A THESIS ON

“A STUDY ON THE PERFORMANCE OF PUBLIC

SECTOR BANKS PRE AND POST FINANCIAL CRISIS.”

By
JITHU J
 A THESIS ON

“A STUDY ON THE PERFORMANCE OF PUBLIC

SECTOR BANKS PRE AND POST FINANCIAL CRISIS.”

By
JITHU J
MASTERS IN BUSINESS ADMINISTRATION

A repost submitted in partial fulfillment of the requirement of the

MBA program(class of 2010)

2
CONTENTS

1.Review of literature

2.Industry Profile

3. Company Profile

3.1 State Bank of India

3.2 Punjab National Bank

4.Analysis and Interpretation with foot note

5.Findiongs Suggestion and Conclusion

ACKNOWLEDGEMENT

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

Signature of the student

Name in Capitals JITHU J

Enroll No. 8NBBP113

Campus ADAM SMITH INSTITUTE OF MANAGEMENT

GOTTIGERE, BANGALORE

Signature of Faculty Supervisor

Name in Capitals

Designation

Campus

4
MEANING OF BANKING

5
Banking in India was defined under Section 5(A) as "any company which transacts banking,
business" and the purpose of banking business defined under Section 5(B),"accepting deposits of
money from public for the purpose of lending or investing, repayable on demand through
cheque/draft or otherwise". In the process of doing the above-mentioned primary functions, they
are also permitted to do other types of business referred to as Utility Services for their customers
(Banking Regulation Act, 1949).

INTRODUCTION ON PUBLIC SECTOR BANKS

Indian Banking sector is dominated by Public sector banks (PSBs) which accounted for 72.6% of
total advances for all SCBs as on 31st March 2008. PSBs have rapidly expanded their foot prints
after nationalization of banks in India in 1969 and further in 1980. Although there is a restrictive
entry/expansion for private and foreign banks in India, these banks have increased their presence
and business over last 5 years.

Peculiar characteristic of Indian banks unlike their western counterparts such as high share of
household savings in deposits (57.4% of total deposits), adequate capitalisation, stricter
regulations and lower leverage makes them less prone to financial crisis, as was seen in the
western world in mid FY09.

The Scheduled Commercial Banks (SCBs) in India have shown an impressive growth from
FY04 to the mid of FY09. Total deposits, advances and net profit grew at CAGR of 19.6%,
27.4% and 20.2% respectively from FY03 to FY08. Banking sector recorded credit growth of
33.3% in FY05 which was highest in last 2 and half decades and credit growth in excess of 30%
for three consecutive years from FY04 to FY07, which is best in the banking industry so far.
Increase in economic activity and robust primary and secondary markets during this period have
helped the banks to garner larger increase in their fee based incomes.
With in the group of banks, foreign and private sector banks grew at higher rate than the industry
from FY03 to FY08 primarily because of lower base effect and rapid expansion undertaken by
these banks. In FY09, overall growth in credit and deposits was led by PSBs. However, growth
of private and foreign banks was significantly lower in FY09 due to their high exposure to
stressed sectors and problem at parent level for foreign banks.

The government had announced its intend to retain majority stake in public sector banks in its
budget early this month, reversing its earlier plans of reducing the shareholding to 33 percent
while retaining management control.

In fiscal 2009, the government infused 16.5 billion rupees of capital into three public sector
banks and is expected to infuse 21.5 billion rupees more by the end of September, Crisil said in a
statement.

Minister Pranab Mukherjee may announce on Monday recapitalization of public sector banks to
help them meet the credit demand of productive sectors, especially those hit hard by the global
financial meltdown.

6
WHY I CHOOSE THIS TOPIC:-

Banking performance is the mirror reflection of an economy. So long as banks do their primary
function of banking by lending to the constituents of economy, they stand a chance
of nudging ahead.

Public banks still dominate the banking systems serving the majority of people in developing
countries, despite the rash of privatizations of the last 10 years and including the pickup in the
last five years. The overall stance of RBIs monetary and credit policy during the year was to
ensure price stability and financial system stability along with continuation of the growth
momentum, emphasis on credit quality and credit delivery including financial inclusion. During
2007-08, the Bank Rate, Repo and Reverse Repo rates were kept unchanged. To manage the
liquidity in the economy, RBI raised the Cash Reserve Ratio four times: in April, August and
November 2007 from 6% to 7.50%. In line with liquidity tightening, PLRs and deposit rates of
rnajor banks were hiked during the year. While lending rates rose to 12.25-12.75% from 12.25-
12.50%, deposit rates (for more than one year maturity) rose to 8.25-9.0% from 7.5-9.0% in the
previous financial year. However, in the month of February 2008, to keep up the growth
momentum in the economy, some banks announced cuts in their PLR and interest rate on
housing loans below Rs.20 lakh.

Public Sector bank means any Government Sector Bank/Institute that goes public... means that
issues it share to general public. It also has a greater share of government (more than 50%) so
that the main motto of social welfare other than maximizing Profit remains. A public sector bank
also looks for funding developmental work in the country as the government has a majority share
in it

A public bank is that in which there are numerous partners or shareholders, and they elect from
their own body a certain number, who are intrusted with its management. The business of
banking consists chiefly in receiving deposits of money, upon which interest may or may not be
allowed; in making advances of money, principally in the way of discounting bills; and in
affecting the transmission of money from one place to another.

Among the Public Sector Banks in India, United Bank of India is one of the 14 major banks
which were nationalized on July 19, 1969. Its predecessor, in the Public Sector Banks, the
United Bank of India Ltd., was formed in 1950 with the amalgamation of four banks viz.
Comilla Banking Corporation Ltd. (1914), Bengal Central Bank Ltd. (1918), Comilla Union
Bank Ltd. (1922) and Hooghly Bank Ltd. (1932).

Oriental Bank of Commerce (OBC), a Government of India Undertaking offers Domestic, NRI
and Commercial banking services. OBC is implementing a GRAMEEN PROJECT in Defraud
District (UP) and Hanumangarh District (Rajasthan) disbursing small loans. This Public
Sector Bank India has implemented 14 point action plan for strengthening of credit delivery to
women and has designated 5 branches as specialized branches for women entrepreneurs.

The following are the list of Public Sector Banks in India

• Allahabad Bank

7
 • Andhra Bank
• Bank of Baroda
• Bank of India
• Bank of Maharashtra
• Canara Bank
• Central Bank of India
• Corporation Bank
• Dena Bank
• IDBI Bank
• Indian Bank
• Indian Overseas Bank
• Oriental Bank of Commerce
• Punjab & Sind Bank
• Punjab National Bank
• Syndicate Bank
• UCO Bank
• Union Bank of India
• United Bank of India
• Vijaya Bank

REFORMS IN BANKING SECTOR

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

BANKS CHOSEN FOR ANALYSIS

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

8
STATE BANK OF INDIA

Introduction

State Bank of India or SBI Bank , the premier Nationalized Indian Bank. State Bank of India is
actively involved since 1973 in non-profit activity called Community Services Banking.

State Bank of India is India's largest bank amongst all public and private sector banks operating
in India. State Bank of India owns and operates the following subsidiaries and Joint Ventures

The corporate center of SBI is located in Mumbai. In order to cater to different functions, there
are several other establishments in and outside Mumbai, apart from the corporate center. The
bank boasts of having as many as 14 local head offices and 57 Zonal Offices, located at major
cities throughout India. It is recorded that SBI has about 10000 branches, well networked to cater
to its customers throughout India.

The eight banking subsidiaries are:

• State Bank of Bikaner and Jaipur (SBBJ)

• State Bank of Hyderabad (SBH)
• State Bank of India (SBI)
• State Bank of Indore (SBIR)
• State Bank of Mysore (SBM)
• State Bank of Patiala (SBP)
• State Bank of Saurashtra (SBS)
• State Bank of Travancore (SBT)

PRODUCTS AND SERVICES

Personal Banking

• SBI Term Deposits SBI Loan For Pensioners

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

Other Services

• Agriculture/Rural Banking
• NRI Services
• ATM Services

9
• Demat Services
• Corporate Banking
• Internet Banking
• Mobile Banking
• International Banking
• Safe Deposit Locker
• RBIEFT
• E-Pay
• E-Rail
• SBI Vishwa Yatra Foreign Travel Card
• Broking Services

FINANCIAL PERFORMANCE OF STATE BANK OF INDIA AND PUNJAB

NATIONAL BANK

State Bank of India

Balance Sheet ------------------- in Rs. Cr. -------------------

Mar '05 Mar '06 Mar '07 Mar '08 Mar '09
Capital and Liabilities:
Total Share Capital 526.3 526.3 526.3 631.47 634.88
Equity Share Capital 526.3 526.3 526.3 631.47 634.88
Share Application
Money 0 0 0 0 0
Preference Share
Capital 0 0 0 0 0
Reserves 23,545.84 27,117.79 30,772.26 48,401.19 57,312.82
Revaluation Reserves 0 0 0 0 0
Net Worth 24,072.14 27,644.09 31,298.56 49,032.66 57,947.70
Deposits 367,047.53 380,046.06 435,521.09 537,403.94 742,073.13
Borrowings 19,184.31 30,641.24 39,703.34 51,727.41 53,713.68
Total Debt 386,231.84 410,687.30 475,224.43 589,131.35 795,786.81
Other Liabilities &
Provisions 49,578.89 55,538.17 60,042.26 83,362.30 110,697.57
Total Liabilities 459,882.87 493,869.56 566,565.25 721,526.31 964,432.08
Mar '05 Mar '06 Mar '07 Mar '08 Mar '09
Assets
Cash & Balances with
RBI 16,810.33 21,652.70 29,076.43 51,534.62 55,546.17
Balance with Banks,
Money at Call 22,511.77 22,907.30 22,892.27 15,931.72 48,857.63
Advances 202,374.45 261,641.53 337,336.49 416,768.20 542,503.20

10
Investments 197,097.91 162,534.24 149,148.88 189,501.27 275,953.96
Gross Block 6,691.09 7,424.84 8,061.92 8,988.35 10,403.06
Accumulated
Depreciation 4,114.67 4,751.73 5,385.01 5,849.13 6,828.65
Net Block 2,576.42 2,673.11 2,676.91 3,139.22 3,574.41
Capital Work In
Progress 121.27 79.82 141.95 234.26 263.44
Other Assets 18,390.71 22,380.84 25,292.31 44,417.03 37,733.27
Total Assets 459,882.86 493,869.54 566,565.24 721,526.32 964,432.08

Contingent Liabilities 131,325.40 191,819.34 259,536.57 736,087.59 614,603.47

Bills for collection 44,794.10 57,618.44 70,418.15 93,652.89 152,964.06
Book Value (Rs) 457.39 525.25 594.69 776.48 912.73

11
12
 State Bank of India
Profit & Loss account ------------------- in Rs. Cr. -------------------

Mar '05 Mar '06 Mar '07 Mar '08 Mar '09

12 mths 12 mths 12 mths 12 mths 12 mths

Income
Interest Earned 32,428.00 35,794.93 39,491.03 48,950.31 63,788.43
Other Income 7,119.90 7,388.69 7,446.76 9,398.43 12,691.35
Total Income 39,547.90 43,183.62 46,937.79 58,348.74 76,479.78
Expenditure
Interest expended 18,483.38 20,159.29 23,436.82 31,929.08 42,915.29
Employee Cost 6,907.35 8,123.04 7,932.58 7,785.87 9,747.31
Selling and Admin
Expenses 2,634.64 1,853.32 3,251.14 4,165.94 5,122.06
Depreciation 752.21 729.13 602.39 679.98 763.14
Miscellaneous Expenses 6,465.82 7,912.15 7,173.55 7,058.75 8,810.75
Preoperative Exp
Capitalized 0 0 0 0 0
Operating Expenses 11,278.18 11,872.89 13,251.78 14,609.55 18,123.66
Provisions &
Contingencies 5,481.84 6,744.75 5,707.88 5,080.99 6,319.60
Total Expenses 35,243.40 38,776.93 42,396.48 51,619.62 67,358.55

Mar '05 Mar '06 Mar '07 Mar '08 Mar '09

12 mths 12 mths 12 mths 12 mths 12 mths

Net Profit for the Year 4,304.52 4,406.67 4,541.31 6,729.12 9,121.23
Extraordinary Items 0 0 0 0 0
Profit brought forward 0.34 0.34 0.34 0.34 0.34
Total 4,304.86 4,407.01 4,541.65 6,729.46 9,121.57
Preference Dividend 0 0 0 0 0
Equity Dividend 657.87 736.82 736.82 1,357.66 1,841.15
Corporate Dividend Tax 93.75 103.34 125.22 165.87 248.03

Per share data (annualized)

Earning Per Share (Rs) 81.79 83.73 86.29 106.56 143.67
Equity Dividend (%) 125 140 140 215 290

13
Book Value (Rs) 457.39 525.25 594.69 776.48 912.73
Appropriations
Transfer to Statutory
Reserves 3,552.89 3,566.51 3,682.15 5,205.69 7,032.04
Transfer to Other
Reserves 0.01 0 -2.88 -0.1 0.01
Proposed
Dividend/Transfer to Govt 751.62 840.16 862.04 1,523.53 2,089.18
Balance c/f to Balance
Sheet 0.34 0.34 0.34 0.34 0.34
Total 4,304.86 4,407.01 4,541.65 6,729.46 9,121.57

14
 State Bank of India
Cash Flow ------------------- in Rs. Cr. -------------------

Mar '05 Mar '06 Mar '07 Mar '08 Mar '09

12 12 12 12
mths mths mths mths 12 mths

Net Profit Before Tax 6521.6 6837.36 7625.08 10438.9 14180.64

Net Cash From Operating Activities -2780.7 6039.14 -1776.1 -856.87 29479.73
Net Cash (used in)/from
Investing Activities -498.8 -1134.2 -284.56 -2798 -1651.93
Net Cash (used in)/from Financing Activities -969.25 461.98 9494.11 19371.1 5097.38
Net (decrease)/increase In Cash and Cash
Equivalents -4248.8 5108.86 7383.89 15716.2 32925.18
Opening Cash & Cash Equivalents 43566.6 39322.1 44560 51968.7 69524.5
Closing Cash & Cash Equivalents 39322.1 44560 51968.7 67466.3 104403.8

15
 State Bank of India
Quarterly Results ------------------- in Rs. Cr. -------------------

Jun '08 Sep '08 Dec '08 Mar '09 Jun '09

Sales Turnover 13,799.20 15,566.50 18,030.34 17,342.39 17,472.76

Other Income 2,403.87 2,343.14 3,225.56 4,718.22 3,568.75
Total Income 16,203.07 17,909.64 21,255.90 22,060.61 21,041.51
Total Expenses 4,808.66 4,215.89 4,697.96 5,660.77 5,092.49
Operating Profit 8,990.54 11,350.61 13,332.38 11,681.62 12,380.27
Profit On Sale Of Assets -- -- -- -- --
Profit On Sale Of
Investments -- -- -- -- --
Gain/Loss On Foreign
Exchange -- -- -- -- --
VRS Adjustment -- -- -- -- --
Other Extraordinary
Income/Expenses -- -- -- -- --
Total Extraordinary
Income/Expenses -- -- -- -- --
Tax On Extraordinary
Items -- -- -- -- --
Net Extra Ordinary
Income/Expenses -- -- -- -- --
Gross Profit 11,394.41 13,693.75 16,557.94 16,399.84 15,949.02
Interest 8,981.54 10,111.15 12,272.15 12,500.45 12,447.88

16
PBDT 2,412.87 3,582.60 4,285.79 3,899.39 3,501.14
Depreciation -- -- -- -- --
Depreciation On
Revaluation Of Assets -- -- -- -- --
PBT 2,412.87 3,582.60 4,285.79 3,899.39 3,501.14
Tax 772.08 1,322.88 1,807.37 1,157.08 1,170.77
Net Profit 1,640.79 2,259.72 2,478.42 2,742.31 2,330.37
Prior Years
Income/Expenses -- -- -- -- --
Depreciation for Previous
Years Written Back/
Provided -- -- -- -- --
Dividend -- -- -- -- --
Dividend Tax -- -- -- -- --
Dividend (%) -- -- -- -- --
Earnings Per Share 25.84 35.59 39.04 43.19 36.71
Book Value -- -- -- -- --
Equity 634.88 634.88 634.88 634.88 634.88
Reserves 48,401.19 48,401.19 48,401.19 57,312.81 57,312.81
Face Value 10.00 10.00 10.00 10.00 10.00

17
18
19
ANALYSIS AND INTERPRETATION

Profit

The Operating Profit of the Bank for 2007-08 stood at Rs. 13,107.55crore as compared to
Rs.9,999.94 crore in 2006-07, registering a growth of 31.08%. The Bank has posted a Net Profit
of Rs 6729.12 crore for 2007-08 as compared to Rs.4,541.31 crore in 2006-07, registering a
growth of 48.18%.

While Net Interest Income recorded a growth of 13.04% and Other Income increased by 28.52%.
Operating Expenses increased by 6.64%.

Dividend

The Bank has increased dividend to 215%.

Net Interest Income

The Net Interest Income of the Bank registered a growth of 13.04% from Rs.15,058.20 crore in
2006-07 to Rs. 17,021.23 crore in 2007-08. This was due to growth in interest income on
advances. The Net Interest Margin was at a healthy 3.07% in 2007-08.

The gross interest income from global operations rose from Rs 37,242.33 crore to Rs. 48,950.31
crore during the year. This was mainly due to higher interest income on advances.

Interest income on advances in India registered an increase from Rs.22,872.66 crore in 2006-07
to Rs 32,162.68 crore in 2007-08 due to higher volumes. Also average yield on domestic
advances increased from 8.67% in 2006-07 to 9.90% in 2007-08. Interest income on advances at
foreign offices also increased due to higher volumes.

Income from resources deployed in Treasury operations in India increased by 11.03% despite
decline in average yield mainly due to higher average resources deployed. The average yield,
which was 6.99% in 2006-07, declined to 6.92% in 2007-08.

Total interest expenses of global operations increased from Rs.22,184.14 crore in 2006-07 to Rs.
31,929.08 crore in 2007-08.
Interest expenses on deposits in India during 2007-08 recorded an increase of 45.56% compared
to the previous year, whereas the average level of deposits in India grew by 22.09%. This
resulted in increase in the average cost of deposits from 4.69% in 2006-07 to 5.59% in 2007-08.

Non-Interest Income

Non-interest income stood at Rs.8,694.93 crore as against Rs.6,725.26 crore in 2006-07.

During the year, the Bank received an income of Rs. 197.41 crore (Rs.598.12 crore in the
previous year) by way of dividends from Associate Banks/ subsidiaries and joint ventures in
India and abroad.

20
 Operating Expenses

There was marginal decline of 1.84% in the Staff Cost from Rs.7,932.58 crore in 2006-07 to Rs
7,785.87 crore in 2007-08. Staff Cost included an amount of Rs.575.00 crore towards Wage
arrears.

Other Operating Expenses have also registered an increase of 23.94% mainly due to increase in
expenses on rent, taxes and lighting, insurance, postage, telegrams and telephones, repair and
maintenance, audit fees and miscellaneous expenditure.

Operating Expenses, comprising both staff cost and other operating expenses, have registered an
increase of 6.64%.

Provisions and Contingencies

Major amounts of provisions made in 2007-08 were as under:

- Rs. 88.68 crore (write back) towards provision for depreciation on investments, excluding
amortization of premium on Held to Maturity category (as against Rs.379.23 crore in 2006-07).

- Rs.3,823.50 crore towards Provision for Tax, excluding deferred tax credit of Rs. 219.43 crore
(as against Rs. 3,014.61 crore in 2006-07 excluding deferred tax credit of Rs. 19.83 crore).

- Rs. 105.00 crore towards Fringe Benefit Tax (as against 88.50 crore in 2006-07).

- Rs. 2,000.94 crore (net of write-back) for non- performing assets (as against Rs. 1,429.50 crore
in 2006-07).

- Rs. 566.97 crore towards Standard Assets (as against Rs. 589.19 crore in 2006-07). Including
the current years provision, the total provision held on Standard Assets amounts to Rs. 2,069.38
crore.

Reserves and Surplus

- An amount of Rs.4,839.07 crore (as against Rs. 3,358.11 crore in 2006-07) was transferred to
Statutory Reserves.

- An amount of Rs. 304.35 crore (as against Rs.321.15 crore in 2006-07) was transferred to
Other Reserves.

- An amount of Rs. 62.18 crore was transferred to Investment Reserves.(Nil in 2006-07)

- An amount of Rs. 4,075.64 crore was withdrawn from Other Reserves towards transitional
liability for complying with Accounting Standard -15 (Revised) - Employee Benefits

21
Assets

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

Liabilities

The Banks aggregate liabilities (excluding capital and reserves) rose by 25.64% from Rs.
5,35,266.68

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PUNJAB NATIONAL BANK

VISION

"To be a Leading Global Bank with Pan India footprints and become a household brand in
the Indo-Gangetic Plains providing entire range of financial products and services under
one roof"

MISSION

"Banking for the unbanked"

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

23
Business Correspondents/Business Facilitators (BC/BF) so as to reach out to the last mile
customer. The BC/BF will address the outreach issue while technology will provide cost
effective and transparent services. The Bank has started several innovative initiatives for
marginal groups like rickshaw pullers, vegetable vendors, diary farmers, construction workers,
etc. The Bank has already achieved 100% financial inclusion in 21,408 villages.
Backed by strong domestic performance, the bank is planning to realize its global aspirations. In
order to increase its international presence, the Bank continues its selective foray in international
markets with presence in Hongkong, Dubai, Kazakhstan, UK, Shanghai, Singapore, Kabul and
Norway. A second branch in Hongkong at Kowloon was opened in the first week of April’09.
Bank is also in the process of establishing its presence in China, Bhutan, DIFC Dubai, Canada
and Singapore. The bank also has a joint venture with Everest Bank Ltd. (EBL), Nepal. Under
the long term vision, Bank proposes to start its operation in Fiji Island, Australia and Indonesia.
Bank continues with its goal to become a household brand with global expertise.
Amongst Top 1000 Banks in the World, ‘The Banker’ listed PNB at 250th place. Further, PNB is
at the 1166th position among 48 Indian firms making it to a list of the world’s biggest companies
compiled by the US magazine ‘Forbes’.
Financial Performance:
Punjab National Bank continues to maintain its frontline position in the Indian banking industry.
In particular, the bank has retained its NUMBER ONE position among the nationalized banks in
terms of number of branches, Deposit, Advances, total Business, operating and net profit in the
year 2008-09. The impressive operational and financial performance has been brought about by
Bank’s focus on customer based business with thrust on SME, Agriculture, more inclusive
approach to banking; better asset liability management; improved margin management, thrust on
recovery and increased efficiency in core operations of the Bank.

24
The performance highlights of the bank in terms of business and profit are shown below:

Parameters Mar'07 Mar'08 Mar'09 CAGR

Operating Profit* 3617 4006 5744 26.02

Net Profit* 1540 2049 3091 41.67

13986
Deposit 166457 209760 22.47
0

Advance 96597 119502 154703 26.55

23645
Total Business 285959 364463 24.15
6

25
FINANCIAL PERFORMANCE OF PUNJAB NATIONAL BANK

-- in Rs.
Balance Sheet Cr. --

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

26
 33,674.7 39,860.4 52,884.8 80,606.8 79,270.6
Contingent Liabilities 3 0 9 8 5
13,372.4 18,878.9 21,815.5 23,448.9 31,941.4
Bills for collection 6 1 9 9 3
Book Value (Rs) 248.93 287.79 321.65 341.98 416.74

Profit & Loss account -- in Rs.

27
 Cr. --

Mar '05 Mar '06 Mar '07 Mar '08 Mar '09
Income
11,537.4 14,265.0
Interest Earned 8,459.85 9,584.15 8 2 19,326.16

Other Income 1,854.54 1,478.23 1,343.64 1,997.56 2,919.69

10,314.3 11,062.3 12,881.1 16,262.5
Total Income 9 8 2 8 22,245.85

Expenditure

Interest expended 4,453.11 4,917.39 6,022.91 8,730.86 12,295.30

Employee Cost 2,121.23 2,114.97 2,352.45 2,461.54 2,924.38

Selling and
Admin Expenses 618.28 638.79 1,032.50 884.19 1,406.42

Depreciation 183.28 186.65 194.8 170.23 191.06

Miscellaneous
Expenses 1,528.37 1,765.27 1,738.38 1,966.98 2,337.80

Preoperative Exp
Capitalised 0 0 0 0 0
Operating
Expenses 3,257.26 3,263.15 3,926.05 3,902.55 5,026.81

Provisions &
Contingencies 1,193.90 1,442.53 1,392.08 1,580.39 1,832.85
11,341.0 14,213.8
Total Expenses 8,904.27 9,623.07 4 0 19,154.96

Mar '05 Mar '06 Mar '07 Mar '08 Mar '09

12 mths 12 mths 12 mths 12 mths 12 mths

28
Net Profit for the
Year 1,410.12 1,439.31 1,540.08 2,048.76 3,090.88
Extraordionary
Items 0 0 0 0 0

Profit brought
forward 0 0 183.49 15.52 0
Total 1,410.12 1,439.31 1,723.57 2,064.28 3,090.88
Preference
Dividend 0 0 0 0 0

Equity Dividend 174.18 189.18 409.89 409.89 630.61

Corporate
Dividend Tax 23.48 26.53 63.11 69.66 107.17

Per share data

(annualised)
Earning Per Share
(Rs) 44.72 45.65 48.84 64.98 98.03

Equity Dividend
(%) 30 60 100 100 200

Book Value (Rs) 248.93 287.79 321.65 341.98 416.74

Appropriations
Transfer to
Statutory
Reserves 1,212.46 -1,512.23 435.06 596.14 1,155.46

Transfer to Other
Reserves 0 2,552.34 800 988.59 1,190.00

Proposed
Dividend/Transfer
to Govt 197.66 215.71 473 479.55 737.78

Balance c/f to
Balance Sheet 0 183.49 15.52 0 7.64
Total 1,410.12 1,439.31 1,723.58 2,064.28 3,090.88

29
COMPETITION

Last Price Market Cap. Net Interest Net Profit Total Assets
(Rs. cr.) Income
SBI 2,448.40 155,444.07 63,788.43 9,121.24 964,432.08

30
PNB 864.15 27,246.87 19,326.16 3,090.88 246,918.62

FINANCIAL INTERPRETATION AND ANALYSIS

I. Financial Results
1. Profit & Loss Account
1 • Net profit for the first half of the current financial year 2007-08 amounted to Rs 963.55
Cr, compared to Rs 872.51 Cr during the first half of FY 2006-07, registering a y-o-y growth
of 10.4%.
2 • Operating Profit of the bank (excluding loss incurred on transfer of securities to HTM
portfolio) during the half year ended September 2007 increased to Rs 1788 Cr, compared to
Rs 1778 Cr during the half year ended September 2006. However, on accounting for the loss
of Rs 497.74 Cr incurred on transfer of securities to HTM portfolio, the Operating Profit of
the bank amounted to Rs 1290 Cr during the first half year ended September 2007. The
transfer of securities was done during the first quarter of FY 2007-08 to de-risk the
investment portfolio of the bank from interest rate risk.

In the current environment, higher pressure on Net Interest Margin & NPAs and the need for
additional provisioning for pension, gratuity & leave encashment for staff of the bank under
projected unit credit method (PUCM) resulted in lower operating profit of the bank.
1 • Total income of the bank increased to Rs 7228 Cr during April-September 2007,
compared to Rs 5596 Cr during April-September 2006, registering a y-o-y growth of 29.2%.
0 - Non-Interest income through commission, exchange and brokerage increased by
17.4 % to Rs 540 Cr during the first half of FY 2007-08 from Rs 461 Cr during the first
half of FY 2006-07.
� Total expenses (excluding provisions) amounted to Rs 5938 Cr during the half year ended
September 2007, compared to Rs 4204 Cr during the half year ended September 2006,
registering a y-o-y growth of 41.2%.
1 � Net Interest Margin has declined to 3.49% during April- September 2007 from 3.86%
during April- September 2006.
2 � Yield on Advances of the bank has improved to 10.20% during April-September 2007
from 8.95% during April- September 2006.
3 � Due to the overall firming of interest rates, the Cost of Deposits of the bank increased to
5.55% during the first half of FY 2007-08 from 4.35% during the first half of FY 2006-07.
4 � Yield on Investment of the bank has declined to 6.88% during April- September 2007
from 7.09% during April- September 2006.
5 � Return on Assets stood at 1.13% at the end of September 2007.
6 � Capital to Risk Asset Ratio (CRAR) at the end of September 2007 at 12.58%. Bank is
ready for Basel II compliance.

31
 2. Balance Sheet
1 • Total Business of the bank increased by 19.3% on y-o-y basis to Rs 251474 Cr at the end
of September 2007 compared to Rs 210755 Cr as at the end of September 2006.
2 • Total Deposits at the end of September 2007 amounted to Rs 149980 Cr, compared to Rs
128415 Cr as at the end of September 2006 registering a growth of 16.8 % on y-o-y basis.
CASA accounted for 43.91 % of the total deposits of the bank at the end of September 2007.
3 • Advances at the end of September 2007 amounted to Rs 101494 Cr, compared to Rs 82340
Cr as at the end of September 2006, registering a y-o-y growth of 23.3 %.
0 � Retail credit constituted 23.3% of Gross Credit of the bank, as at the end of
September 2007. It increased by 21.8% to Rs 24100 Cr at the end of September 2007 from
Rs 19794 Cr at the end of September 2006. Education loan is the main thrust area of the
bank, showing an increase of 35% to Rs 1155 Cr, while loan to traders increased by 46% to
Rs 7889 Cr.
� Priority sector advances increased to Rs 41,709 Cr at the end of September 2007, compared
to Rs 36,615 Cr as at the end of September 2006, registering a Y-O-Y growth of 13.9%. Ratio of
PS advances to adjusted net bank credit continued to remain much higher at 42.38% against
national goal of 40%.
� The bank has opened more than 3 lakh No Frill accounts under PNB Mitra Scheme and
has issued more than 24,000 General Credit Cards.
� Credit to Agriculture was Rs 18,942 Cr at the end of September 2007, compared to Rs
16570 Cr as at the end of September 2006 showing Y-O-Y growth of 14.3%. Agricultural
advances as percent to adjusted net bank credit at around 18.3% was higher than the national
goal of 18%.
� To facilitate disbursal of credit to the farmers, the bank has issued 1,29,433 Kisan Credit
Cards (KCCs) during April-September 2007 taking the cumulative number to 22.48 lakh KCCs.
� The bank's advances to the Small Enterprises at the end of September 2007 stood at Rs
11,789 Cr, compared to Rs 9606 Cr as at the end of September 2006, recording a Y-O-Y growth
of 22.7%. Ratio of Small Enterprises advances to adjusted net bank credit stood at 11.98% at the
end of September 2007.

II. Information Technology

1 • Core Banking Solution (CBS) has been implemented in 2791 Service Outlets (SOLs) at 935
centres, covering 83% of bank's total business, facilitating around 2.23 Cr customers with
"anytime and anywhere" banking.
2 • National Electronic Fund Transfer (NEFT) is operational in 2280 branches.
3 • The bank has 2353 RTGS and 1395 SFMS branches.

III. International Operations

32
1 • Total Export-Import turnover of the bank increased to Rs 30,506 Cr in half year ended
September 2007 as compared to Rs 24,848 Cr in the half year ended September 2006, registering
a y-o-y growth of 22.8 %.
2 • PNB’s Hong Kong branch is likely to be operational in the month of November, 2007. The
bank is in the process of upgrading its Representative Office at Shanghai into a branch and to
establish presence at Singapore (OBU) and Canada (Subsidiary). PNB is also exploring
possibilities for its presence in Bhutan through JV route.

33
IV. NPA Management
1 • At the end of September 2007, the ratio of Net NPAs to net Advances was 1.86 %, while
Gross NPAs to Gross Advances of the bank stood at 4.57 % at the end of September 2007.

V. New Business Initiatives of the Bank

1 • Bank launched a pilot project on financial inclusion at Neemrana, Distt. Alwar,
Rajasthan and endeavors to launch it at 9 more places, viz at Chandigarh, Taran Taran,
Saharanpur & Balia, Dehradun, Ranchi, Mayur Bhanj, Gaya and Patna.
2 • Under Financial Inclusion, the bank plans to cover 30,000 villages, 15 million households
and 75 million people by 2010.
3 • PNB’s 8 Farmers’ Training Centres (FTCs) trained 1, 09,614 persons till September 2007.
The FTC introduced a scheme, called Kisan Bandhu whereby 5 local youth have been
inducted and trained at each FTC, who are actively pursuing the task of financial inclusion by
visiting the doorstep of villagers.
4 • PNB has introduced PNB Baghban, a Reverse Mortgage Loan Scheme for senior citizens
and 49 cases involving an amount of around Rs 18 Cr have already been sanctioned.

VI. Recognition : First Half of FY 2007-08 :

1 • According to ‘The Banker’, a London based Magazine (July 2007), PNB is placed at 255th
place, amongst top 1000 Banks in the World.
2 • PNB was bestowed Golden Peacock Award for Excellence in Corporate Governance by
the Institute of Directors for the FY 2006-07.
3 • CIO 100 Awards (2007) by IDG Media Pvt Ltd for Best IT Implementation.

34
 CONCLUSION

Indian Public Sector Banks have been operating in different economic and political conditions
for several decades – earlier as Private Sector Banks and now in Public Sector subsequent to
their nationalization. They have been functioning as commercial and profit oriented
establishments for long period but due to the developmental policies of the Government of India,
profit making was given a go-by. The transition in political and 19 economic conditions in the
country took place in later years of eighties and simultaneously technological and legal changes
have also gained importance. Thanks to the Financial Sector Reforms initiated during early
nineties, the focus has shifted to productivity, profitability, efficiency, transparency, etc in order
to make them work on high standards competing with new Private Sector and Foreign Banks.
However, the story does not end here. Radical changes in accounting, deregulation of interest
rates, close follow up of non performing assets, introduction of prudential norms, voluntary
retirement of old generation staff, concern for total customer care, professional managements,
have made the managements (including the GOI) to turn to generate surpluses and make these
banks self-sufficient even by approaching the Capital Market.

Corporate Governance in Banks is an accepted phenomenon today. With these developments and
by taking full advantage of Information Technology in the entire banking system, Public Sector
Banks will gear up and reach to their pinnacle in performance and delivering the expected levels
of service in about 4 –5 years from now.
The managements of these 27 banks will give a thorough look into all the aspects of study,
diagnose the reasons for the outcomes, and assess their strengths and weaknesses so as to initiate
corrective or remedial measures, wherever warranted.

35
References

[1] Altunbas, Y. and Chakravarthy, S.P. (2001), “Frontier Cost Functions and Bank Efficiency”,
Economic Letters, Vol.72, Issue 2, pp.233-241

[2] Arun Shourie (2003), “Before the Whining Drowns it Out, Listen to the New India”, The
Indian Express, http://www.indianexpress.com/full_story.php?content_id=29666, August 15

[3] Ashok H. Advani (2000), “India’s Best Banks”, Business India, Feb. 7-20,

[4] American Banker (1998), “First Call’s Analyst Consensus Rankings”, Vol.163, Issue 136,
pp.30-31

[5] American Banker (1998), “First Call’s Analyst Consensus Rankings”, Vol.163, Issue 50,
pp.38-39

[6] Andrew Sheng (1991), “The Art of Bank Restructuring: Issues and Techniques”, Working
Paper, Economic Development Institute of the World Bank, Washington, D.C., June.

[7] A.V. Aruna Kumari (2002), “Economic Reforms and Performance of Indian Banking: A
Cross Structural Analysis”, Indian Economic Panorama, A Quarterly Journal of Agriculture,
Industry, Trade and Commerce, Special Banking Issue, pp.19-21

[8] Banker (2003), “Top 1000 World Banks”, Vol.153, Issue 929, p.187-222, Business Source
Premier

[9] Bank Indices (2001), Professional Banker, July, pp.42-45

[10] Banking & Finance (2002), India’s Best Banks, Vol.3, No.6, Jan.-Feb., pp.9-16

[11] Bhattacharyya, Arunava; Lovell, C.A.K. and Sahay, Pankaj (1997), “The impact of
liberalization on the productive efficiency of Indian commercial banks”, European Journal of
Operational Research, Vol. 98, Issue 2, pp.332-346

[12] Blount, Ed (2001), “A New Breed of Banker: the ‘Risk Pillar’ Strategist”,Vol.93, Issue 6,
pp.42-48

36