2009-2010 FY 2010-2011 Growth%

Operating profit 7326 9056 23.61

Provisions 3421 4622 35.11

Net profit 3905 4433 13.53

1.3 INCOME & EXPENDITURE

(Rs Crore)

PARTICULARS FY 2009-2010 FY 2010-2011 Growth%

Interest income 21422 26986 25.97

- Interest/discount on advances/bills 16677 21105 26.55

- Income on investments 4556 5638 23.75

Non-interest income 3610 3613 0.08

Commission, Exchange & Brokerage 1682 2045 21.58

Net Interest Income 8478 11807 39.27

Total Income 25032 30599 22.24

Interest expended 12944 15179 17.27

- Interest paid on deposits 11966 13795 15.28

Total Operating expenses 4762 6364 33.64

- Establishment expenses 3121 4461 42.93

Total Expenses 17706 21543 21.67

Operating profit 7326 9056 23.61 Provisions and contingencies 3421 4622 35.11

Net profit 3905 4433 13.53

Note: Difference in total is due to rounding off

1.4. KEY RATIOS (Percent)

PARTICULARS 2009-10 2010-11

Average cost of funds 4.76 4.57

Average yield on funds 7.88 8.12

Return on Equity 24.59 22.13

Net Interest Margin 3.57 3.96

Return on Assets 1.44 1.34

Cost to Income Ratio 39.39 41.27

Operating expenses to average Working Funds 1.70 1.91

Operating profit to average Working Funds 2.62 2.72

Earnings per share (Rs.) 123.86 140.60

Book value per share (Rs.) 514.77 661.20

Ratio of Net NPAs to Net advances 0.53 0.85

NPA coverage ratio 81.17 73.21

CRAR - Basel II 14.16 12.42

2. OPERATIONAL HIGHLIGHTS

- Bank leveraged on its 5180 plus branch network to build deep, enduring relationships with its 60 million plus customers across all the segments.

- Bank’s network of 5050 ATMs along with alternate delivery channels account for more than 28% of transactions.

- New set of products and services like PNB Uphaar, PNB Suvidha, World Travel Card, etc were introduced during the year.

- In addition to international presence in 9 countries, Bank acquired equity stake in Dana Bank of Kazakhstan and is in the process of setting up presence in Australia and Canada.

- Under the performance management system, employee performance was recognized and incentivized.

- Strengthened pool of management talent as part of succession planning exercise with Team 2020 initiatives.

- Streamlined CSR activities to move forward and to make a positive contribution towards community.

3. DIVIDEND

The Board of Directors has recommended a dividend of 220% for the year 2010-11.

4. CORPORATE GOVERNANCE

The Bank is committed to best practices in corporate governance and recognizes that transparency, ethical behavior, integrity and protection of interests of all stakeholders form the keystones of governance. Being in the business of financial intermediation, the Bank is fully aware of the risks involved. To address this, the Bank has put in place elaborate system of risk identification, measurement and mitigation. A Risk Management Committee at the Board level monitors the risk management process in the Bank. The Board of Directors has oversight on the Bank and ensures that there is right balance between business and risk. Further through the Audit Committee, the Board ensures strong system of internal control and corporate reporting including financial reporting. As a listed entity, the Bank is complying with various regulatory requirements. Disclosures are made in the financial statements in compliance with Section 29 of Banking Regulation Act, 1949, RBI guidelines, Section 49 of the Listing Agreement and Accounting Standards and Guidelines issued by the Institute of Chartered Accountants of India. These inter-alia, include segment reporting, related party disclosures, lending to sensitive sectors, restructured loan assets, key business ratios, risk management, performance of Bank’s share price, etc.

PNB follows practices that provide its financial stakeholders a high level of assurance on the quality of Corporate Governance. This is reflected in the ICRA Ltd’s CGR 2 rating which is the highest rating assigned to a financial institution in India.

5. BOARD OF DIRECTORS

As on 31.03.2011 there were 11 Directors on the Board of the Bank including Chairman and Managing Director and two Executive Directors.

At the time of appointment/nomination of any Director, the guidelines defining the roles and responsibilities of Directors as circulated by Government of India/ Ministry of Finance from time to time are made available to them. A declaration of “Model Code of Conduct” is being obtained from all the Directors in April every year. Deeds of covenants as recommended by Ganguly Committee are being entered into with the elected directors on the Board of the Bank in terms of instructions of Reserve Bank of India/ Government of India every year.

As per recommendations of Ganguly Committee, Directors are imparted training to make them more responsive to the organization, the business environment and emerging developments/challenges in the banking sector. As part of their

training, Directors are nominated to training programmes in reputed Institutions like Centre for Corporate Research and Training (CCRT), Navi Mumbai, Institute of Company Secretaries of India, Institute of Directors, etc.

During the Financial Year 2010-11, four Directors were nominated for various training programmes viz. “Masterclass for Directors leading to Certified Corporate Directorship”, “Conference on Corporate Compliance” and “Role of Independent Directors - Issues & Solutions”.

6. CHANGES IN THE BOARD OF DIRECTORS

During the year 2010-11, the following changes took place in the composition of Board of Directors of the Bank:

- Shri L.M. Fonseca, RBI Nominee Director ceased to be Director on 30.07.2010 on expiry of his term.

- Shri Jasbir Singh, RBI Nominee Director was appointed on the Board of the Bank on 30.07.2010.

- Shri Nagesh Pydah, Executive Director, demitted the office on 31.12.2010 on his elevation as Chairman & Managing Director of Oriental Bank of Commerce.

- Shri Rakesh Sethi was appointed as Executive Director of the Bank on 01.01.2011.

- Shri M.A. Antulay, part time non-official Director ceased to be Director w.e.f 27.02.2011 on completion of his tenure.

- Shri G.P. Khandelwal, part time non-official Director ceased to be Director w.e.f 27.02.2011 on completion of his tenure.

The Board welcomes Shri Rakesh Sethi, new Executive Director and Shri Jasbir Singh, new Director and wishes to place on record the valuable services rendered by Sh. Nagesh Pydah, Sh. L.M. Fonseca, Sh. M.A. Antulay and Sh. G.P. Khandelwal.

BOARD COMMITTEES

(As on 31.03.2011)

No. NAME OF THE COMMITTEE

1. Management Committee

2. Audit Committee of Board

3. Risk Management Committee

4. Share Transfer Committee

5. Shareholders’ /Investors’ Grievance Committee

6. Customer Service Committee

7. I.T. Committee

8. PA Committee

9. Director’s Promotion Committee

10. Appellate Authority and Reviewing Authority

11. Special Committee of Board to monitor and follow up fraud cases involving Rs.1.00 crore and above.

12. Committee of Directors to Review Vigilance and Non Vigilance cases

13. HRD Committee of Directors

14. Remuneration Committee

15. Nomination Committee

16. Steering Committee for Vision 2013

17. Insurance Joint Venture Committee

The details of various meetings held up to 31st March, 2011 are as follows:

S. Meeting Number of No Meetings

1 Board Meeting 15

2 Management Committee 22

3 Committee of Directors 4 to review vigilance & non-vigilance cases

4 Audit Committee of Board 10



5 Risk Management Committee 4

6 Special Committee 6 of Board to Monitor and Follow Fraud cases of Rs. 1.00 crore and above

7 IT Committee of the Board 5

8 P.A. Committee 5

9 Customer Service 4 Committee

10 Share Transfer Committee 24

11 Shareholders/ Investors 6 Grievances Committee

12 Directors Promotion 2 Committee

13 Steering Committee 4 Vision 2013

14 Insurance Joint Venture 4 Committee

7. ACKNOWLEDGMENTS

The Board of Directors thank the Government of India, Reserve Bank of India, Securities and Exchange Board of India, Stock Exchanges, Bank’s customers, public and the shareholders for valuable support, continued patronage and confidence reposed in the bank.

The Board also wishes to place on record its appreciation for the valuable contribution of the members of the Bank’s staff at all levels and look forward to their continued enthusiasm in meeting the future goals.

For and on behalf of Board of Directors CHAIRMAN AND MANAGING DIRECTOR


Mar 31, 2010

The brand PNB commands respect and confidence in the eyes of public and shareholders today. PNB with its sound and strong fundamentals remained unscathed by the economic slowdown and global financial crisis of 2008-09. PNB, not only maintained its leading position among the Nationalized Banks in the above turbulent period, but is once again poised to excel in its business as the economy shows signs of improvement. The image and perception of PNB in the Government, industry and public is aptly reflected in the awards and accolades it has won for itself recently.

PNB was declared the “Best Public Sector Bank” by a survey conducted by The Financial Express and Ernst & Young. PNB was ranked 26th amongst India’s top 500 listed companies by “ET 500”. Globally, the “The Banker Magazine” (London) placed PNB at 239th position amongst the top 1000 Global Banks while Forbes’ ranking of 2000 global giants placed it at 695th position.

The Bank was conferred with the “Best Corporate Social Responsibility Practice” award by Bombay Stock Exchange. The Bank was also declared the winner of the Gold trophy of SCOPE Meritorious Award for Excellence in Corporate Governance 2009 by Standing Conference of Public Enterprises amongst the Public Sector Enterprises, a coveted award received by the Bank from the the hands of the Hon’ble President of India. The Bank also received the Golden Peacock Award for Excellence in Corporate governance for 2009 from the Institute of Directors. The ‘Dainik Bhaskar’ in association with ‘Daily News and Analysis’ presented PNB with India Pride Awards for excellence in PSU category in the year 2009, while Dun & Bradstreet Award for “Priority Sector Lending including Financial Inclusion” was also bagged by the Bank.

BUILDING STABLE BUSINESS

PNB is committed to build business through long term sustained relationships with its customers. PNB has been recognized as the Bank offering highest levels of customer satisfaction in Delhi and Chennai. Our customer base as of today stands at around 56 million which we aim to grow to 150 million by the year 2013. We are considered to be the Bank that cares about needs & ambitions of customers. We believe in partnering growth of our clients over generations which is properly reflected in our tagline “Bharose ka Prateek”. This approach to business is characteristic of PNB’s 116 year history of banking with growth.

RATIONALIZATION OF THE CIRCLE OFFICES

Bank’s 4 tier structure was reduced to 3 tiers to improve upon efficiency in decision making and to cut on administrative costs.

An opportunity was identified in rationalizing the administrative structure of the Bank, in the backdrop of economic downturn, to bring in more efficiency and team spirit in the overall work culture of the bank. The objectives for this rationalization accordingly aimed at decentralizing the decision making and reporting functions, better transient speeds and responses, higher transparency, effective monitoring, shared vision and reliance upon each other, easy accessibility and greater control. Rationalization of circles was done to remove the disparity in number of branches allocated among various circles. New circles were created in Delhi, Rajasthan, Kerala, Haryana, UP and Punjab. The number of Field General Managers (FGM) was also increased from 5 to 10 ensuring pan-India presence and control of FGMs. This new structure has been implemented w.e.f. 1st April, 2010.

PNB has the largest domestic network of 4997 offices, including 46 extension counters among Nationalized Banks. All our branches offer Core/Centralized Banking Solution (CBS) along with a variety of financial products catering to different market segments. PNB offers its customers a warm and friendly banking experience by serving them with a characteristic Indian emotional touch. This commitment showcases the intent of the bank to be closely involved in the lives of its customers. To facilitate our customers and to focus our deliverables uniquely to specific market segments, branches have been classified as Agriculture, Retail, MSME and Commercial/Corporate.

Today, PNB has both the strength and the capability to expand in the international arena but will go full throttle for this expansion only after it makes an excellent business case. Bank has international presence in 9 countries. Bank constantly innovates and reorients strategies, and realigns business processes with advanced technology to serve its customers better to earn strong brand loyalty and recall value.

Your Directors take pleasure in placing the Bank’s Annual Report for 2009-10 along with its audited annual financial statements.

OUR PERFORMANCE IN THE YEAR 2009-10

1. FINANCIAL HIGHLIGHTS

1(a) BALANCE SHEET

(Rs crore)

PARTICULARS 2009-10 yoy growth %

Capital & Reserves 17723 20.95

Total business 435931 19.61

Deposits 249330 18.86

Low cost Deposits (Savings and Current)101850 25.0

Advances 186601 20.6

Retail credit 19214 20.5

Priority Sector Credit 63769 25.5

-Percent of adjusted Net bank credit (ANBC) 40.55% (National goal - 40%)

Agricultural credit 30207 25.56

-Percent of adjusted Net bank credit (ANBC) 19.53% (National goal - 18%)

1(b) PROFIT

(Rs. crore)

PARTICULARS 2009-10 yoy growth %

Operating profit 7326 28.8

Provisions 3421 31.58

Net profit 3905 26.4

1(c) INCOME & EXPENDITURE

(Rs. crore)

PARTICULARS 2009-10 yoy growth %

Interest income 21467 12.2

- Interest/discount on advances/bills 16701 14.5

- Income on investments 4577 7.3 Non-interest income 3565 16.3 CEB 1682 22.2 Net Interest Income 8523 24.8 Total Income 25032 12.8 Interest expended 12944 5.3

- Interest paid on deposits 11966 3.5 Total Operating expenses 4762 13.2

- Establishment expenses 3121 6.7 Total Expenses 17706 7.3 Operating profit 7326 28.8 Provisions and contingencies 3421 31.6 Net profit 3905 26.4 Note: Difference in total is due to rounding off

1(d) KEY RATIOS

(per cent)

Particulars 2008-09 2009-10

Average cost of funds 5.51 4.75

Average yield on funds 8.43 7.89

Return on Equity 23.52 24.54

Net Interest Margin 3.52 3.57

Return on Assets 1.39 1.44

Cost to Income Ratio 42.50 39.39

Staff expenses to average Working Funds 1.29 1.15

Operating profit to average Working Funds 2.52 2.70

Earnings per share (Rs) 98.03 123.86

Book value per share (Rs) 416.74 514.77

Ratio of Net NPAs to Net advances * 0.17 0.53

NPA coverage ratio* 93.51 81.17

CRAR - Basel II 14.03 14.16

*Excluding Rs 338 Crore impact of slippage from Debt relief, Net NPA ratio and NPA coverage ratio in 2009-10 will be 0.35% and 86.80 %, respectively.

2) NON FINANCIAL-HIGHLIGHTS

- Customer centric business through Robust Technology platform.

- Continued to expand, adding over 500 branches and 1400 ATMs while improving internet and mobile banking capabilities.

- Expanding International forays to newer destinations like Australia and Canada in addition of international presence in 9 countries.

- Strong revenue growth across all client segments, geographies and products despite the challenging conditions during the stressed economic conditions.

- Created a competitive advantage through the efficient management of our capital and liquidity.

- Significantly strengthened our pool of management talent as part of succession planning exercise.

- Streamlined CSR activities in the Bank to move forward in a planned way in this direction.

3) DIVIDEND

The Board of Directors has recommended a dividend of 220 percent for the year 2009-10.

4) CORPORATE GOVERNANCE

The Bank stresses on implementing best practices in Corporate governance as we believe in following

- Full transparency in all our operations and policies which has earned us the customers’ trust over the years and our customers have stayed with us for generations which may seem unrealistic to many in these times of declining brand loyalty.

- Zero tolerance for any malpractices which has made the institution fundamentally stronger and has withstood many testing times.

- All our decisions are consensus decisions involving voice of our stakeholders. We take the opinions of our customers while deciding the roadmap and future directions of the Bank.

- The Bank being a financial intermediary has to undertake risks while managing assets and liabilities, making risk mitigation the most crucial aspect of our functioning. Towards understanding, measuring and managing various risks and ensuring a sustained growth of healthy asset portfolio, the bank has put in place a robust risk management system.

- The Bank is guided (to the extent possible/applicable) by the acclaimed OECD (Organization for Economic co-operation and Development) principles of corporate governance as far as responsibilities of the Board of Directors, governance infrastructure, rights of shareholders, equitable treatment of shareholders, role of shareholders in governance and disclosures and transparency are concerned.

- The Bank has a strong and committed Board of Directors with specialists from various fields; a robust risk management framework; audit committee including Management audit committee, etc. The Bank is a listed entity and ensures that the Shareholders are satisfied with Bank’s performance and are kept well informed about the performance of the Bank. The Bank has a consistent track record of paying dividends.

- The Bank ensures ‘disclosure & transparency’ in financial statements as per section 29 of Banking Regulation Act, 1949; RBI guidelines; section 49 of the Listing Agreement; Accounting Standards and Guidelines issued by the Institute of Chartered Accountants of India, etc. Disclosures as per RBI guidelines & ICAI Accounting Standards (AS) include Segment reporting, Related Party Disclosures, Lending to sensitive sectors, Loan assets restructured, ALM, Key Business Ratios and Performance of bank’s share price vis-à-vis NIFTY/ Bank index. In addition to the statutory disclosures, the Bank discloses voluntarily additional information by way of Directors’ Report about the bank’s overall performance, business strategies, products & services, Risk Management etc.

The Bank gives high priority to good Corporate Governance. ICRA Ltd, the rating Agency has reaffirmed the CGR 2 rating (on a rating scale of CGR1 to CGR 6, where CGR 1 denotes the highest rating) to the Bank in February 2010, which reflects that PNB has adopted and follows such practices, conventions and codes as would provide its financial stake holders a high level of assurance on the quality of Corporate Governance. This is the highest rating assigned to a financial institution in India.

The Bank has complied with the guidelines of Reserve Bank of India and SEBI on the matters relating to Corporate Governance, which has been examined by the Statutory Central Auditors.

5) CHANGES IN BOARD OF DIRECTORS

During the year 2009-10, the following changes took place in the composition of Board of Directors.

- Dr. K.C. Chakrabarty, CMD demitted the office on 15.06.2009 on his elevation as Dy. Governor of RBI.

- Shri M.L. Bagga, Director representing Workmen Employee ceased to be Director on 25.09.2009.

- Shri K.R. Kamath took over as Chairman & Managing Director of the Bank on 28.10.2009.

- Shri S.R. Khurana, Director representing CA Category ceased to be Director on 2.01.2010.

- Shri M.P. Singh, Director representing Workmen Employee was appointed on the Board of the Bank by Govt. of India under clause 9(3)(e) of Banking Companies Acquisition and Transfer of Undertakings Act w.e.f. 28.01.2010.

- Shri Pardeep Kumar, Director representing Officer Employee was appointed on the Board of the Bank by Govt. of India under clause 9(3)(f) of Banking Companies Acquisition and Transfer of Undertakings Act w.e.f. 15.02.2010.

BOARD COMMITTEES:

(As on 31.03.2010)

S. No. NAME OF THE COMMITTEE

1. Management Committee

2. Audit Committee of Board

3. Risk Management Committee

4. Share Transfer Committee

5. Shareholders’ /Investors’ Grievance Committee

6. Customer Service Committee

7. I.T. Committee

8. PA Committee

9. Director’s Promotion Committee

10. Appellate Authority and Reviewing Authority

11. Special Committee of Board to monitor and follow up fraud cases involving Rs.1.00 Cr. and above.

12. Committee of Directors to Review Vigilance and Non Vigilance cases

13. HRD Committee of Directors

14. Remuneration Committee

15. Nomination Committee

16. Steering Committee for Vision 2013

The details of various meetings held up to March, 2010:

S. Meeting Number of S. Meeting Number of No. Meetings No. Meetings Held Upto Held Upto March, 2010 March, 2010

1 Board Meeting 14 9 HRD Committee 1

2 Management 23 10 Remuneration 1 Committee Committee

3 Committee of 4 11 Customer Service 4 Directors to review Committee vigilance & non- vigilance cases

4 Audit Committee 14 12 Share Transfer 24 of Board Committee

5 Risk Management 5 13 Shareholders’/ Investors’ 6 Committee Grievances Committee

6 Special Committee of 5 14 Directors Promotion Board to Monitor and Committee 1 Follow Fraud cases of Rs. 1.00 crore and above

7 IT Committee of the 4 15 Steering Committee 3 Board Vision 2013

8 P.A. Committee 4

The Board welcomes new CMD, Shri K R Kamath and other new Directors and places on record the valuable services rendered by former CMD, Dr. K.C. Chakrabarty and Directors, Shri M.L. Bagga and Shri S.R. Khurana.

6) ACKNOWLEDGMENTS

The Board of Directors thank the Government of India, Reserve Bank of India, Securities and Exchange Board of India, Stock Exchanges, Bank’s customers, public and the shareholders for valuable support, continued patronage and confidence reposed in the bank.

The Board also wishes to place on record its appreciation for the valuable contribution of the members of the Bank’s staff at all levels and look forward to their continued enthusiasm in meeting the future goals set in “VISION 2013”.

For and on behalf of Board of Directors CHAIRMAN AND MANAGING DIRECTOR

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