Punjab National Bank leaps forward under a dynamic and young CMD

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Punjab National Bank

Foray into insurance

Punjab National Bank has bought 30% stake in Metlife India, a life insurance company. Metlife has a net worth of Rs.950 crore. By this move, the bank has forayed into the insurance sector. The acquisition is subject to regulatory approval. K.R. Kamath is the Chairman & Managing Director of the bank. He was appointed as CMD in October 2009. He is the youngest CMD of any PSU Bank. Punjab National Bank is India’s second largest bank next to State Bank of India. The bank adopted an innovative approach to raise deposits recently. It sent all its 57000 employees to the public and asked them to canvass for savings bank deposits. Each employee was fixed a target of ten accounts, which was not a very difficult one to attain. Each account was fixed a target of a minimum Rs.1000 in villages and Rs.5000 in cities and towns. The CMD did not excuse himself from the field work. He canvassed and brought thirty accounts on the first day itself. The total target will exceed Rs.550 crore through this method of canvassing without any strain.

Huge business

Punjab National Bank has total assets of Rs.378325 crore and a net profit figure of Rs.4433 crore as on 31.03.11. But for the provision for pension amounting to Rs.552 crore, the net profit of the bank would have been still higher. The bank will be providing further sums of Rs.2206 crore in the next two years towards pension. The bank has 5200 branches. It has 5200 ATMs. Punjab National Bank has 1500 branches in the northern region, 900 branches in the eastern region, 450 branches in the southern region and 300 branches in the western region. In the south, its number of branches increased because of the merger of Nedungadi Bank with it. In the State of Punjab, it has 500 branches. In terms of net profit, Punjab National Bank is third largest bank in India next to State Bank of India (Rs.8265 crore) and ICICI Bank (Rs.5151 crore). In terms of deposits, Punjab National Bank is the second largest bank in India with a deposit figure of Rs.312899 crore next to State Bank of India (Rs.933933 crore). In terms of advances, Punjab National Bank is the second largest bank with figures of Rs.242107 crore next to State bank of India (Rs.756719 crore). In terms of total assets, Punjab National Bank is the third largest bank in India with a figure of Rs.378325 crore next to State Bank of India (Rs.1223736 crore) and ICICI Bank (Rs.406234 crore).

The bank may have to tap funds soon

Punjab National Bank launched half a dozen innovative technological products. They include travel and pre-paid cards, point of sale terminals and mobile banking. The bank recruited 4000 employees last year as replacement for retired staff. This year, another 9000 will be added. Business per employee has increased by 26% to Rs.10.2 crore. However, the bank needs to tone up its ratio of net NPA to net worth ratio, which currently stands at around 9.5 to at least below 4. Credit deposit ratio of the bank stands at 0.77. It has capital adequacy ratio of around 12.5. This is sufficient for one or two years. But the way the CMD wants to improve the business of the bank, sooner or later the bank will have to tap funds for more than Rs.10000 crore. Profit per employee is at Rs.8.35. This needs to be increased further to at least double digit figures. The bank has Tier-1 capital ratio of 8.44. This also needs to be increased to at least double digit figures. The bank’s yield on advances is quite okay at 9.85, but the bank should strive to improve it to double digit figures.

NPA software will help the bank arrest slippages

The bank syndicated more than 100 deals last year. Only one deal became a failure – syndication to Zoom Developers. The bank has issued 86000 credit cards so far. But this is below its potential. Oriental Commerce Bank has just started the credit card business, buts its CMD is confident of reaching a figure of two lakh cards in a short time. So, Punjab National Bank, which is much bigger bank than Oriental Bank of Commerce, should perform much better. Punjab National Bank has captured 3% market share in home loans, 5% in education loans and 1.4% in car loans. The bank’s net non-performing assets (NPAs) have increased from 0.53% to 0.85% and gross NPAs are at 1.79%. Here again, Punjab National Bank should utilise the software that Oriental Bank of Commerce is using. The software immediately identifies NPA account as and when it becomes an NPA. This makes recovery and follow up easier for the branch managers and loan officers. However, the bank’s NPA figure is not alarming yet. Punjab National Bank does not have many overseas branches inspite of the fact that it was started long back in 1895 in Lahore during British rule in India. It has branches in UK, Afghanistan and Hong Kong. However, it has representative offices in some places like Kazakhstan. Punjab National Bank has 20% stake in Everest Bank, Nepal.

Asset quality may deteriorate if care is not taken

Punjab National Bank has a subsidiary PNB Housing Finance. This is a joint venture company with the private sector player DestiMoney. It has assets worth Rs.3500 crore. It posted a net profit of Rs.70 crore last year. Punjab National Bank has another company PNB Gilts, which is a listed company separately in the stock exchanges. Punjab National Bank has another joint venture with Firmbank, Malta in India Factoring & Finance Solutions. The CMD of Punjab National Bank wants to raise its total business from the present Rs.555000 crore to Rs.700000 crore by March 2012. Punjab National Bank has one big advantage. It has low cost deposits of Savings and Current Accounts forming 37% of its total deposits. This has helped the bank to maintain a high net interest margin of 3.84%. This is much higher than many public sector banks. The bank posted a 33% increase in its net fee income and a 20% growth in its net interest income compared to the corresponding period of the previous year. But loans amounting to Rs.1177 crore slipped into NPA net during the quarter, causing concern. If this trend continues, then its asset quality will deteriorate. It will be better for the CMD K R Kamath to concentrate in bringing down the NPA level of the bank instead of concentrating in improving the total business of the bank. If business improves and asset quality deteriorates, what is the use? In fact Kamath should send all his 57000 employees (except those working in EDPs or computer departments) to field work and fix recovery target. That will reduce the NPA level within two months. He should then borrow the NPA software from Oriental Bank of Commerce and use it in his bank to check further slippages of loans into NPA.

Canada subsidiary

Punjab National Bank is planning to set up a subsidiary in Vancouver in Canada. Many Punjabis are living in Vancouver. Their patronage will help the bank’s subsidiary to perform well. The bank will be infusing Rs.100 crore into the proposed subsidiary. Punjab National Bank International is a wholly owned subsidiary of the bank in Britain. It has set up a representative office in Sydney, Australia recently. It wants to convert its representative office in Norway into a full fledged branch. It has a joint venture presence in Bhutan and Nepal. Punjab National Bank is the only Indian Bank present in Kazakhstan and Kabul, Afghanistan. In Kazakhstan, it holds around 64% stake in JSC Dana Bank. The bank declared a dividend of 22% last year. Punjab National Bank got a capital infusion of Rs.184 crore from the Central government in March this year. The Central government holds 58% stake in Punjab National Bank.

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