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Directors Report of Punjab National Bank

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

 
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