Punjab National Bank


BSE: 532461 | NSE: PNB | ISIN: INE160A01014 
Market Cap: [Rs.Cr.] 29,145 | Face Value: [Rs.] 10
Industry: Banks - Public Sector

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Management Discussions

Management Discussion and Analysis

Business and Economic Environment

The financial year 2012-13 was challenging for Indian economy. Gross Domestic Product(GDP) of Indian economy deviated from its high growth trajectory of last two financialyears. Deceleration in GDP growth, which started in FY'12, continued in FY'13 as wellbecause of moderation in all the three sectors namely Agriculture, Industry and Services.Over all GDP growth for nine months of FY'13 stands at 5% as compared to 6.1% growthrecorded during the corresponding financial year.

Weak monsoon affected the Agricultural performance during FY'13. Agricultural Sectorrecorded a meager growth rate of around 1% in Q2 and Q3 of FY'13 declining from around 3%growth seen in Q1FY'13.

Industrial growth continued to remain sluggish in FY'13, driven by both domestic andglobal factors. Tardy recovery in developed countries of the world, continued politicaland economic turmoil in EU and low growth in developing countries hampered Indian exports.High price levels in domestic and global markets kept demand subtle. Hence, industrialgrowth for eleven months of FY13 i.e. from April-February 2013 remained at 0.9% ascompared to 3.5% growth recorded during the same period of the last financial year. As aresult of credible economic reform measures since September 2012 and policy rate reductionby Regulator, investment climate has improved and industrial growth has recorded positivegrowth successively during two months (Jan and Feb 2013) of Q4 FY'13. It is expected thatindustrial activity may improve gradually.

Subdued growth in Agricultural and Industrial sectors and weak external demand pulleddown the growth of Services Sector. Growth of Services Sector slowed down from around 7.5%in Q1 FY'13 to 6% in Q3 FY'13. Slowdown in Services sector is mainly on account of fall inthe Hospitality industry, Transport industry, Banking, Finance and Insurance sector.

High inflation is another problem that has haunted the economy for last two financialyears. In FY'13, inflation measured by Wholesale Price Index (WPI) remained stubbornlyhigh at around 8% limiting the scope for reduction in interest rate. Similarly, inflationmeasured by Consumer Price Index (CPI) also remained mostly above 10% in FY'13. Unabatedhigh price level throughout the financial year dampened overall demand condition in theeconomy.

Economic growth in FY'13 was also plagued by Twin deficits -Fiscal deficit and CurrentAccount Deficit. Low growth and uncertainty in advanced economies as well as emergingmarket economies adversely affected exports in FY'13. This, combined with continuing largeimports of oil and gold, resulted in an adverse trade balance during the first nine monthsof FY'13.

Banking Development

The banking industry had to pass through severe stress in FY'13 as a result of economicslowdown. Slowdown in industrial growth, low agricultural production, tepid servicessector growth, high inflation and elevated interest rate affected the overall performanceof Indian banks.

As a result of overall slowdown in the economy continuously for last two financialyears, recovery climate for the commercial banks got affected. Consequently, NonPerforming Assets (NPA) of the commercial banks witnessed an increase in FY'13. Subduedperformance of some infrastructure sectors especially power and civil aviation stressedthe asset quality of the commercial banks. This gave rise to an increase in the amount ofRestructured Standard Assets in the FY'13 leading to higher provisioning requirement.Hence, FY'13 posed double pressure upon the banking sector, one in the form of low profitand the other in the form of higher provisioning requirement.

Credit demand remained subdued throughout FY'13. However, due to 100 bps reduction inRepo rate by regulator in a gradual manner, and some pickup in credit demand during thelast quarter of FY13, banks were able to record credit growth of 17% for FY'13. Similarly,negative real return to the depositors in the banking sector because of persistent highinflation resulted in weak accretion of deposits. Apart from the above, migration offinancial savings to physical assets like real estate and gold also caused less flow ofdeposits to the banking system. However, like credit growth, the year-end surge in depositaccretion helped the YoY growth rate of deposits to reach the level of 17.4% for FY13.

Apart from the above, the banks continuously faced shortage of liquidity throughoutFY'13. The commercial banks borrowed over Rs 1 lakh crore on an average from the Repowindow of Liquidity Adjustment Facility (LAF) in FY'13. Apart from that, to infuseliquidity into the system and to ensure availability of enough credit to the productivesectors of the economy, the regulator conducted Open Market Operations (OMO) from time totime, whenever required. In addition to the above, Cash Reserve Ratio (CRR) was slashed by75 bps in FY'13 to 4% which helped banks in terms of improving liquidity for increasinglendable resources and improving profitability.

Despite all the above, economic reform measures undertaken in India and policy ratereduction by regulator have enabled investment environment to revive. The banking sectoris likely to witness a better and healthier financial year ahead.

Industry Structure

There were 169 Scheduled Commercial Banks (SCBs) and four Non-Scheduled CommercialBanks in Indian Banking System as at end March 2012.

PNB has maintained its position as one of the largest nationalized banks in India withmore than 5800 branches throughout the country. As on LRF March 2013, PNB's share insystem's aggregate deposits reached 5.18% and that in system's credit reached 5.11%.

Business Overview

1. Business

Bank's total business reached Rs 7,00,285 crore at the end of March'13, registering anabsolute increase of Rs 26,922 crore and a growth of 4.0%. Bank's overseas businessincreased by 57.2% to reach Rs 48,335 crore.

2. Resource Mobilisation

Bank's total deposits amounted to Rs 3,91,560 crore as at the end of March'13, showingan absolute accretion of Rs 11,972 crore and a growth of 3.2% over previous year. Theshare of Bank's deposits to total resources was 81.77% at the end of March 2013, while theshare of low cost deposits (current + savings) in total domestic deposits was 40.86%showing an increase by 14.3% over the FY'12.

During FY'13, the Bank undertook various steps to achieve the objective of stabilizedgrowth in deposits. Saving Funds Campaign was launched again during the year from01.08.2012 to 30.09.2012 with sustenance period up to 31.12.2012. Under this scheme,approximately 23 lakh accounts were opened and Rs 2700 crore was mobilized. Subsequently,a NRI Deposit campaign was launched to mobilize NRI Deposits. During the campaignapproximately Rs 550 crore NRI Deposit was mobilized.

Bank also introduced many new customized offers targeting special segments like newterm deposit product - a Special 400 days, a new Special Recurring Deposit Scheme andmobilized Rs 1200 crore. The Total Freedom Salary Scheme and PNB Rakshak Scheme have beenmodified and processing fees and documentation charges in case of housing loan, car loanand personnel loan have been waived to the extent of 50% and 100% respectively.

PNB Express Money Remit Card has been launched and approximately 15000 cards have sofar been issued to beneficiaries of inward remittances from Middle East. A new SavingsFund Premium Scheme was launched which provides many concessions to the account holderswho maintain QAB of Rs 50000. A new special Recurring deposit scheme has been launched tofacilitate the opening of PF accounts of employees of the institutions.

3. Credit Deployment and Delivery

Net advances of the Bank as at the end of March 2013 stood at Rs 3,08,725 crore,compared to Rs 2,93,775 crore as at end March 2012, registering an increase of Rs 14,950crore or 5.1%. The loan portfolio of the Bank remains well diversified with Yield onAdvances at 11.06% for the year ended March 2013.

PNB is the designated Nodal Bank under Technology Upgradation Fund Scheme (TUFS) of theMinistry of Textiles, Govt. of India. For speedier processing of claims under TUFS, adedicated cell at the corporate office facilitates distribution of subsidy to eligibletextile units. The Bank has 732 accounts in SSI and Non-SSI category along with 759 SSIaccounts covered under 15% Credit Linked Capital Subsidy (CLCS) scheme under TUFS. Duringthe Year 2012-13, Bank disbursed Rs 142.49 crore to eligible textile units under TUFS.

i. Loan Syndication

The Bank has a Syndication Department at Head Office and Syndication cells at Mumbaiand Chennai to function as extended arms of Head office. Financial closure of a number ofprojects was achieved and new clients were acquired during the year. Bank has a dedicatedTechnical Cell, which undertakes Project appraisal and Techno Economic Viability (TEV)studies. These studies are for internal use and for sharing with participating banks aspart of syndication assignments.

During the year 2012-13, Bank gave approvals for appraisal/ syndication of debtaggregating to Rs 11,494 crore with PNB's share of Rs 4873 crore. The sectors whereapprovals for syndication were given included infrastructure projects in power, roads andports, sugar, real estate, logistics, steel, textiles, etc. Total income booked during thefinancial year 2013 stood at Rs 28.78 crore.

ii. Retail Credit

Growth of Retail Loan portfolio continues to be the thrust area of the Bank and theBank has been able to achieve noticeable growth in this segment through positionstrengthening and penetration in retail loan market. The Bank has come out with theproducts and schemes which are competitive and customized. The focus has been on providingexemplary customer service through superior execution and quick delivery.

Bank's aggregate Retail portfolio as on 31.03.2013 increased to Rs 31,310 crore from Rs29,196 crore as on 31.03.2012. Outstanding in Core Retail comprising Housing, Vehicle,Education, Personal, Pensioner, Gold, Mortgage and Reverse Mortgage Loan Schemes increasedfrom Rs 23,377 crore as on 31.03.2012 to Rs 26,867 crore as on 31.03.2013 registering aYoY growth of 15%. Under Housing Vehicle and Education Loans, an absolute growth of Rs1683 crore (YoY 13.30%), Rs 379 crore (YoY 15.14%) and Rs 279 crore (YoY 8.43%) has beenregistered respectively. NPA under retail Loans was 1.94% as on 31.03.2013.

In order to give fillip to Retail loans, the Bank introduced special offer in the nameof PNB Festival Bonanza for its Retail Loan customers during the period 09.10.2012 to31.03.2013 whereby relaxations in interest rates, margin and processing/ documentationfee, etc. were extended under Housing, Car and Personal Loan Schemes.

Various customer friendly, competitive and technology based, initiatives wereintroduced under Retail Loan segment during the FY'13 to suit various sections of thesociety and to improve quality of our assets. Bank's Retail Loan Schemes have beenmodified to cater to the changing demands of customers and to curtail the turnaround time.Norms for approval of builders for extending Housing loans for under-construction flats/houses have been simplified along with increase in moratorium period up to 36 months from18 months. The benefits under 1% interest subvention scheme on Housing loans and CentralScheme of Interest Subsidy (CSIS) on Education Loans have been passed to eligibleborrowers in terms of Government guidelines.

It shall be our endeavor to strengthen our customer base and position in the marketthrough sales presence, service excellence and process excellence.

iii. Priority Sector

Priority Sector advances of the Bank stood at Rs 91,427 crore as at March 2013. Theratio of Priority Sector advances to Adjusted Net Bank Credit stood at 33.24% at the endof March 2013.

Position of Priority Sector Advances

Parameters 31.03.2011 31.03.2012 31.03.2013
Priority Sector Credit Of which: 75652 95898 91427
(a) Agriculture Sector 35462 45917 38055
- Direct 27398 34717 34639
- Indirect 8064 11200 3416
(b) Small Enterprises 29540 38115 39716
(c) Others 10650 11866 13656
Credit to Weaker Sections 18681 24380 27588
Credit to Women Beneficiaries 9218 11759 14084

Achievement of National Goals (%age to ANBC)

Target 25 Mar'11* 23 Mar'12* 31 Mar'13
Priority Sector Credit 40 40.67 40.70 33.24
Of which:
(a) Agriculture Sector 18 19.30 19.34 13.83
(b) Direct Agriculture 13.5 14.80 14.84 12.59
(c) Credit to Weaker Sections 10 10.13 10.43 10.03
(d) Credit to Women Beneficiaries 5 5.08 5.10 5.12

*Based on Last Reporting Friday Data

Credit to Agriculture

Credit to Agriculture sector stood at Rs 38,055 crore as on March 2013 as against Rs45,917 crore in March 2012. The ratio of Agriculture Advances to ANBC stood at 13.83%. Theachievement under Direct Agriculture Advances of the Bank was Rs 34,639 crore in March2013. The Bank issued 4.51 lakh Kisan Credit Cards (KCCs) during 2012-13 taking thecumulative number of KCCs issued to 45.32 lakh since inception. During the year 2012-13,the Bank disbursed agriculture loans to the tune of Rs 36,632 crore to 25.05 lakh farmers.Further, the Bank disbursed Rs 8392 crore during 2012-13 to 7.55 lakh new farmers underSpecial Agricultural Credit Plan.

The Bank also disbursed Rs 267 crore to 37854 borrowers for redeeming their debt tonon-institutional money lenders under Krishak Saathi Scheme.

Following initiatives have been taken by the Bank to further facilitate flow of creditto agriculture sector:-

• The Bank had launched two "Special Agriculture Credit Campaigns", from15.06.2012 to 30.07.2012 during Kharif season and from 15.10.2012 to 15.01.2013 duringRabi season to increase lending to direct Agriculture. During the campaign period, 3.03lakh new farmers were covered with a disbursement of over Rs 3676 crore.

• Kisan Credit Card Scheme has been revamped and renamed as PNB Kisan Card. Thefixation of crop production/ working capital limit is done on the basis of 10% increaseover base year limit towards cost escalation/ increase in scale of finance. The marginrequirement under KCC has been dispensed with (earlier upto Rs 3 lakh).

• Kisan Ichchhapurti Scheme has been revised and renamed as "Kisan GoldScheme". Limit under the scheme has been increased to Rs 20 lakh from Rs 10 lakh, thelimit under non-productive purposes has been increased to Rs 5 lakh and the stipulation ofsatisfactory track record has been reduced to 2 years from 3 years.

• Guidelines have been issued to all the branches to issue PNB Rupay Kisan card(KCC-Debit Card) to all the farmers in a time bound manner and to educate the KCC holdersfor its proper utilization. Upto 31.03.2013, Kisan ATM cards have been issued in 3.48 lakhKCC accounts out of 14.93 lakh eligible KCC accounts.

• A new scheme viz. PNB Kisan Tatkal Card Yojana was introduced for providing aninstant credit to farmers for meeting their emergency requirements for Agriculture andDomestic purposes.

• Scheme for purchase of land for agriculture purposes has been modified and thelimit has been enhanced from Rs 5 lakh to Rs 10 lakh.

• Scheme for agriculture advance against the security of gold has been modified toprovide Term loans besides short term loans.

• Financial assistance for purchase of Solar Energy Lighting System (SELS) hasbeen modified to cover credit needs for small Solar Water Heaters for domestic use.

Credit to Weaker Sections and SC/ST

The Bank has established a smooth and hassle free channel for flow of credit to theweaker sections for their welfare. Credit to Weaker Sections by the Bank increased to Rs27,588 crore as at March 2013, registering an increase of Rs 3208 crore and a YoY growthof 13.16%. Ratio of Weaker Sections advances to ANBC at 10.03% continued to be higher thanthe National Goal of 10%. Credit to SC/ST beneficiaries stood at Rs 3665 crore in March2013 as against Rs 3796 crore in March 2012.

Credit to Women Beneficiaries

PNB is proud of its efforts to support women through its various products and services.The Bank strongly believes that when a woman is supported, it is a help to the entirefamily. Credit extended to women beneficiaries stood at Rs 14,084 crore, as on 31st March,2013. Credit to women as percentage of ANBC stood at 5.12% as at the end of March 2013.

Besides, a dedicated Women Cell at Corporate Office closely monitors the progress undervarious lending schemes for women beneficiaries.

Credit to Minority Communities

The Bank's credit to minority communities was Rs 13,725 crore as on March 2013 asagainst Rs 14,445 crore as on March 2012. The credit to minorities constituted 15.01% ofPriority Sector advances.

Micro Credit

The Bank continued its efforts to promote Micro Finance through formation and creditlinkage of Self Help Groups (SHGs). As at end of March 2013, Bank had 1,95,096credit-linked SHGs with an amount of Rs 1561.43 crore, registering an increase of 14,370SHGs (YoY growth of 7.95%). The number of SHGs that had been deposit-linked rose to2,35,096 cumulatively from 2,17,309 as of previous year (growth of 8.19%). Further, theBank has 1,37,475 credit linked women SHGs and 1,61,004 savings linked women SHGs.

In order to boost micro credit, relaxations have been approved for financing of SHGssponsored by different agencies viz., Rajiv Gandhi Mahila Pariyojana (RGMVP) in UttarPradesh. Further, a modified scheme of "Micro Credit- SHGs- Non Govt SponsoredScheme" has been approved by the Board, for financing of SHGs promoted by Bihar RuralLivelihoods Promotion Society (JEEVIKA).

A scheme for supporting women Self Help Groups in backward and left wing extremismaffected districts of India has been started and is operational in 150 identifieddistricts. Under the scheme, 4935 SHGs have been formulated out of which 3354 SHGs weresaving linked and 1084 SHGs were credit linked.

Micro, Small and Medium Enterprises

Bank recognizes the important role of Micro, Small and Medium Enterprises (MSME) in theeconomic development through their contribution to GDP, export and employment generation.Towards this, as at the end of March 2013, credit to MSME sector was Rs 61,478 croreconstituting 22.07% of total credit. Out of the above, advances to Micro Enterprises wasRs 18,905 crore.

Collateral Free Lending: The Bank leveraged CGTMSE scheme for providingloans upto Rs 100 lakh without collateral security and without third party guarantee.Branch Managers have been vested with higher loaning powers. As a result, during FY'13,the Bank covered 14,382 cases under the scheme with the credit outlay of Rs 1045 crore.

Other initiatives

In order to broaden the base for augmenting credit to MSMEs, the Bank has indentifiedMSME focus branches in addition to the already existing specialized MSME branches. Thesebranches are ensuring smooth flow of credit to the MSMEs. There are 550 such branches (85specialized MSME branches and 465 focus branches).

To support new and existing Micro and Small Enterprise borrowers, the Bank is extendinginterest concession of 75 basis points on applicable interest rate for loans up to Rs 25Lakh. With a view to promote Food and Agro processing sector, concessional rate ofinterest is being charged by the Bank. Bank has also adopted the Code of Bank's Commitmentto Micro and Small Enterprises (MSEs) as released by the Banking Codes and Standards Boardof India (BCSBI), Mumbai.

The Bank also has tie ups/ entered MoU with vehicle manufacturers like Tata Motors,Ashok Leyland, Mahindra and Mahindra Ltd., Bajaj Auto Ltd., Piaggio Vehicles Pvt. Ltd.,Volvo Eicher Commercial Vehicles Ltd., Hindustan Motors Ltd., TVS Motor Co. Ltd., AsiaMotor Works, Atul Auto Ltd., JS Auto, ICML Ltd. and Escorts for financing their vehicles.

Bank is pro-actively participating in various schemes of the Government of India likePrime Minister Employment Generation Programme (PMEGP), Credit Link Capital Subsidy Scheme(CLCSS) for Micro and Small Enterprises, Khadi and Village Industry Commission (KVIC) andTechnology Upgradation Fund Scheme for Textile and Jute Sector (TUFS), Subsidy Scheme forFood Processing Industries, etc.

iv. Financial Inclusion

Financial inclusion has been priority area for the Bank as reflected in its mission"Banking for the unbanked".

With the launch of the GOI Scheme of FI under "Swabhiman" Scheme, the Bankmoved to the TSP based model and covered 4588 villages having population of over 2000through BC Agents upto March 2012.

In December 2012, the Swabhiman Campaign was replaced with the Sub Service AreaApproach (SSA), where each SSA comprises of 1000-1500 households either in one village/Gram Panchayat (GP) or a cluster of villages/ GPs within the service area of a branch. TheBank is ensuring that each SSA is served by a banking outlet, either through a branch or aBC Agent. Bank has 9337 SSAs across the country

Direct Benefit Transfer (DBT) Scheme

Government of India has come out with guidelines for Direct Benefit Transfer w.e.f.1.1.2013. Initially it has been implemented in 43 pilot districts to be followed by 78districts w.e.f. 1.7.2013. DBT will be extended in a phased manner to cover the wholecountry. To begin with only 26 schemes of central government are being covered. The pilotto reimburse the subsidy amount to LPG users is to be launched w.e.f. 01.06.2013.

Under the Direct Benefit Transfer (DBT), Government transfers cash benefits likescholarships and subsidies directly to the Bank accounts of identified beneficiaries. Thissystem ensures electronic transfer of benefits to beneficiaries' accounts, hence cuttingdown delays and diversions. There are various objectives of DBT like accurate targeting,De-duplication, Reduction of Fraud and corruption, Process Re-engineering of schemes forsimpler flow of information and funds, greater accountability and elimination of wastes insubsidy transfer.

From the Banking perspective, the DBT Scheme is being implemented through the Lead BankOffices. The Bank has lead Bank responsibility in 60 districts, out of which 6 are amongstthe 43 pilot districts covered under Phase I, while Bank is the Lead Bank in another 5under Phase II. The Lead Banks are overseeing the process of opening the accounts of DBTbeneficiaries and ensuring that banking outlets are available to them so that they canwithdraw the subsidy amount from their account.

Common Service Centers (CSCs) as BC

In view of our requirement to engage a large number of BC Agents, the Bank has enteredinto agreement with M/s CSC e Governance Services India Ltd., a SPV of Deptt. ofInformation & Technology, Government of India, to use their Common Service Centers(CSCs) for providing banking services in the villages. Bank has already identified about700 CSCs for engaging them as Business Correspondents/ Customer Service Points.

On-line Transactions at BC Locations

In a move to strengthen our operations at the BC locations, the Bank has now acquiredthe KIOSK Banking Solution which facilitates transactions in on-line mode on real timebasis. It is envisaged that this will give a boost to Bank's business at the BC locations.

v. ASSET QUALITY

In all Non-Performing Assets (NPAs), account-specific resolution strategies wereimplemented and progress was monitored regularly. Weekly progress of recovery in HighValue NPAs (outstanding Rs 50 lakh and above) was monitored and placed before TopManagement. In view of continuing recessionary conditions borrowers facing genuineproblems were provided tagging arrangements to facilitate their up-gradation to performingcategory.

Compromise/negotiated settlement through one-to-one meetings was adopted as a strategyto resolve NPAs. Special recovery campaigns (Rin Mukti Shivirs) were launched in variousgeographical locations, where senior officers from Circle Office/ Head Office and FGMsparticipated for on-spot decisions.

As a result of above, the level of NPAs was contained and these are showing consistentreduction on quarter to quarter basis since September 2012. Outstanding Gross NPAs on31.03.13 were Rs 13,466 crore which are below the level of Dec'12 i.e., Rs 13,997 croreand Sep'12, i.e., Rs 14,024 crore.

Large scale slippages during the year for various reasons, pre-dominantly economicslowdown led the Bank to tweak strategy midway during the year to manage the deluge andfocus more on accounts slipped during the year so as to manage both streams of NPAslippages and NPA Recoveries. The results have validated our efforts as the Bank managedto reduce its Gross NPAs during the last two quarters. While recovery of Rs 9099.18 crorehas been recorded during the year, only a sum of Rs 3900.87 crore got reflected in theannualized position as an amount of Rs 5198.31 crore of recovery relates to the slippagesof the current year. Thus 47.74% of the slippages of the current year have been handledduring the year itself.

Bank has achieved targets under Statement of Intent submitted to DFS, Ministry ofFinance for Overall Reduction, Up-gradation, Recovery in Loss assets and crossed 97% ofCash Recoveries targets.

Bank has set up specialized branches known as Asset Recovery Management Branches(ARMBs) and specialized cells known as Special Asset Recovery Cells (SARCs) which functionexclusively for resolving NPAs. Bank has 17 ARMBs and 34 SARCs are functioning as on date.

Further, following steps were taken during the year:

1. Continuing "Prayaas" staff Incentive Scheme for association of staffmembers for recovery in NPAs and written off accounts.

2 Engagement of Resolution Agents including ARCs and honorably retired bank officialson commission basis in accounts up to Rs 1 crore.

3 Drawing account specific strategic plan by the Sr. Executives of the Division andcomprehensive on-the-spot review of ARMBs.

4. Rin Mukti Shivirs created recovery climate for recovery in small value NPAs up to Rs10 lac. During the year in 5728 Shivirs, 83,860 borrowers participated resulting in cashrecovery to the tune of Rs 399 crore, upgradation of 36,227 accounts with BalanceOutstanding of Rs 607 crore and recovery of Rs 16.94 crore in Written Off accounts.

5. OTS was used for faster resolution of NPAs and OTS in 57,150 accounts was approved.

6. One-to-one meeting with NPA borrowers of Rs 1 crore and above at FGMO/ HO level wereheld for quick decision on recovery/restructuring etc.

Accounts with aggregate outstanding of Rs 962.40 crore were upgraded to standardcategory. Total cash recoveries in NPA accounts amounted to Rs 1941.53 crore. With a welldefined recovery policy, NPAs amounting to Rs 854.96 crore were resolved throughnegotiated settlements. During the year 2012-13, Bank recovered Rs 421.23 crore out ofaccounts earlier written off.

a. Industrial Rehabilitation

Bank continued its efforts towards rehabilitation of potentially viable sick units toprovide the much needed relief to industrial sector.

b. Corporate Debt Restructuring (CDR)

To ensure timely restructuring of the debt of viable corporates availing creditfacilities under consortium/multiple banking, a transparent mechanism is formed under CDRsystem. During the year 2012-13, 42 accounts with outstanding of Rs 5660.95 crore wererestructured under CDR. Out of the 42 restructured accounts, the Bank has been assignedthe role of Monitoring Institution in 13 accounts.

c. Debt Restructuring Mechanism for Small and Medium Enterprises

Bank has already adopted Debt Restructuring Mechanism for Small and medium Enterprises(DRM for SMEs) on the line of CDR since the year 2005-06. Timely restructuring of dues ofSMEs facing genuine problems is ensured. During the year 2012-13, the Bank hasrestructured 109 accounts with aggregate outstanding of Rs 653.59 crore.

d. Restructuring-Others

Bank has also put in place a transparent mechanism for restructuring of debts ofpotentially viable units, which are facing temporary problems due to factors beyond theircontrol even for cases which cannot be covered under BIFR/ CDR/ DRM for SMEs. During theyear 2012-13, 149 accounts involving Rs 7832 crore were restructured/rescheduled underthis category.

4. Risk Management

The risk management philosophy and policy of the Bank is an embodiment of the Bank'sapproach to understand, measure and manage risk and aims at ensuring sustained growth ofhealthy asset portfolio. This would entail adopting leadership approach in products andsegments well understood by the Bank. An innovative approach is undertaken in high-riskareas by taking limited exposure and optimizing return. This is done to improve PNB'smarket share and thereby maximize shareholders' value.

The Bank has robust credit risk framework and has already placed credit risk ratingmodels on central server based system called 'PNB TRAC'. This provides a scientific methodfor assessing credit risk rating of a client. Bank is undertaking periodic validationexercise of its rating models. It also conducts migration and default rate analysis totest robustness of its rating models. Further, the mapping of internal rating gradesvis--vis external rating agencies' grades has been undertaken. The output of the ratingmodels is used in the decision making of the bank (i.e. sanction, pricing and monitoringof credit portfolio). The Bank regularly monitors portfolio distribution in terms of LowRisk, Medium Risk and High Risk categories and places the same to the Risk ManagementCommittee of the Board. The Bank placed on central server scoring models in respect ofretail banking and SME sector advances. These processes have helped the Bank to achievequick and accurate delivery of credit. The scoring model for farm sector has also beendeveloped.

The Bank has a well-defined organizational structure for market risk management. Thistakes care of overall management of market risk viz. interest rate risk and foreignexchange risk. Tools e.g. stress testing, duration, modified duration, VaR, etc. are beingused in managing risk. The Bank has started monitoring various investment limits on realtime basis.

Asset Liability Management

Asset liability management of the Bank is done on proactive basis to manage anyeventuality. Although liquidity position in the system remained tight during the year, theBank managed to tide over the situation through proactive liquidity management throughvarious prescribed tools like Repo etc. The liquidity situation of the bank is nowcomfortable. With Core Banking Solution (CBS) covering entire branch network, the AssetLiability Management in respect of all assets and liabilities is being done on dailybasis. Moreover, fixation of BPLR/Base rate and interest rates in respect of assets andliabilities products is done on scientific basis. The Bank has moved from BPLR to BaseRate System for pricing of fresh loans/ renewals of existing with effect from 1.7.2010.

Operational Risk Management

Bank has in place a well-defined organizational structure for operational riskmanagement functions, which looks into the process of overall management of operationalrisk. Bank has robust operational risk management framework with a well-defined ORMPolicy. Bank is identifying, measuring, monitoring and controlling/ mitigating theoperational risk by analyzing historical loss data, Risk and Control Self AssessmentSurveys (RCSAs), Key Risk Indicators (KRIs) and Scenario Analysis etc. Bank alsointroduced an online Operational Risk Solution under Enterprise wide Data WarehouseProject and placed it on central server to take care of various aspects of data capturingand management information system at various levels. As a prudent risk managementpractice, study of Operational Risk Management Framework of peer banks was undertaken tocompare our Management Framework with those of these banks to improve upon our system.

Regulatory Guidelines

Bank has migrated to New Capital Adequacy Framework (NCAF), popularly known as Basel IIw.e.f. March 2008 and approaches prescribed by the 'Regulator,' namely StandardizedApproach under Credit Risk and Basic Indicator Approach under Operational Risk have beenimplemented. Standard Duration Approach for Market risk had been adopted by the Bank sinceMarch 2006. As per the requirements of the regulatory guidelines, relevant risk managementpolicies such as Risk Management Philosophy and Policy, Credit Management and Risk policy,Investment policy, ALM policy, Operational Risk Management policy, Policy for MappingBusiness Lines/Activities, Outsourcing Policy, Business Continuity Policy, Credit RiskMitigation and Collateral Management Policy, Internal Capital Adequacy Assessment Process(ICAAP) Document, Stress Testing Policy, etc. have been approved by the Board and havesince been implemented.

The Bank is gearing itself to adopt the advanced approaches in due course of time underdifferent risks and the estimation of various risk elements is already in progress. TheBank has already got an approval for migration to "The Standardized Approach"under Operational Risk on parallel run basis. PNB is the first bank in India to get anapproval for migrating to 'The Standardized Approach' for Operational Risk. The letter ofIntent for migrating to advanced approaches of Credit Risk, Market Risk and OperationalRisk viz. Foundation Internal Rating Based Approach (FIRB), Internal Model Approach (IMA)and Advance Measurement Approach (AMA) respectively have been submitted to regulator. Allthe necessary actions required in this regard have been initiated.

Others

• Bank has taken an initiative in terms of external audit of its Risk ManagementSystem and M/s KPMG is conducting the same.

• An international conference on 'Risk Management and Fraud Detection' was jointlyorganized with Central Bank of India. Eminent speakers from various national andinternational organizations delivered their lectures on the topic. Top brass of majorpublic as well as private sector banks of the country took part as delegates in the event.

• Bank has taken up the implementation of Gopalakrishna Committee recommendationson Information Security, Electronic Banking, Technology Risk Management and Cyber Frauds,the first comprehensive guideline issued by the regulator for strengthening theinformation security setup of Banks. Working towards it, Bank has taken various steps e.g.constituting an information security steering committee for monitoring informationsecurity, preparation of prototype template for "Service Valuation" of ITprojects to aid project evaluation, designing IT Balance Scorecard methodology to measureand evaluate the project performance, implementation of Patch management to ensure thatthe servers remain free from vulnerabilities etc.

• Bank has taken necessary steps to implement the various provisions as requiredunder Basel III guidelines issued by regulator. The capital planning is being carried outkeeping in view the various requirements under Basel III.

5. PNB Pragati

Bank undertook a large scale transformation exercise, PNB Pragati, starting in January2012 focused around three key pillars-Operational Excellence, HR Transformation and NewBusiness Initiatives. Over the last year several initiatives have been launched which areset to fundamentally transform the Bank. The services of Boston Consultancy Group (BCG)have been used for this programme.

Objective of Pragati

The ultimate objective of Pragati is to enhance capacity for future growth to achieveoperational excellence and benchmark our customer services with the best in the serviceindustry.

Brief status of Pragati Initiatives under various pillars is summarized below.

Operational Excellence

• Pragati system has been introduced in over 350 branches.

• Pragati branch revitalization program established to achieve three keyobjectives - reduce branch congestion, improve customer service and drive sales.

• Under Pragati, Bank has also enhanced customer satisfaction through introductionof technology based Self Service Area, which is equipped with machines like Cash DepositMachine, Cheque Deposit Machine & Pass Book Updating Machine.

• The level of Pragati implementation is being closely monitored by 6 levels ofcertification: 1-Star being awarded for layout redesign; 2-Star for role realignment;3-Star for service excellence; 4-Star for process improvements, 5-Star for businessperformance and 7-star for Branch specific customer oriented system re-engineering.

Retail Asset Branches (RAB)

• Working of all 75 RABs streamlined with introduction of standardised Turn AroundTime (TAT) for car loan, housing loan, immoveable property loan and loans to serviceproviders.

• Tool for instant pre-sanction approval introduced and a Centralised ProposalTracking System(CPTS) put in place to improve delivery.

• Marketing force at RABs strengthened and Customer Point Verification Agents(CPVA) introduced for doorstep service to applicants.

HR Transformation

• The "I am PNB" Programme reached out to all the employees of the bankto sensitise them towards customers and develop in them a sense of pride in the bank.

• As a part of recruiting and on boarding initiative, Bank has partnered withManipal University to create a recruitment pipeline for Scale-I officers. Currently twobatches of 200 students are undergoing training.

• Leadership Development Forum has been set up as a part of succession planningand managerial development of officers in senior & top management cadre.

Alternate Delivery Channels

• Alternate Delivery Channels have rendered more efficient services by enhancingthe uptime availability of ATMs from 75% to over 90%; launching a new Internet Bankinguser interface with customer centric functionalities like on-line registration and mobilebanking/SMS offerings.

• Revamping the Call Centers to efficiently deal with priority customers and hotline implementation in select branches to enable customers to directly reach call centre.

• Bank has been using SAP Customer Relationship Management (CRM) solution for leadmanagement through branches. As a part of Pragati initiative this platform has beenstrengthened to enable customers to seek products and services on alternate deliverychannels like Internet Banking Solution, Mobile Banking, ATM, Website etc.

The process of PNB Pragati initiatives in terms of branch reconfiguration, ATM uptime,up scaling of RABs/specialised MSME branches is on to carry forward the TransformationExercise for improving Bank's visibility in all spheres of banking in the currentcompetitive scenario.

6. International Business

Bank's total forex turnover from Exports, Imports and Remittances amounted to Rs1,43,003 crore in FY'13, registering a growth of 17.93% over Rs 1,21,259 crore in theprevious year. The Bank has 184 branches authorized for handling foreign exchange businessincluding one Foreign Exchange Offices which are equipped with SWIFT connectivity.

Over 599 banks worldwide have been approved as correspondents to facilitate tradetransactions of our clients. Bank is having nine specialized International BankingBranches (IBBs) at important centres for dedicated service to our exporter/importerclients.

An International Service Branch and a Centralized Back Office for Trade Finance atDelhi have been set up to handle all foreign inward remittances and process theexport/import documents.

To facilitate International travel, the Bank has "World Travel Card" which isa prepaid card denominated in USD, GBP and EURO. In order to centralise opening of NRIaccounts and for offering speedy services like, issuance of passbook, chequebook, ATMDebit cards and Internet Banking Services, a Back Office (E-bay) at Delhi has been set up.Exchange bureaus at important tourist centres to facilitate encashment of foreign currencynotes/travellers' cheques to foreign tourists/NRIs, etc. have also been set up.

To facilitate remittances from NRIs, the Bank is having Rupee Drawing Arrangements(RDA) with 29 Exchange Houses and 2 banks in Gulf Countries; 2 Exchange Houses inSingapore; one Exchange House in Malaysia. In addition, the Bank has web based remittancearrangements under Money Transfer Service Scheme (MTSS) with Money Gram, Western Union,BuyIndia online.com Inc, USA, Xpress Money and Ezremit.

There are 44 authorised branches for Precious Metal business, which together haveachieved a turn-over of Rs 2421 crore up to March 2013. There are 458 branches authorisedto handle FCNR accounts.

7. Treasury Operations

The yield on ten year sovereign bonds remained range bound during the major part offirst half of FY'13 but declined markedly since December 2012 due to resumption of OMOpurchases, expectation of rate cut and cancellation of the last bond auction scheduled forthis fiscal etc.

Gross investment as on 31st March 2013 stood at Rs 1,30,313 crore as against Rs1,23,147 crore as on 31st March 2012, indicating an increase of Rs 7,166 crore at 5.82%growth. The average investments during 2012-13 was Rs 1,27,249 crore as against Rs1,08,303 crore during 2011-12 indicating an increase of Rs 18,946 crore at 17.49% growth.

G-sec market showed an inverted yield curve during 2012-13. Indian equity market wasvolatile and traded in the range of 15,750 to 20,200 (Sensex) during FY 2012-13. The Bankactively traded in sovereign bonds, Non-SLR bonds and equity throughout the financialyear.

The interest income from investment portfolio for the FY 2012-13 was Rs 9,530 crore asagainst Rs 7,739 crore for the FY 2011-2012, indicating a growth Rs 1791 crore at 23.14%growth. The average yield on investment during the year was 7.89% as against the 7.57% in2011-2012.

The liquidity position of the Bank was generally comfortable throughout FY'13 with theBank complying with all the requirements of CRR/SLR stipulated by regulator.

A major development during the financial year was the relocation of treasury operationsto Mumbai, from New Delhi.

8. Business Diversification

Mutual Fund: Bank is distributing and marketing mutual fund products of PrincipalPNB AMC and UTI AMC. During FY'13, the Bank mobilized total amount of Rs 2226 crore andearned brokerage of Rs 1.97 crore.

Gold Coin Business: Under the Gold Coin Scheme, Bank is presently selling goldcoins of 2 gm, 5 gm, 8 gm, 10 gm and 20 gm denominations through branches. During 2012-13,the Bank sold 78,393 coins weighing 623.23 kg as against 78,599 coins weighing 577 kgduring 2011-12. Bank's earning from sale of gold coins stood at Rs 7.99 crore as againstRs 7.16 crore earned during FY'12. Gold Coin business registered Y-o-Y growth of 8.01% and11.59% in weight and revenue, respectively during FY'13.

Insurance Business: As a corporate agent of PNB MetLife India Insurance Co. Ltd.,the Bank mobilized premium of Rs 451 crore out of which fresh individual business is Rs336 crore, fresh group business is Rs 42 crore and renewal business is Rs 73 crore from90,397 policies, as against premium of Rs 287 crore mobilized during FY'12. Bank'searnings from Life-Insurance business during FY 2012-13 increased to Rs 37.75 crore asagainst Rs 21.21 crore during FY'12, showing Y-o-Y growth of 78%.

Similarly, under insurance tie-up with Oriental Insurance Co. Ltd. for non-lifeinsurance business, the premium collection amounted to Rs 146 crore from 4.01 lakhpolicies mobilized by the Bank. This earned revenue of Rs 15.89 crore showing a growth of32%. Bank has registered a growth of 133% in selling of customized health insurance policy'PNB-Oriental Royal Mediclaim'. Total policies sold during FY'13 were 84,152 as against36,156 policies sold during FY'12.

Depository Services: Depository Services as Depository Participant of NSDL is beingprovided through 659 authorised branches covering 259 centres across India. Bank hasearned an income of Rs 98.32 lakh during FY'13 for providing Depository Services.

On line trading facility: Online trading facility is also being provided throughBank's Alliance Partners viz. M/s. SMC Ltd., M/s. IDBI Capital Services Ltd. and M/s.Networth Stock Broking Ltd. Referral income of Rs 29.98 lakh has been received from OnlineTrading Activities during FY'13.

Merchant Banking: As Category-I Merchant Banker, Bank has handled 12 assignments as"Banker to the Issue" and 101 assignments of Dividend Payment/Interest Paymentsduring the financial year FY'13. Besides this, 4 assignments of Monitoring Agency and 14assignments of Debenture Trustee are also being handled.

Being registered with SEBI as Self Certified Syndicate Bank (SCSB), ASBA facility forsubmitting of application in public issues (IPO/ FPO/Right Issue) has now been madeavailable in all the branches of the Bank. This facility is also available online toretail investors ASBA facility is also available for Syndicate/Sub syndicate Members ofSEBI.

Door step Banking: Under the facility of Door Step Banking, cash is picked up fromthe premises of customers. Doorstep banking is currently being provided to about 754customers and has helped in garnering Current Account business.

Credit Card: Credit Cards, in two types, Gold and Classic, were launched by theBank in February 2009. In 2011, Corporate cards were also introduced to meet the needs ofcorporates. So far, Bank has issued 1,15,781 credit cards. In view of recent spate offrauds, Bank has subscribed to 'VISA Fraud Tools' to curb fraudulent usage. This willenhance the confidence in Bank's credit cards.

Merchant Acquiring Business: Bank has launched 'PNB Biz', Merchant AcquiringBusiness, through installation of Point of Sale Terminals and Integration of InternetPayment Gateway (Debit/ Credit Cards) in February 2010. During this period, 8866 PoSterminals and 54 Internet Payment Gateways have been activated.

KAIRON Project of Punjab Govt. for Grain Procurement

PUNGRAIN, a food grains procurement agency of Punjab Government has launched KisanArhtia Information and Remittance Online Network (KAIRON) project whereby the Governmentpurchases food-grains through the Point of Sale (PoS) terminals from farmers and makespayments to the farmers through Arhtias using RuPay Debit cards with the help of NationalPayment Corporation of India.

This project has been extended to other procurement agencies of Punjab Govt from theRabi Marketing Season 2013-14, PNB has been allotted 211 mandis of 10 districts of Punjabfor deployment of PoS terminals for purchase of Wheat by MARKFED (procurement agency ofPunjab) and online payment of the grain through Arhtias.

9. Transaction Banking

During the year 2012-13, several initiatives have been taken by the Bank to providecustomers better, prompt and efficient service with hi-tech and world class user friendlyproducts through the Alternate delivery Channels.

These steps not only helped in the promotion of e- transactions, thereby reducingcheque based transactions but also led to the decongestion of branches. Some of theinitiatives taken are given as under:

I. PNB RuPay Debit card has been launched on PAN India basis with enhancedsecurity features such as requirement of PIN as second factor authentication both for ATMand PoS transactions.

II. More than 40 lakh debit cards were issued during the year taking the debit cardbase to around 210 lakh.

III. Bank added 355 ATMs during the year, taking the total ATM network to more than6300 ATMs as on 31.03.2013. Out of these, 680 ATMs are with biometric functionality. ATMsavailability to customer has increased from 76% as on 31.03.2012 to 92% as on 31.03 2103.

IV. IBS Retail User Interface has been revamped to provide online registrationand password reset facility using Debit Card credentials. IBS users also grew by over 3.60lakh, bringing the total number of IBS users to approx 20.5 lakh during the year 2012-13.

V. Cash Deposit Machine (CDM): During FY'13, 1102 Cash Deposit Machines havebeen installed in various branches of the bank for convenience of small depositors of Bankdepositing cash up to Rs 30000. This has helped to decongest branches. As of now 45% cashtransactions upto Rs 30000 are happening through CDMs.

VI. Electronic Cheque Deposit Machines (ECDM): As per MOF guidelines ECDMs havebeen installed in 1060 urban and metro branches. These ECDMs provide an automated proof ofdeposit of cheque by issuing cheque image based receipt to customer specifying the branchin which the cheque is deposited along with the date and time of deposit.

VII. Queue Management System (QMS): In 269 branches QMS has been installed toregulate the flow of customers.

With the implementation of above initiatives, Bank's e-transactions have increased from27.76 % as on 31.03.2012 to 51.54 % as on 31.03.2013 and cheque based transactions havedeclined from 72.83% in July 2012 to 58.0% as on 31.03.2013.

10. Government Business

The pension schemes of all the categories were centralized for processing anddisbursement at Head Office and disbursal through 10 CPPCs across India. Thus, the fieldstaff became free for business development and improved customer service. Improvedcustomer service is indicated by increase in number of pensioners by over 75,000 in 2012alone, taking total number of pensioners to over 16 lakh as on 31.12.2012.

During the year 2012-13, the Bank took a step towards digitization of 7.50 lakh PPOs onits server. Towards this, pilot project has already been implemented at Delhi. Scanningwould enable getting PPO details of any pensioner from any branch across India. Thesubmission of life certificate at any branch is already enabled. Thus, efforts have beenmade to convert the pensioners from customers of a particular branch to customers of theBank.

Some of the new initiatives taken towards e-payment system were collection ofCommercial Taxes (Sales/VAT), e-stamping of documents business and e-freight of Railwaysbusiness, etc.

Further, Bank initiated necessary steps to launch PAN Card Business through allbranches of the Bank.

Bank is planning to sign MOU with EPFO for processing the EPFO pension in theCentralized server. System was developed for reconciliation of CBDT and CBEC transactionsthereby reducing the penal charges to nil and increasing the efficiency of collections.

11. Branch and Office Network

Bank is constructing a state of the art building at Dwarka with the objective ofhousing all Head Office Divisions except IT & Treasury Divisions in one building. Itwill lead to savings in time and fuel besides adding to the general efficiency. It wouldbe an intelligent building with sensors. It will be a certified Green Building having 5Star GRIHA Rating to be built on 19470 sq meter of land having maximum design efficiencyand most modern amenities.

The Bank moved its Treasury Office to PNB Pragati Tower, a new building at Mumbai whichwas inaugurated on 09.02.2013 by Hon'ble Union Finance Minister, Shri P. Chidambaram.

Apart from the Treasury Office, the new building has Currency Chest, Retail AssetsBranch, a general banking branch and Circle Office. This building is equipped with alltypes of modern hi-tech amenities which will enhance the operational efficiency of theBank.

Punjab National Bank had 5874 branches as on 31.03.2013. These included 209 SpecializedBranches, an Extension Counter and 337 Services Back Offices. All the extension countersexcept one at Badrinath (Uttrakhand) have since been upgraded into full fledged branches.

For providing banking Services 24 x 7, the Bank has set up more than 300 e-lobbies withself service areas.

Bank had successfully implemented a Centralized Dak system in respect of all the 4 HeadOffice buildings, at Bhikaiji Cama Place which has resulted in great savings of manpower,space and cost.

MIS Portal for Bank's premises has been developed to get information from field inrespect of leased premises hired by Bank. It will reduce correspondence, time and manpowerengaged in collecting this information and improve control on lease related issues such asexpired / expiring lease, disputed / suit filed cases etc.

International Presence

Bank has 2 branches in Hong Kong and a branch each in DIFC (Dubai) and Kabul(Afghanistan) taking total to 4 overseas branches, besides an Off Shore Banking Unit inMumbai. Bank has obtained a license from regulator for opening of a Qualified Full Bank(QFB) in Singapore which is likely to be opened in FY'14.

Bank has three overseas subsidiaries viz - PNB International Limited, UK (7 branches),JSC SB PNB Kazakhstan (4 branches) and DRUK PNB, Bhutan (5 branches). Bank also has oneJoint Venture in Nepal - Everest Bank Limited (48 branches).

PNB has five representative offices in Dubai, Almaty (Kazakhstan), Shanghai (China),Oslo (Norway) and Sydney (Australia). Bank is looking forward to upgrade itsrepresentative offices in Norway and Australia to full- fledged branches.

Bank has obtained permission from the regulator for opening of a representative officein Yangon, Myanmar and has applied to the Myanmar regulator for its permission.

Business

The total business of overseas branches has increased to $ 9 Billion as at 31. 03.2013, which forms 6.98% of total business of the Bank.

12. Information Technology

Financial sector in general and banking industry in particular have undergonesignificant change due to changes in Information Technology (IT). PNB has been in theforefront and is a pioneer in the use of technology.

I. Implementation of Core Banking Solution(CBS)

The Bank has a vast network of 6110 service outlets covering 3202 centers with morethan 80.6 million customers accounts.

All these service outlets/centers are covered under a Core Banking Solution. With alldata being stored in a centralized server at New Delhi, PNB has been among the first tonetwork all its branches.

II. Internet Banking Services

Internet Banking provides a complete e-desk for performing various banking activitiesand is a secured means of online monitoring / management of account. The internet bankingservice of the Bank is currently catering to around 19 lakh customers with its retail andcorporate modules.

PNB's Internet Banking is witnessing a steady increase in number of users. It enablestransfer of funds, inter-bank remittances through NEFT/RTGS, bill payments, online sharetrading, tax payments (including Excise duty, Service tax, MCA 21, Direct taxes, Customsduty, DGFT, etc.), donations, fee payments, etc.

By participating actively in all the e-initiatives of Government of India as well asseveral state Governments, the Bank has positioned itself as a leading e-service provider.The effectiveness of the channel was enhanced with the utility payment facility for allthe popular service providers like MTNL, NDPL, IGL, Airtel, BSES, etc.

The User Interface of both Retail and Corporate IBS Modules has been revamped making itsimpler and easy to use, enabling Online User Registration and password reset.

III. Alternative Delivery Channels

1. SMS Alert Services

SMS Alert services have been successfully deployed in Bank for both retail andcorporate customers and SMS Alerts are being generated for identified transactions(credit/debit) done at branches, ATM, IBS, Mobile Banking and PoS terminals. In additionto these, SMS alerts are also being sent for non-financial activities like birthdaygreetings, registration of mobile numbers, address/name change, change of internet bankingtransaction password, loan installment becoming due, loan installment overdue, FD accountmaturing, FD account matured, NEFT N10 confirmation, RTGS transactions with UTR No,balance on missed call, etc. The channel is also leveraged for providing information onBank's products and services over SMS under the SMS Pull Mechanism.

Presently around 1.63 crore customers have subscribed for SMS Alerts facility and on anaverage around 12.26 lakh alerts are being generated and delivered per day.

2. Mobile Banking Services

Mobile Banking Services are presently being offered by the Bank, which providecustomers with various online features like viewing account balance, statement of account,transfer of funds including payments of their utility bills. The services can be availedon all the handsets available in the market starting from a low end handset to newlyintroduced smart phones. Presently, 78,517 customers have registered for Mobile Bankingand there are around 15,404 logins and 4,453 transactions taking place per month in theBank.

The channel has also been integrated with NPCI for interbank mobile payments usingIMPS.

3. ATM Services

In order to provide more convenience to the customers, more than 6300 ATMs have beeninstalled at various geographical locations in the country. Apart from the facility ofcash withdrawals, balance enquiry, mini statement, PIN change and other services providedto the cardholders include Funds Transfer, Bill Payments, mobile registration forgeneration of SMS alerts, Direct Tax Payment, request for stop payment of cheques, IBSregistration through ATMs, complaint registration of non-receipt of cash through ATMs,etc.

IV. Cheque Truncation Department

During the financial year, Bank started CTS at 26 locations under CTS Southern Gridincluding one non-MICR location at Vellore. The Bank has implemented CTS at all thecentres under Southern Grid where NPCI has started its implementation.

V. New IT Based Products/Services

Aadhaar Payment Bridge System (APBS)

APBS will be used for credit transactions for Government/ Government agencydisbursements to the accounts of beneficiaries automatically based on Aadhar numbers. Theobjective of the said payment system is to reduce the delay in disbursing funds into theaccounts. This will also support disbursement of payments related to various governmentschemes like NREGA and Social Security Pension. Necessary customization has been done andit is ready for implementation across the Bank.

The APBS system has now been migrated to National Automated Clearing House (NACH)system. Under, NACH files are uploaded and downloaded using NACH portal. NACH providesfacilities like Maker Checker Concept and Digital signing of file in comparison to theexisting APBS system.

Bank has developed the complete setup in CBS and the NACH system is runningsuccessfully to handle APBS transaction files.

Opening of Inland letter of credit and confirming through SFMS

Branches are now able to send / receive ILC through SFMS in a standardized format asper uniform customs and practices acceptable to all Banks. The beneficiary does not need aconfirmation from the issuing banker.

ACH (Automated Clearing House) project of NPCI

ACH is a national system with centralized platform for bulk electronic debit and credittransactions. It also provides the facility of electronically handling the 'customermandate'. In ACH, ECS Debit and Credit files will be sent by the sponsor bank through NPCIand the destination bank, on receiving the file(s), will upload the same in their CBSsystem. Necessary customization has been done for uploading the 'Inward Credit file ofNACH'.

VI. Enterprise-wide Data Warehouse

Enterprise-wide Data Warehouse (EDW), implemented in the Bank, is a repository of datafrom multiple source systems, which can be combined based on common elements to arrive atmeaningful decisions. Data Warehouse is independent of the operational databasesmaintained in the respective source systems. Various source system viz CBS, IBS, ATMSwitch, Debit Card, Credit Card, PMS, PNB Trac, Treasury, LADDER, HRMS (Employee profile),FI, MICR, OBU, Overseas Units have been integrated with EDW. The data is furthersummarized as per the reporting requirements specified by the user divisions of the Bank.Data warehouse also acts as source system for different point solutions like RiskSolutions, Customer Relationship Management, Anti Money Laundering, etc. Data Warehouse isproviding information/data per requirements received from various HO Divisions, FGMOs,COs, BOs Statutory bodies, Investigating Agencies etc. through ad-hoc queries andpre-published MIS Reports.

VII. IT Security

Bank has Information Security Policy, which is approved by Board and reviewed each yearto keep it updated as per latest trend and best practices. It is also having anInformation System Security Architecture Implementation Committee (ISSAIC), which meets onmonthly basis to review and recommend implementation of Information security posture.

The Bank has taken adequate steps to strengthen monitoring and anti-phishing activitiesto prevent online frauds. To monitor information security events across the Bank'snetwork, Bank has established a Security Operations Centre (SOC), which is first of itskind that has been set up by any Indian Bank. The facility is utilized for analysis andmonitoring of various threats emanating from both within the network as well as fromoutside the network in a very proactive manner.

1. ISO 27001

An Information Security Management System (ISMS) is a set of policies and proceduresfor systematically managing an organization's sensitive data. ISO 27001 is a specificationfor creating ISMS. Bank's critical infrastructure, like Data Centre, Network OperationCentre and Disaster Recovery Data Site are ISO 27001 certified. All the policies andprocedures are aligned with best practices and ISO 27001 standards and regulatoryguidelines.

2. Cyber Crime Monitoring Cell (CCMC)

CCMC co-ordinates the activities related to disputed/ suspected transactions, usinginternet banking (IBS), mobile banking and ATM/ Debit Cards, with all the relateddepartment /divisions/branches and with the affected customers.

The Cell takes up proactively to check for any malicious activities in customeraccounts on the basis of alerts raised by the SOC. In case the customers report anyunauthorized transactions in their accounts through any e-channel, the Cell examines thecomplete incident from technical angle and takes all measures for getting the involvedfunds refunded/ reversed in the customer's account.

3. Gopalakrishna Committee Recommendations

Bank has initiated steps for implementation of the recommendations of GopalakrishnaCommittee. Various action points such as realignment of Information Security to RiskManagement, formulation of IT Balance Score Card, Service Valuation matrix, etc. have beencomplied with. Action is already underway for remaining action points.

4. Business Continuity Plan and Disaster Recovery (BCP and DR)

In the present scenario where all the branches are under centralized network,connectivity is an important concern. Though precautions have been taken to take care ofconnectivity outage by providing dual connectivity to each branch, yet chances of outagecannot be ruled out completely. Bank has well defined Business Continuity Plan (BCP) toprovide un-interrupted Customer Services in case of any exigency in the branches. Bank hasoperational Disaster Recovery Site (DRS) of its Data Centre with well defined RecoveryTime Objective (RTO) and Recovery Point Objective (RPO). Data Recovery drill is conductedregularly to keep testing its functional preparedness.

13. Human Resources Management

Bank recognizes its employees as the most vital and valuable asset. Total number ofemployees including those in the subsidiaries was 63,292 at the end of March 2013.

Cadre-wise Staff Strength

Cadre March 2012 March 2013
Number % of Total Staff Number % of Total Staff
Officer 22933 36.91 23610 37.30
Clerks 25380 40.85 25449 40.21
Sub Staff (incl. PTS) 13814 22.23 14233 22.49
Total 62127 63292

The Bank has taken several initiatives during the year in the areas of ManpowerPlanning, Recruitment, Succession Planning, Leadership Development and Staff Welfare.

Manpower Planning

For the year 2012-13, the Manpower Plan was finalized well in time in a scientificmanner, properly taking care of impending retirements, future branch/activity, businessexpansions and other requirements.

Recruitment Planning

For the last three years, extensive recruitment plan is being prepared based on theManpower Plan approved by the Board. The blue print of the whole project is finalized wellin advance to ensure completion of the projects in a time bound manner and in short spanof time.

Succession Planning

In view of large-scale retirements in the coming years, human resources gaps are likelyto emerge in the Bank. To address these gaps, Leadership Development Forum has beencreated which will facilitate identification of successors for various key responsibilityareas/critical positions in the Bank. The availability of existing Executives in each areaof specialization has been mapped and effort is on to equip each Executive with minimumtwo areas of specialization in order to have alternate utilization.

Age Profile of the Employee

As a result of the carefully planned and executed Human Resource Development Plans asexplained above, extensive need based recruitment was undertaken in the last three years,which has resulted in changes in employee age profile. The position of cadre-wise averageage in the last 3 years is as under:

Average age as on Officer Clerical Sub-Staff All
31st March 2010 50.18 49.82 46.89 49.29
31st March 2011 50.37 49.62 45.91 49.02
31st March 2012 50.14 44.93 44.48 46.75
31st March 2013 49.49 44.70 42.41 45.96

PNB University Initiative

The Bank has entered into partnership with Manipal Global Education Services (MaGE),Bangalore in 2012-13 for induction training of prospective officers at Management Traineelevel before their actual recruitment. Two batches have been inducted for this programmeand are undergoing training programmes which were customised as per Bank's requirements atManipal University, Bangalore. Both batches will be available to the Bank during Septemberand December 2013 after completion of their one year training and shall be ready forjoining the workforce in the Bank as officers.

Welfare Schemes for Staff

New schemes have been introduced for the welfare of staff including improvement in theexisting Hospitalization Relief Scheme and scheme for providing medical check-up. Theseschemes include financial aid to the families of the employees who die while in service ofthe Bank. The amount of financial aid has been enhanced under PNB HospitalizationContributory Benefit Scheme for retired employees, Hospitalization Relief Scheme andScheme of providing facility of Medical Check-up of the employees/spouses above 40 yearsof age w.e.f. 1.10.12.

Reservation Policy

The Bank follows the reservation policy for SCs, STs and OBCs as prescribed byGovernment of India from time to time.

Strength of SC/ST/OBC Employee

Cadre March 2012 March 2013
SC ST OBC SC ST OBC
Officer 4104 1352 1045 4227 1416 1410
Clerks 4570 1091 2635 4700 1114 2774
Sub Staff (incl. PTS) 5724 760 2017 6032 774 2333
Total 14398 3203 5697 14959 3304 6517

Human Resources Management System (HRMS)

HRMS 'PNB Parivaar' - A People Soft Package containing an exhaustive database of allthe employees, has enabled Bank to effectively utilize technology for implementing allemployee related tasks like staff welfare benefits, various reimbursements, transfer/postings, leave rules, etc. Salary is being credited online through HRMS centrally inrespect of all employees. PAF submission/ assessment of officers' upto TEG-VI has beenmade on-line for the FY 2012-13.

Promotions

During the year 2012-13, all promotion processes were completed in the first quarter ofthe year i.e. upto June 2012. The number of officers promoted during the year from Scale Ito II was 1296, Scale II to III was 874, Scale III to Scale IV was 111, Scale IV to V was69, Scale V to VI was 34 and Scale VI to Scale VII was 13.

During the year 2012-13, following number of employees in workmen cadre have also beenpromoted:

1. Clerks to Officers in JMG Scale-I :1591 (Selectivity Channel-II)
: 1087 (Selectivity Channel-I)
2. Sub Staff to Clerks : 827

Industrial Relations

Industrial relations in the Bank continued to be cordial with issues raised by WorkmenUnion/Officers' Association being attended to immediately. Various meetings were held withthe representatives of the majority Officers' Association/Workmen Union during the year todiscuss various issues and steps taken to resolve the same.

Training Activities

The training system of the Bank is functioning effectively for enrichment of knowledge,skills and attitude of staff at all levels, in line with the organizational objective totransform the Bank to a customer centric and technology driven bank.

Bank has a three-tier training set up. There is a Central Staff College (CSC) at Delhiat apex level catering to training needs of Top / Senior / Middle Management Gradeofficers on 'all India' basis. Three Regional Staff Colleges (RSCs) located at Belapur -Navi Mumbai, Lucknow and Panchkula cater to training needs of Senior / Middle / JuniorManagement officers as well as workmen and seven Zonal Training Centres (ZTCs) functioningat Dehradun, New Delhi, Jaipur, Kolkata, Kozhikode, Ludhiana and Patna look after thetraining needs of Middle / Junior Management Grade officers and Workmen Staff. There isalso one IT Training Centre located at Faridabad catering to training needs of officersexclusively in the areas of Information Technology and an autonomous Institute named PNBInstitute of Information and Technology (PNB IIT), which conducts programmes on BankingTechnology for officials of various banks including Punjab National Bank.

Bank also imparts training to its officers in different Grades in specialized areasthrough outside training institutions of repute, both in India and abroad viz. ASCI,Hyderabad, COD, Hyderabad, IDRBT, Hyderabad, NIBM, Pune, CAB (RBI) Pune, CAFRAL, FEDAI andIMI, etc.

Under "I AM PNB" programme, 24,539 Officers and 34,542 Award staffwere given training through professional soft skill trainers.

Further, looking at the large scale new recruitment in the bank both in Officer as wellas clerical cadre, comprehensive 'Induction Training Programmes' of 2 - 24 weeks wereorganized for them. In addition, for the existing employees trainings in key subject areaslike Credit, Agriculture, SME, Foreign Exchange, Information Technology, NPA Management,Risk Management, etc. were conducted. SC/ST employees aspiring for higher grade/scale wereprovided pre-promotion training. Similarly, newly promoted officials in different Grade /Scale were covered under post promotion trainings both in functional and management skillareas to equip them to take higher responsibilities. Besides, Faculty DevelopmentProgrammes were also organized for enhancing the training skills of our in-house Faculty.

Training Policy of the Bank envisages a training reach of 50% of employees every year.Towards fulfillment of this objective, during the year 2012-13, Bank imparted 1,49,736man-days training to 44,877 employees through in-house training. In addition, 1899officers attended specialized trainings at outside Institutes of great repute in India andabroad.

E-Learning

Training system of the Bank makes extensive use of technology for facilitating greatertraining reach of the staff. There is an exclusive Knowledge Centre website, comprising ofe-circulars of all HO Divisions, and the latest banking and economic updates. This websiteis available to the staff both through CBS network as well as via internet.

'PNB Gyanuday', Bank's exclusive e-learning platform is accessible 24 X 7 to allemployees across the country and abroad. This is an interactive mode of learning thatcovers banking topics on various focus areas viz. Credit, Foreign Exchange, RetailBanking, CBS/IT, KYC (Know Your Customers)/ AML (Anti Money Laundering), Marketing, RiskManagement, Resolution of NPAs, etc.

14. Management Information System

Management Information System Division (MISD) was set up with the objective ofcentralization of MIS. To achieve this objective, Enterprise-wide Data Warehouse (EDW),had been implemented. EDW set up has facilitated ready access to data required forRegulatory/Statutory reporting as well as for analytical purposes. So far EDW hascustomized 478 returns pertaining to 21 HO Divisions. LADDER (Loans and Advances Data Deskfor Evaluation and Reports) System, is an integrated system comprising of Basel I,II IIIand CIBIL modules, with monthly data updation periodicity. Standardised Approach forcredit has been implemented through Basel - II module of LADDER system thus enablingcalculation of risk weighted assets (RWAs) in respect of Loans & Advances as perguidelines of regulator. LADDER System is also being implemented for creating database forborrowal accounts, generation of credit related MIS and retrieval of credit relatedinformation, asset classification and computation of provision in respect of NPAs.

The project of "Integration of LADDER with CBS" has been implemented acrossthe Bank w.e.f. 1st October 2010 and is aimed at achieving single point data entry. Thiswill obviate the need for manual intervention for Asset Classification and minimizesubmission time of LADDER data.

Data of all accounts is being transmitted to three Credit Information Companies onmonthly basis through CIBIL Module, an extension of Ladder System, thus enabling ourbranches to draw Credit Information Reports (CIRs) for taking credit related decisions.8,14,816 CIRs of prospective borrowers under Consumer category and 21,819 CIRs undercommercial category were drawn from CIBIL, Experian, High Mark and Equifax databasesduring the year.

Bank is registering the details of equitable mortgages with central registry. So far,Bank has filed Security interest (mortgages) by deposit of Title Deeds in 39,00,646 cases.The objective is to avoid multiple financing thereby preventing perpetrators of fraudsfrom mortgaging the same property to more than one financial institution.

15. Customer Care

Customer Service of the Bank is an integral part of the Bank's business and its growth.Customer loyalty is built through good service and useful products and services.

In order to ensure customer service of a high order, the Bank has taken concertedefforts to train the staff on the operational and behavioral aspects. Periodical reviewsand other measures are being taken on an ongoing basis for improvement of customer serviceto minimize the inflow of complaints.

Further, the Bank accepted most of the recommendations of Damodaran Committee withrespect to reviewing and evaluating the existing system of attending to customer servicein banks and for taking measures for expeditious resolution of complaints. The complaintsreceived by the Bank are analyzed and effective measures are undertaken to avoidrecurrence of the same.

Some of the new initiatives towards effective customer care taken by the Bank duringthe year 2012-13 are enumerated below:

• Time period for redressal of general complaints has been reduced from 30 days to21days.

• Theme Based Meetings are conducted in all Branches on a common date atmonthly intervals to bring awareness about Bank's products and schemes and for improvingknowledge and skill amongst the staff. The minutes of these meetings are being sent toCustomer Care Centre every month.

• Gist of new Schemes is being displayed on the home page of HRMS websitehttps://pnbnet.net.in. on Notice Board.

• All Circle Offices and FGM Offices have been provided with a dedicated computersystem with internet connection at the reception counter exclusively for customers toenable them to file online complaints by using the Bank's portal. The indicator board"On Line Complaint cum Feedback Kiosk" is displayed at the counter.

• Call Centre successfully implemented installation of Hotline in branches whichwill allow customers to connect directly to Call Centre. Toll free number 18001030001 hasbeen made live exclusively for attending calls from premium customers of the Bank.

• One more toll free number 18001032222 has been installed as standby.

• The officials of Customer Care Centre have been conducting "MysteryShopping" in the branches of NCR on regular basis. Henceforth, it will be conductedin select complaint prone branches (PRAGATI and non-PRAGATI). The repeat check will beconducted after three months by other officers so as to verify the level of removal ofdeficiencies and also to sensitize the staff to improve the level of customer service.

• Banking Outreach Programme was organized at Kurukshetra on 07.06.2012 tocreate awareness of Banking Ombudsman Scheme, BCSBI codes and initiatives taken by PNB oncustomer service.

• Customer Service Sensitization Programme "I AM PNB" reached out to allemployees of the Bank.

• With a view to create awareness among the staff about deficiencies of thecustomer service, monthly Bulletin of complaints "Customer Speaks" is publishedwhich contains selected complaints along with resolution and action taken. Copy of theBulletin is also placed on e-circular site (https:// pnbnet.in), link for which isavailable on homepage of CBS.

• Town Hall events were organised at different places during the year, forbringing awareness about customer services in banks, Banking Ombudsman Scheme 2006 andother key issues.

Total number of complaints Customer Complaints

a) No. of complaints pending at the beginning of the year 301
b) No. of complaints received during 01-04-2012 to 31.03.2013 54545
c) No. of complaints redressed during 01-04-2012 to 31.03.2013 54610
d) No. of complaints pending as at 31.03.2013 236*

*All complaints stand resolved

Awards passed by the Banking Ombudsman

a) No. of unimplemented awards at beginning of the year 0
b) No. of awards passed by BO during 01-04-2012 to 31.03.2013 14
c) No. of awards implemented during 01-04-2012 to 31.03.2013 14
d) No. of unimplemented awards at the end of March, 2013 NIL

16. Strategic Planning And Business Process Re-engineering

To provide quality experience to our esteemed customers, various customer friendlyinitiatives like introduction of Cash Deposit Machines, Cheque Drop Machines, etc. wereundertaken. For the convenience of customers and field functionaries, a simpleconsolidated account opening form for individuals and a single page request form for termdeposits has been introduced. The narration in the statement of account generated throughE-mail, internet, Passbook updation and CBS has been standardized to make it easilyunderstandable by the customers. The expectations of our select clients have been met withthe introduction of the concept of opening of accounts through "Welcome Kit",which instantly provides eight different services along with opening of account.

To improve Organizational efficiency and effectiveness, Public Provident Fundactivities were linked with Link Cell, Nagpur, Fraud Prevention and Investigation Sectionwas delinked from Vigilance Division; Rajbhasha Vibhag and DAK dispatch have beensuccessfully centralized.

17. Internal Control System

a. Credit Audit and Review

Credit Audit and Review as a part of Loan Review Mechanism (LRM) is undertaken toexamine compliance with extant sanction and post-sanction processes/ procedures laid downby the Bank from time to time, with a view to bring about improvement in credit managementof high value borrowal accounts.

During 2012-13, credit audit was conducted in 'B' and above risk rated standardaccounts with exposure of Rs 10 crore & above and in 'C' and 'D' risk rated standardaccounts with exposure of Rs 3 crore and above. Further, 5% of accounts (selected onrandom basis in circles where either no or a few loan accounts fall under purview ofCredit Audit) with exposure from Rs 5 crore to Rs 10 crore and outstanding balance of Rs 3crore and above were also subjected to Credit Audit. Also credit audit was done ofborrowal accounts taken-over from other banks, with exposure of Rs 1 crore to less than Rs10 crore, with the first audit being conducted within three months of take-over.

As against RBI requirement of at least 30% to 40% of credit portfolio to be reviewedevery year, during 2012-13 credit audit of above accounts covered 63.32% of Bank'sdomestic credit portfolio as on 31.03.2012 (Fund based and Non Fund based).

During 2012-13, the Bank has commenced credit audit of overseas loan accounts - withcredit audit of accounts in PNB Hong Kong and in Overseas Banking Unit, SEEPZ, Mumbai.

b. Internal Control

The main objective of Internal Audit System is to bring accuracy and effectiveness inthe internal control, which has become crucial in the fast changing banking scenario.Inspection & Audit Division (IAD) at the apex level, with its extended arms of 12Zonal Audit Offices (ZAOs) and a team of Internal / External Auditors including CharteredAccountant Firms and retired Bank officials at field level, lays emphasis on "qualitygrowth" by identification of potential risks and measurement and mitigation of risksin the Branches. To achieve the above objectives, various type of Audits are conductedviz. Risk Based Internal Audit (Onsite and Offsite), Revenue Audit, Information System(IS), Credit Audit, Snap Audit, Segment Audit, Compliance Audit and FEMA audit.

Various Information Technology related initiatives have been taken in the area of Audittechniques. PNB is the first bank in India to introduce "ONLINE" Risk BasedInternal Audit (e-RBIA) system and Revenue Audit for all Concurrent Branches of the Bank,which enables online preparation, submission, processing, compliance and closure of Auditreports. Further, a dedicated Cell for surveillance has been set up at IAD and at each ZAOto bring more effectiveness in control aspect through "Remote Audit".

In compliance with the directions of Department of Financial Services, Govt. of India,Ministry of Finance, Risk Based Internal Audit Policy, IS Audit Policy, Concurrent AuditPolicy, Fraud Risk Management Policy, Document Handling & Retention Policy have beenreviewed. Audit Committee of Executives (ACE) at the Corporate and Zonal Audit Committeeof Executives (ZACE) at each ZAO level have also been set up as per GOI guidelines. Offsite Monitoring Cell has also been established in IAD, ZAOs & all the ControllingOffices / Divisions for corrective action on ongoing basis. Further, under RBIA, brancheshave been categorized as Low Risk (4234), Medium Risk (980) and High Risk (17) as on31.03.2013. Periodicity of Revenue Audit has been changed from Financial Year (1stApril-31st March) to Calendar Year (1st January-31st December) w.e.f. 01.01.2012. RevenueAudit of all Concurrent Branches is being done on quarterly basis and in case ofnon-concurrent branches, it is done on annual basis. For the calendar year ended31.12.2012,

Revenue Audit in all the Branches has been completed and the undercharges detectedduring the period stand recovered/waived.

As on 31.12.2012, Concurrent Audit in the 827 Branches covered 68.44% of advances,56.29% of deposits and 61.83% of bank's total business, which is in line with RBIguidelines.

IAD has also reviewed rationalization of various forms / documents during the year tomake them customer friendly.

Cyber Crime Reporting Cell established at IAD takes care of cyber crime relatedcomplaints pertaining to disputed transactions in the customers' accounts and hoax calls.

c. Know Your Customer(KYC)/Anti Money Laundering(AML)

Bank has taken a number of initiatives to be more vigilant while opening accounts basedon the guidelines issued by regulator/Government of India from time to time. In order tocheck opening of fresh accounts without complying with KYC requirements, bank has modifiedthe procedure in CBS system and accounts are now being opened only after compliance of KYCnorms. The Bank has also implemented the system of on-line customer scanning at the timeof opening of account. The system-generated alerts are monitored on daily basis throughAML software, based on predefined parameters, to detect transactions of suspicious naturefor prevention of money laundering.

The following reports are submitted periodically online to Financial IntelligenceUnit-India (FIU-IND):

1. Cash Transaction Reports (CTRs)

2. Suspicious Transaction Reports (STRs)

3. Counterfeit Currency Report (CCRs)

d. Management Audit

The Management Audit has been identified as a separate function in the Bank and anindependent Management Audit & Review Division (MARD) is in operation since08.07.2004. The Bank has in place a Risk Based Management Audit (RBMA) system forconducting management audit of its administrative offices. The audit is based on risktemplates and risk profiles prepared in-house to capture risk perceptions inherent invarious areas of functioning of administrative offices including decision-making process,communication system, efficient resource utilization and means used to achieve the goal,etc. MARD has since started conducting half yearly snap audit of selected circles/ otheradministrative offices with potentially high-risk perception to proactively assess stepstaken by them for bringing in desired improvement in their functioning.

MARD also conducts audit of activities of outsourcing, verification of loss data,review of the bank's established policies, procedures, compliance of RMC/ ORMC directives,identification of division level KRIs, review of BCCP, review of risk measurement system(RMD - Mid Office) and Review & Validation of ICAAP (International Capital AdequacyAssessment Process).

During the year 2012-13, based on approved Annual Audit Plan, MARD conducted managementaudit of 65 Circle Offices, 10 Field General Manager's Offices, 6 Zonal Audit Offices, 3Training Establishments, 4 Regional Rural Banks and 3 Domestic Subsidiaries besides auditof other activities listed above.

e. Compliance Function

Bank has appointed a Chief Compliance Officer in the rank of a General Manager. Inpursuance to the Compliance Policy of the Bank, Divisional Compliance Officers, CircleCompliance Officers, Branch Compliance officers have been designated in all Divisions ofHO, Circle offices, branches and other offices. Further, compliance functions have beenidentified for all Head Office Divisions/Circles/Branches and reporting mechanism has alsobeen established at various levels for compliance in accordance with the guidelines ofregulator. Compliance testing/mapping review on various products of the Bank is beingcarried out on a regular basis.

f. Vigilance

Vigilance Administration is an integral part of management function. On shifting offocus of vigilance from punitive vigilance to proactive and participative vigilance,Vigilance Department under took the following initiatives and activities during the year2012-13.

To curtail the delay in deciding vigilance cases and improve transparency in thesystem, the Deptt. has introduced Green Vigilance in the Vigilance Administration. Due tothis and also effective follow up with the Disciplinary Authorities, number of cases morethan one year old has been brought down to 4 as on 31.03.2013 as against 97 as on31.03.2012.

During the year 2012-13, the officials from Vigilance Deptt. and Vigilance Officersposted at ZAOs visited 1083 branches & explained the importance of preventive/proactive measures. Chief Vigilance Officer also visited 30 Circles during this year andPreventive/Proactive Seminars were organized in the Circle Offices. A Seminar wasorganized exclusively for LDMs and Agricultural Officers at Jaipur and the CVO addressedthe participants. Vigilance Awareness Week was observed from 29.10.2012 to 03.11.2012. Thetheme of the year was transparency in Public Procurement System.

As a preventive measure/participative measure, Vigilance Manual was updated after 11years and released on 03.12.2012. Further seminar of Disciplinary Authorities wasorganized by Vigilance Department at four Centres viz. Delhi, Kolkata, Mumbai andChandigarh. All Disciplinary Authorities posted across the country, officials from RRBs,DGMs of Zonal Audit Offices attended the seminars. Open House Session was arranged and theofficials from CVC, RBI, CBI were also called and interacted with participants.

On 08.10.2012, Chief Vigilance Officer addressed the Police Officers from AfricanCountries at CBI Academy, Ghaziabad, on the topic of bank fraud cases investigated by CBIalong with case studies. During the year, he also addressed various schools/colleges,public/Pvt. sector Banks and other stakeholders with a view to reduce frauds.

As a preventive measure the deptt. is issuing the circulars to the field whenever grossnegligence/frauds are observed to avoid recurrence of such events.

18. Right To Information Act

The Right to Information Act has been implemented by the Bank. The relevant informationas per Right to Information Act has been posted on the Bank's website (www.pnbindia.in).During the period 01.04.2012 to 31.03.13, the Bank received 7824 applications, of which6106 applicants were provided information. While none of the applications were found to beineligible, 1865 applications were found exempted under the provisions of the Act.

19. Implementation of Official Language Policy

Bank has always been leading in the area of implementation of Official Language. Bankhas achieved almost all the targets in all parameters fixed by the Govt. of India,Ministry of Home Affairs, Deptt. of Official Language for the financial year 2012-13. Bankhas completed the work of CBS bilingualisation. All our bilingual CBS computers are underHindi interface. By adopting this bilingual system, implementation of Rajbhasha hasincreased a lot. Besides, Bank is using Unicode fonts for Hindi correspondence at alllevels.

During the year, our Bank has been awarded several prizes for its excellent performancein the use of Hindi which includes some very significant prizes namely Indira GandhiRajbhasha Shield, top prize of Govt. of India, RBI Rajbhasha Shield and other Regionallevel prizes of Ministry of Home Affairs. RBI awarded the first prize to our Bank's HouseMagazine "PNB Staff Journal" in the inter-bank bilingual house magazinecompetition. In addition, Town Official Language Implementation Committees situated indifferent locations of the country and other Non-Govt. Organizations have also awarded ourBank offices. Bank is successfully convening the Town Official Language ImplementationCommittees constituted by Govt. of India in Delhi, Bharatpur, Kanpur, Chandigarh,Dharamshala, Sriganganagar, Bulandshahar, Dehradun, Gorakhpur, Kurukshetra andMuzaffarnagar.

The third sub-committee of Committee of Parliament on Official Language visited Bank'sBranch Office, Barkot on 1st June, 2012 and Circle Office Haridwar on 28th June, 2012. TheCommittee not only expressed satisfaction but also appreciated the efforts made by theBank for progressive use of Hindi.

The Bank celebrates 'Hindi Maah' in the month of September every year. Variouscompetitions are organized in which staff members participate enthusiastically. Thewinners were given prizes in the Rajbhasha Function. Bank has its own Lala Lajpat RaiRajbhasha Shield Yojana for its Head Office Divisions, Circle Offices, Training Centres,Zonal Audit Offices, Stationery Centre, etc. Every year, these offices are awarded prizesfor doing excellent work in the area of Rajbhasha implementation. This year too, Bankorganised Hindi Maah and other programmes/competitions and awards and prizes were given.Under Moulik Pustak Lekhan Yojana, cash incentives were awarded to staff members forwriting original books in Hindi on banking and non-banking subjects. All those staffmembers, who are working in Bank or have retired from Bank service, can participate underthis scheme.

20. PNB's Subsidiaries and Regional Rural Banks

a. PNB Housing Finance Limited (PNBHFL)

The Company is in the process of implementing business process reengineering project(BPR), which started in FY'11. The business transformation project is designed to make theCompany a robust organization in the coming years. During the year, the company hascreated new infrastructure at branches and Hubs for sustaining future business growth. Theremaining portion of the BPR exercise, specifically the implementation of ITinfrastructure and seamless enterprise system solution, will be completed in FY'14.

During FY' 13, the Company made fresh disbursements of Rs 3682 crore (Previous Year Rs1516 crore), registering a growth of 143% in new business. Total loans outstanding as on31st March 2013 were Rs 6620 crore (Previous year Rs 3969 crore), a growth of 67% overprevious year. The average ticket size for retail loans sanctioned during FY'13 was Rs 42lac. During the year, deposits increased to Rs 1050 crore (Previous Rs 363 crore), agrowth of 190% over previous year.

The Company laid special emphasis on reducing delinquencies and NPAs. The overalldelinquencies were down at 2.5% (5%) of the portfolio and gross NPAs were contained at0.57% (0.93% last year) and net NPAs were reduced from 0.67% to 0.35% of the net loansoutstanding.

During FY 2012-13, the Company earned total income of Rs 661 crore ( Rs 462 crore), agrowth of 43% over previous year. Interest expenditure was Rs 462 crore ( Rs 314 crore)and other Operating expenditure was Rs 64 crore ( Rs 41 crore). The Company earned Profitbefore tax of Rs 126 crore ( Rs 102 crore) and Profit after Tax of Rs 91.51 crore ( Rs75.20 crore) registering a growth of 22% over previous year. The Net Interest Margin was3.44%. The networth of the Company as on 31st March'13 was Rs 608 crore ( Rs 392 crore)and the CRAR was 14.40%. Book Value of Company's share was Rs 122 and the EPS was Rs22.30/-.

b. PNB Gilts Limited

The year 2012-13 was characterized by dovish interest rate environment, deterioratingeconomic growth, improved fiscal health of the government and slowing of inflationarypressures. After front loading the rate cut in April'12 policy (repo rate cut of 50 bps),RBI maintained status quo until the January'13 policy as price pressures remained high.However, taking comfort from marked deceleration in inflation from December'12 onwards andin milieu of sharp slowdown in growth, RBI reduced the repo rate twice by 25 bps each inJan'13 & Mar'13 policy review. Huge supply of Government securities was complementedwith OMO buyback auctions of about Rs 1.50 lakh crore and CRR cut, which served thepurpose of easing out the tightness in liquidity. Government finances remained well inorder during the year as expenditures were curtailed to meet the fiscal deficit target of5.3% for the year. The 10-yr yield closed the year at 7.95% as against previous fiscal'sclosing of 8.57%.

Against the above macro economic backdrop, PNB Gilts Ltd fulfilled all its obligationsas a Primary dealer in both primary and secondary markets. Company's profit surged to Rs88.76 crore in FY'13 vis--vis Rs 29.64 crore posted in FY'12. The improvement inperformance was mainly on account of sharp increase in trading income. Due to judiciousmix of nimble trading technique and astute prognosis of market conditions, Company postedtrading income of Rs 40.05 crore during FY 2012-13 as against Rs 14.50 crore loss in theprevious financial year. The total out right turnover amounted to Rs 1,98,139 crore.

c. Punjab National Bank International Limited (PNBIL)

During the year 2012-13, total business of PNBIL increased from $1741.03 million (as on31st March 2012) to $2335.49 million (as on 31st March 2013), registering a YoY growth of34.14%. Deposits increased to $1199.35 million (2012: $857.26 million), while advancesincreased to $1136.14 million (2012: $883.76 million), registering YoY growth of 39.91%and 28.56% respectively. Operating profit went up from $15.95 million to $ 21.10 million,registering growth of 32.34% in the year. Total comprehensive income attributable toequity shareholders was $8.85 million (2012: $4.39 million) and retained earnings is $7.68million being 6.48% of equity. Offering basic banking products and relationship bankingcontinues to be the strong selling point for the Bank. The Indian Rupee (INR) Remittancescheme of the Bank has stabilized and gained popularity among the ethnic population.

During the year under review, Cash ISA product was launched by PNBIL with variants ofVariable Rate Cash ISA and Fixed Rate Cash ISA. PNBIL also established a dedicatedin-house Help Line Service Centre with a view to improve its relationship banking andcustomer service. More than 23,000 debit card holders of PNBIL have the option to withdrawmoney from any ATM having Maestro logo. Strategic integration, parental support, nichepositioning and competitive advantage in its targeted customer base are the key advantagesthe Bank is enjoying in UK. Bank has in place well defined and clearly laid down policieson Risk Management, Audit and Compliance. It has its own dedicated treasury at London anda back office in India. Bank is complying with all regulatory and capital adequacyguidelines of Prudential Regulation Authority of UK.

d. Punjab National Bank Investment Services Limited (PNBISL)

PNBISL is presently offering a basket of financial services such as Debt/LoanSyndication, Project Appraisal, Financial Restructuring, Security Trustee services andAdvisory to SME, Medium and Large Corporate customer. The company is having its headoffice at Delhi and a branch at Mumbai. It also has its presence in Chennai, Ahmedabad andHyderabad through its representative offices. In view of the current market scenario, thecompany is currently focusing on Corporate Debt Restructuring and Security Trusteeassignments. The Company has earned fee-based income of more than Rs 10.48 crore in theyear FY'13. Global slowdown and some regulatory issues have adversely affected somebusiness verticals of the company in past. The Company intends to increase further itsvisibility and presence by growth in Debt/ Loan Syndication, Project Appraisal, CapitalMarket and Advisory Assignment Business.

e. Regional Rural Banks

RRBs, at present operating in five States, namely, Bihar, Haryana, Himachal Pradesh,Punjab and Uttar Pradesh covering 69 districts with a network of 1509 branches, aresponsored by the bank.

The aggregate paid-up capital of these Regional Rural Banks is Rs 180.09 crore. Bank'scontribution towards capital of these RRBs is Rs 61.71 crore. The combined networth ofRRBs as on March 2013 is Rs 1497.07 crore. During the year the aggregate business of allRRBs increased from Rs 23,962 crore to Rs 28,091 crore showing a growth of Rs 4129 crore(17.23%). The aggregate deposits and aggregate advances as on 31.03.2013 stood at Rs18,133 crore (YoY 17.91 %) and Rs 9958 crore (YoY 16.01 %).

The aggregate Net profit of the RRBs as on 31.03.2013 stood at Rs 197 crore (YoY33.23%). The gross NPA of the RRBs increased from Rs 324.22 crore to Rs 347.11 croreduring the period. During the year, 102 new branches were opened by RRBs, taking the totalnetwork of branches to 1509 with all being on CBS.

The RRBs sponsored by Bank are actively participating in economic development of theareas of their presence. With the implementation of Core Banking Solution (CBS), ruralcustomers are also getting benefit of latest technology.

RRBs are also opening NRE/NRO accounts. The facility of NEFT is also being provided inall the RRBs. The facility of ATM cards will shortly be available to customers of all RRBsin a phased manner.

Direct Benefit Transfer (DBT) Scheme in phase I, (out of 43 districts), was launchedsuccessfully in Rohtak district by Haryana Gramin Bank and in Kapurthala district byPunjab Gramin Bank on 01.01.2013.

In Phase II, the DBT Scheme is being extended to additional 78 districts. The Ministryof Finance, DFS, Government of India have advised timelines for covering the households by31.05.2013 for opening of bank a/cs of the beneficiaries. RRBs have 8 districts in phase -II under Direct Benefit Transfer (DBT) Scheme.

Performance of RRBs (Audited)

S. No. Performance of RRBs Mar'12 Mar'13 (Audited) SOI Goal Mar'13
1 Aggregate deposits 15378 18133 16600
2 Aggregate Advances 8584 9958 9400
3 Aggregate net profit 148 197 160
4 Branches under CBS 100% 100% 100%
5 Profit Per Employee ( Rs lakh) 2.73 3.34 2.80
6 No. of Loss Making Branches (being 12 month old or more) 34 23 38

21. Awards and Accolades conferred upon PNB

During the year, in recognition of its performance and initiatives, PNB receivedvarious awards, some of which are:

• Golden Peacock Business Excellence Awards 2013 by Institute of Directors.

• Social and Corporate Governance Award - Best Corporate Social ResponsibilityPractices by World CSR Day and Bombay Stock Exchange.

• Most Socially Responsive Bank by Business World-PwC.

• Best Public Sector Bank by CNBC TV 18 Best Bank and Financial InstitutionsAwards.

• Organization with Innovative HR Practices by Asia Pacific HRM Congress.

• Best Bank On-line (First Runners Up) by Indian Banks' Association.

• Best Use of Business Intelligence (Winner) by Indian Banks' Association.

• Best Risk Management and Security Initiatives (Winner) by Indian Banks'Association.

• Best Financial Inclusion Initiatives (Second Runners up) by Indian Banks'Association.

• Best Bankers' Award under Agriculture Credit - Large by The Sunday Standard.

• Best Public Sector Bank under Priority Sector Lending by Dun and BradstreetPolaris Financial Technology Banking Awards 2012.

• 3rd CMO Asia Excellence for Branding and Marketing under Banking, FinancialInstitutions and Insurance by CMO Asia.

• 3rd Asia's Best Employer Brand Awards 2012-Excellence in Training by EmployerBrand Awards and World HRD Congress.

22. The Year Ahead

Financial Inclusion today presents the bank with the next big opportunity. With theGovernment introducing the system of Direct Benefit Transfers, the inflow of funds intothe accounts of the beneficiaries will be assured making the financial inclusion drivesustainable. This will effectively expand the banking frontier and will also give a fillipto economic growth. The new account holders will offer the bank new business opportunitieswhich the bank is well placed to take advantage of.

The financial and economic slowdown in the US and Europe has put the spotlight on Asia.It is emerging as the new driver of growth and the major Asian countries, with theirbetter growth rates and economic strength, have the capacity to expand into new markets.India and its banks have an opportunity to expand globally and extend their reach.

Domestically GDP growth seems to have bottomed out. Inflation, fiscal deficit andcurrent account deficit, which have impeded growth, are showing signs of improvement thuscreating enabling ground for growth. PNB with its large network and customer base is wellpositioned to benefit from the turnaround.

Challenges

Banking today has grown beyond its brick and mortar framework to encompass several newdelivery channels, made possible by new technologies. Internet banking and mobile bankingare expanding the reach of the sector and the new paradigm demands a fundamental shift inthe business model. The challenge is to integrate these multiple delivery channels into acohesive model that offers customers value and a pleasant banking experience. The bank'sdrive to transform is indicative of its resolve to meet this challenge.

The customer today is empowered and fully aware of his rights. Regulators across theworld are focusing on the quality of services offered by banks. The expectations fromfinancial service providers is that they display high levels of transparency in productdesign, pricing and financial disclosures. In addition a credible grievance redressalmechanism has to be made available to all customers. PNB has the systems and experience tohandle these heightened expectations and will continue to work towards giving itscustomers the best. PNB is proactively positioning itself by putting in Central GrievancesRedressal Mechanism and appointing an Internal Ombudsman.

Risks and Concerns

The asset quality of banks has seen considerable deterioration, which is one area thatneeds to be taken care of. Restructuring of loans, particularly of big ticket loans, underthe corporate debt restructuring (CDR) mechanism, has recently been the critical areaunder watch. PNB has given this area focused attention to improve asset quality constantlyon quarter- on- quarter basis.

Frauds are a big cause of concern within the banking system, particularly for thepublic sector banks, as they account for a large proportion of total frauds reported inthe banking system. Cyber security is becoming critical need in today's bankingenvironment. PNB is making constant efforts to set up robust Cyber security system withupgraded security definitions and infrastructure.

Volatility in the financial sector is increasing throughout the globe. The banks aretherefore gearing up their risk management architecture to cope with the same. PNB knownfor its lead in setting up of such systems is proactive again by being the first bank toreceive regulatory approval for moving to a more advanced approach i.e. 'The StandardisedApproach' (TSA) under the Operational Risk.

   

Peer Comparison

Company Market Cap
(Rs. in Cr.)
P/E (TTM)
(x)
P/BV (TTM)
(x)
EV/EBIDTA
(x)
ROE
(%)
ROCE
(%)
D/E
(x)
St Bk of India 154,133.11 13.82 1.42 14.51 15.4 0.0 0.00
Bank of Baroda 34,816.16 7.76 1.07 15.30 15.1 0.0 0.00
Punjab Natl.Bank 29,144.82 7.95 0.92 12.68 16.5 0.0 0.00
Bank of India 14,926.12 5.10 0.63 14.59 13.0 0.0 0.00
Canara Bank 12,954.49 5.07 0.55 11.92 13.2 0.0 0.00
IDBI Bank 10,746.40 9.28 0.51 12.70 10.2 0.0 0.00
Union Bank (I) 9,400.92 4.93 0.58 13.67 15.0 0.0 0.00
UCO Bank 7,686.43 6.03 0.82 13.54 9.1 0.0 0.00
Oriental Bank 7,166.42 6.30 0.59 12.44 11.5 0.0 0.00
Central Bank 6,833.23 0.00 0.50 13.46 8.3 0.0 0.00
I O B 6,485.58 16.51 0.47 13.27 4.9 0.0 0.00
Syndicate Bank 6,333.24 3.34 0.65 14.12 22.8 0.0 0.00
Indian Bank 6,084.89 5.16 0.56 12.64 15.7 0.0 0.00
Allahabad Bank 5,181.96 4.54 0.48 12.83 11.8 0.0 0.00
Corporation Bank 4,852.80 5.54 0.48 12.57 16.1 0.0 0.00

Futures & Options Quote

 
Expiry Date
803.30 13.75  (1.7%)
Instrument: FUTSTK
Expiry Date: 24 Apr 2014
Open Price: 786.00
Average Price: 799.55
No. of Contracts Traded: 4,916,000
Open Interest: 879,000
Underlying: PNB
Market Lot: 500
Previous Close: 803.30
Day’s High | Low: 808.55 | 784.00
Turnover (Cr.): 393.06
Open Int. Change: -1,745,500.00 ( [66.5]% )
View detailed F& O quotes >>

Key Information

Key Executives:

K R Kamath , Chairman & Managing Director  

Mushtaq Ataullah Antulay , Director(PartTime NonOfficial)  

Anurag Jain , Nominee (Govt)  

B B Chaudhry , Director(PartTime NonOfficial)  


Company Head Office / Quarters:
7 Bhikhaiji Cama Place,
,
New Delhi,
New Delhi-110607
Phone : 91-11-26102303/26108205/26196487
Fax : 91-11-26160149/26196462/26196456
E-mail :
hosd@pnb.co.in
cosecretary@pnb.co.in
Web : http://www.pnbindia.in
Registrars:
Beetal Fin.&Computer Ser.P Ltd
Beetal House 3rd Flr
99 Madangir

New Delhi - 110062

Fund Holding

 
Scheme Name No. of Shares
HDFC Equity Fund - (G) 1,737,367
HDFC Top 200 Fund (G) 1,374,246
HDFC Tax Saver Fund (G) 1,224,600

Calendar

Apr-2014
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