A

Summer internship

Project report on

CREDIT RISK MANAGEMENT AT PUNJAB NATIONAL BANK

Submitted to the

Gahlot Institute Of Management Studies And Research

University of Mumbai

In partial fulfilment of the

Requirement for the degree of

Master of Management Studies

By

SHAIKH AHMED MOHD

Batch ( 2011-12)

Date : 28/07/2011

Dear sir,

This is to certify that Mr. Shaikh Ahmed Mohammed has completed his training For 2 Months at our office and worked for his project on credit risk management from 02nd May 2011 to 30th June 2011.

We wish him all the best for his future.

Authorised signatory

PNB Bank Ltd.

DECLARATION

I hereby declare that project titled

Credit risk Management at Punjab national bank

is an original piece of research work carried out by me under the guidance and supervision of Mr.Suhas Khamkar

The information has been collected from genuine & authentic sources. The work has been submitted in partial fulfillment of the requirement of MMS to our college.

Place: Signature:

Date: Name of the students:

PUNJAB NATIONAL BANK

ACKNOWLEDGEMENT

“Perseverance inspiration and motivation have always played a key role in success of any venture”.

I hereby express my deep sense of gratitude to all the personalities involved directly and indirectly in my project work.

I would thank to God for their blessing and my parents also for their valuable suggestion and support in my project report.

I would also like to thank our friends and those who have helped us during this project directly or indirectly.

Last but not the least; I would like to express my sincere gratitude to all the faculty members who have taught me in my entire MBA curriculum and our Director B.N.LAHIRI who has always been a source of guidance, inspiration

and motivation.

However, I accept the sole responsibility for any possible errors of omission and would be extremely grateful to the readers of this project report if they

bring such mistakes to my notice.

SHAIKH AHMED MOHD

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PUNJAB NATIONAL BANK

TABLE OF CONTENTS

Sr.No. Particulars Page no.

1. Board of directors…………………….. 5

2. Executive Summary…………………... 8

3. Company Profile…………………........ 16

4. Objective of the study………………… 23

5. Data collection Method……………….. 24

a. Primary data

b. Secondary data

6. Industrial Profile………………………. 26

7. Corporate Mission……………………... 28

8. PNB Bank founding principles………... 29

9. Awards…………………………………. 30

10. Punjab National Bank Services………… 34

11. Deposit Schemes………………………... 39

12. Loans……………………………………. 41

13. Credit Risk Management in Banks……... 47

14. Credit Risk Management at PNB………. 52

a. Introduction

15. Low & High Credit Risk Ratings………. 58

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PUNJAB NATIONAL BANK

16. Risk Managements……………………… 61

17. Analysis of Financial Statements……….. 64

18. Findings…………………………………. 67

19. Recommendations………………………. 68

20. Bibliography…………………………….. 69

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PUNJAB NATIONAL BANK

Board of Directors 

Shri. K.R.KamathChairman & Managing Directorand Dy. Chairman of Indian Banks Association

Shri. Rakesh SethiExecutive Director

Smt. Usha AnanthasubramanianExecutive Director

Directors

Smt. Ravneet KaurGovt. of India Nominee Director

Shri. Jasbir SinghReserve Bank of India Nominee Director

Shri. Vinod Kumar MishraPart-time non-official Director

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PUNJAB NATIONAL BANK

Shri. Tribhuwan Nath Chaturvedi Share Holder Director

 Shri. G R SundaravadivelShare Holder Director

Shri. Devinder Kumar SinglaShare Holder Director

Shri. M P SinghWorkmen Employees Director

 Shri. Pradeep KumarOfficer Director

Shri. M A AntulayPart-time non-official Director

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PUNJAB NATIONAL BANK

Executive Summary

Topic: Credit risk Management at Punjab national bank

About the Punjab national bank:

Origin

 Punjab under the British especially after annexation in 1849 witnessed a period of rapid development giving rise to a new educated class fired with a desire for freedom from the yoke of slavery. Amongst the cherished desires of this new class was also an overriding ambition to start a Swadeshi Bank with Indian Capital and management representing all sections of the Indian community. The idea was first mooted by Rai Mool Raj of Arya Samaj who, as reported by Lal Lajpat Rai, had long cherished the idea that Indians should have a national bank of their own. He felt keenly "the fact that the Indian capital was being used to run English banks and companies, the profits accruing from which went entirely to the Britishers whilst Indians had to contend themselves with a small interest on their own capital".

At the instance of Rai Mool Raj, Lala Lajpat Rai sent round a circular to selected friends insisting on an Indian Joint Stock Bank as the first special step in constructive Swadeshi. Lala Harkrishan Lal who had returned from England with ideas regarding commerce and industry, was eager to give them practical shape.

On May 23, 1894, the efforts materialized. The founding board was drawn from different parts of India professing different faiths and a varied back-ground with, however, the common objective of providing country with a truly national bank which would further the economic interest of the country.

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The Bank opened for business on 12 April, 1895. The first Board of 7 Directors comprised of Sardar Dayal Singh Majithia, who was also the founder of Dayal Singh College and the Tribune; Lala Lalchand one of the founders of DAV College and President of its Management Society; Kali Prosanna Roy, eminent Bengali pleader who was also the Chairman of the Reception committee of the Indian National Congress at its Lahore session in 1900;

Lala Harkishan Lal who became widely known as the first industrialist of Punjab; EC Jessawala, a well known Parsi merchant and partner of Jamshedji & Co. of Lahore; Lala Prabhu Dayal, a leading Rais, merchant and philanthropist of Multan; Bakshi Jaishi Ram, an eminent Civil Lawyer of Lahore; and Lala Dholan Dass, a great banker, merchant and Rais of Amritsar.

Thus a Bengali, Parsi, a Sikh and a few Hindus joined hands in a purely national and cosmopolitan spirit to found this Bank which opened its doors to the public on 12th of April 1895. They went about it with a Missionary Zeal. Sh. Dayal Singh Majithia was the first Chairman, Lala Harkishan Lal, the first secretary to the Board and Shri Bulaki Ram Shastri Barrister at Lahore, was appointed Manager.

A Maiden Dividend of 4% was declared after only 7 months of operation. Lala Lajpat Rai was the first to open an account with the bank which was housed in the building opposite the Arya Samaj Mandir in Anarkali in Lahore. His younger brother joined the Bank as a Manager. Authorised total capital of the Bank was Rs. 2 lakhs, the working capital was Rs. 20000. It had total staff strength of nine and the total monthly salary amounted to Rs. 320.

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The first branch outside Lahore was opened in Rawalpindi in 1900. The Bank made slow, but steady progress in the first decade of its existence. Lala Lajpat Rai joined the Board of Directors soon after. in 1913, the banking industry in India was hit by a severe crisis following the failure of the Peoples Bank of India founded by Lala Harkishan Lal. As many as 78 banks failed during this crisis. Punjab National Bank survived.

Mr. JH Maynard, the then Financial Commissioner, Punjab, remarked...."Your Bank survived...no doubt due to good management". It spoke volumes for the measure of confidence reposed by the public in the Bank's management.

The years 1926 to 1936 were turbulent and loss ridden ones for the banking industry the world over. The 1929 Wall Street crash plunged the world into a severe economic crisis.

It was during this period that the Jalianwala Bagh Committee account was opened in the Bank, which in the decade that followed, was operated by Mahatma Gandhi and Pandit Jawaharlal Nehru. The five years from 1941 to 1946 were ones of unprecedented growth. From a modest base of 71, the number of branches increased to 278. Deposits grew from Rs. 10 crores to Rs. 62 crores. On March 31, 1947, the Bank officials decided to leave Lahore and transfer the registered office of the Bank to Delhi and permission for transfer was obtained from the Lahore High Court on June 20, 1947.

PNB was then housed in the precincts of Sreeniwas in the salubrious Civil Lines, Delhi. Many a staff member fell victim to the widespread riots in the discharge of their duties. The conditions deteriorated further. The Bank was forced to close 92 offices in West Pakistan constituting 33 percent of the total number and having 40% of the total deposits. The Bank, however, continued to maintain a few caretaker branches.

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PUNJAB NATIONAL BANK

The Bank then embarked on its task of rehabilitating the displaced account holders. The migrants from Pakistan were repaid their deposits based upon whatever evidence they could produce. Such gestures cemented their trusts in the bank and PNB became a symbol of Trust and a name you can bank upon. Surplus staff posed a big problem. Fast expansion became a priority. The policy paid rich dividends by opening up an era of phenomenal growth.

In 1951, the Bank took over the assets and liabilities of Bharat Bank Ltd. and became the second largest bank in the private sector. In 1962, it amalgamated the Indo-Commercial Bank with it. From its dwindled deposits of Rs. 43 crores in 1949 it rose to cross the Rs. 355 crores mark by the July 1969. Its number of offices had increased to 569 and advances from Rs. 19 crores in 1949 to Rs. 243 crores by July 1969 when it was nationalised.

Since inception in 1895, PNB has always been a "People's bank" serving millions of people throughout the country and also had the proud distinction of serving great national leaders like Sarvshri Jawahar Lal Nehru, Gobind Ballabh Pant, Lal Bahadur Shastri, Rafi Ahmed Kidwai, Smt. Indira Gandhi etc. amongst other who banked with us.

 

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Punjab Keshari Lala Lajpat Rai (Saluting the spirit of our founding father)    

 

(1865-1928)

 

The Life and Times of Lala Lajpat Rai

There are few leaders of the pre-independence era who, after having plunged themselves into the political struggle, continued to take an active interest in social, cultural and educational work. Lala Lajpat Rai was one of such leaders. Born on 28th January, 1865 at a small village, Dhudike in the Ferozepur district of Punjab, he belonged to the Agarwal Baniya caste and it was perhaps because of this, in addition to taking part in social and political life of the country, he took keen interest in industrial and financial matter also. His father was a teacher of Persian and Urdu in a government school.

Having passed the final examination in Law from Punjab University, he started his practice in1883, when he was barely 18 years old. Endowed with a rich legacy of moral and intellectual background, Lala Lajpat Rai had benefit of education in the practical rationalism of western science combined with the religious purity and moral elevation of Eastern literature that put on him the hallmark of true culture. While sympathizing with and aiding every movement made for progress, Lala Lajpat Rai identified himself very closely with Arya Samaj, in which he found ample scope for the exercise of his patriotism, philanthropy and religious zeal.

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PUNJAB NATIONAL BANK

Having qualified as a pleader, Lala Lajpat Rai started practice at Hissar and soon became a leading lawyer of the district. He organized the Arya Samaj there and put it on proper lines. In 1892, he transferred his practice to the wider field at Lahore.Education, both secular and religious, was in Lala Lajpat Rai’s view an important factor in national development. He took part in the foundation of the D.A.V. College at Lahore.

 Lalaji and Politics

Lala Lajpat Rai always felt drawn towards politics. It was in 1888 that he joined the Indian National Congress when it met at Allahabad under the presidency of Mr. G. Yule. In 1905, the Indian National Congress Committee having recognized in him an austere, sincere and selfless devoted worker selected him as one of its delegates to place before the British, the political grievances of the Indian people. He met the expenses of his trip from his own pocket. He along with Gokhale carried on the political campaign in various parts of England and brought home to the mind of the British, the evils of an unsympathetic and bureaucratic government under which India was labouring and pleaded in eloquent language, adding facts and figures in supporting their contention, cause of the half starving and half dying people of India. Lala Lajpat Rai created an impression on the English Populace.

After his return from England, he was busy devising and organizing ways and means for political advancement and industrial emancipation of the country.

The movement of “Swadeshi” was in the offing and he put his heart and soul into it. He preached the message of Swadeshi to the people of Punjab and made it very popular. This naturally enraged the bureaucracy and he came to be regarded as a revolutionary by the Britishers and the Anglo-Indian press. He was openly dubbed as a Revolutionary and an instigator of the armed forces.

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The Jalianwala Bagh tragedy and the Government's denial to censure the conduct of its officers made him a complete non cooperator. He lost his faith in the British and threw himself whole heartedly into the non-cooperation movement.In 1925, he joined the Swaraj Party and became its deputy leader.

He took active part in the deliberations of the debates of the Assembly. It was he, who moved the resolution for the Boycott of the Simon Commission in the Assembly. It was while leading the boycott procession at Lahore on the 30th October, 1928 that he received lathi blows on his chest which ultimately brought about his death on the 17th November, 1928.

 Lala Lajpat Rai and PNB

Lalaji was keenly concerned with the fact that though Indian capital was being used to run English Banks and companies, the profits went entirely to the British, while Indians had to contend themselves with a small interest on their capital. He echoed this sentiment in one of his writing while concurring with Rai Mul Raj of Arya Samaj who had long cherished the idea that Indians should have a National Bank of their own.

At the instance of Rai Mul Raj, Lala Lajpat Rai sent a circular to selected friends insisting on an Indian joint stock Bank as the first step in constructive Swadeshi and the response was satisfactoryAfter filing and registering the memorandum and Articles of Association on 19 May, 1894, the bank was incorporated under Act VI of the 1882 Indian Companies Act.

The prospectus of the bank was published in the Tribune, and the Urdu Akhbar-e-Am and Paisa Akhbar. On 23rd May, 1894, the founders met at the Lahore residence of Sh. Dyal Singh Majithia, the first Chairman of PNB, and resolved to go ahead with the scheme.

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PUNJAB NATIONAL BANK

They decided to hire a house in the famous Anarkali Bazar of Lahore opposite the post office and near well known stores of Rama Brothers.On 12th April 1895, the Bank opened for business, a day before the great Punjab festival of Baishakhi. The essence of the Bank’s culture was clear at this first meeting itself.

The fourteen original shareholders and seven directors took only a modest number of shares; the control of the Bank was to lie with the large, dispersed shareholders, a purely professional approach that was as uncommon then as it is today. 

 

 

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PUNJAB NATIONAL BANK

Company Profile

 

With over 60 million satisfied customers and more than 5100 offices

including 5 overseas branches, PNB has continued to retain its

leadership position amongst the nationalized banks.

The bank enjoys strong fundamentals, large franchise value and good

brand image. Besides being ranked as one of India's top service brands,

PNB has remained fully committed to its guiding principles of sound and

prudent banking.

Apart from offering banking products, the bank has also entered the

credit card, debit card; bullion business; life and non-life insurance; Gold

coins & asset management business, etc. PNB has earned many awards

and accolades during the year in appreciation of excellence in services,

Corporate Social Responsibility (CSR) practices, transparent governance

structure, best use of technology and good human resource

management.

Since its humble beginning in 1895 with the distinction of being the first

Swadeshi Bank to have been started with Indian capital, PNB has

achieved significant growth in business which at the end of March 2011

amounted to Rs 5,55,005 crore. PNB is ranked as the 2nd largest bank in

the country after SBI in terms of branch network, business and many

other parameters.

During the FY 2010-11, with 39.16% share of CASA to domestic

deposits, the Bank achieved a net profit of Rs 4433 crore. Bank has a

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PUNJAB NATIONAL BANK

strong capital base with capital adequacy ratio of 12.42% as on Mar’11

as per Basel II with Tier I and Tier II capital ratio at 8.44% and 3.98%

respectively. As on March’11, the Bank has the Gross and Net NPA ratio

of 1.79% and 0.85% respectively. During the FY 2010-11, its ratio of

Priority Sector Credit to Adjusted Net Bank Credit at 40.67% &

Agriculture Credit to Adjusted Net Bank Credit at 19.30% was also higher

than the stipulated requirement of 40% & 18% respectively.

 

The Bank has been able to maintain its stakeholders’ interest by posting

an improved NIM of 3.96% in Mar’11 (3.57% Mar’10). The Earning per

Share improved to Rs 140.60 (Rs 123.86 Mar’10) while the Book value

per share improved to Rs 661.20 (Rs 514.77 Mar’10). Punjab National

Bank continues to maintain its frontline position in the Indian banking

industry. In particular, the bank has retained its NUMBER ONE position

among the nationalized banks in terms of number of branches, Deposit,

Advances, total Business,

Assets, Operating and Net profit in the year 2010-11. The impressive

operational and financial performance has been brought about by Bank’s

focus on customer based business with thrust on CASA

deposits, Retail, SME & Agri Advances and with more inclusive approach

to banking; better asset liability management; improved margin

management, thrust on recovery and increased efficiency in core

operations of the Bank. The performance highlights of the bank in terms

of business and profit are shown below:

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PUNJAB NATIONAL BANK

Rs. In Crore

Parameters Mar'09 Mar'10 Mar'11 CAGR(%)

OperatingProfit 5690 7326 9056 26.16

NetProfit 3091 3905 4433 19.76

Deposit 209760 249330 312899 22.14

Advance 154703 186601 242107 25.10

TotalBusiness 364463 435931 555005 23.40

 

Bank always looked at technology as a key facilitator to provide better

customer service and ensured that its ‘IT strategy’ follows the ‘Business

strategy’ so as to arrive at “Best Fit”. The Bank has made rapid strides in

this direction. All branches of the Bank are under Core Banking Solution

(CBS) since Dec’08, thus covering 100% of its business and providing

‘Anytime Anywhere’ banking facility to all customers including customers

of more than 3200 rural & semi urban branches.

The Bank has also been offering Internet banking services to its

customers which also enables on line booking of rail tickets, payment of

utilities bills, purchase of airline tickets, etc. Towards developing a cost

effective alternative channels of delivery, the Bank with 5050 ATMs has

the largest ATM network amongst Nationalized Banks.

 

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PUNJAB NATIONAL BANK

With the help of advanced technology, the Bank has been a frontrunner

in the industry so far as the initiatives for Financial Inclusion is

concerned. With its policy of inclusive growth,the Bank’s mission is

“Banking for Unbanked”.

The Bank has launched a drive for biometric smart card based

technology enabled Financial Inclusion with the help of Business

Correspondents/Business Facilitators (BC/BF) so as to reach out to the

last mile customer. The Bank has started several innovative initiatives for

marginal groups like rickshaw pullers, vegetable vendors, dairy farmers,

construction workers, etc. Bank has launched a welfare scheme of

adoption of village viz., “PNB VIKAS”. Under the scheme, Bank has

selected 117 villages (60 in lead districts and 57 in non lead district) in

different circles for all-round improvement in the living standards of the

villagers. Besides, Bank has formed “PNB PRERNA”, an association of

the wives of the Bank’s senior management. The association through its

voluntary initiatives has undertaken activities like distribution of food to

the poor and needy, provision of computers, books, stationary items to

poor girl students at various orphanages and schools etc.

 

Backed by strong domestic performance, the Bank is planning to realize

its global aspirations. Bank has opened one branch each at Kabul and

Dubai, two branches at Hong Kong and an Off Shore Banking Unit at

Mumbai. In addition to the above, Bank has Representative offices at

Almaty, Dubai, Shanghai and Oslo, a wholly owned subsidiary in UK with

7 branches and a subsidiary each in Kazakhstan & Bhutan, and 

joint venture with Everest Bank Ltd. Nepal.  During the year, Bank

acquired majority equity stake of 63.64% in Dana Bank of Kazakhstan.

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PUNJAB NATIONAL BANK

Fired by the spirit of nationalism and founded on the idea that Indians

should have a national bank of their own, Punjab National Bank Ltd was

the result of the efforts of far-sighted visionaries and patriots, among

whom were persons like Lala Lajpat Rai, Mr. E C Jessawala, Babu Kali

Prasono Roy,

Lala Harkishan Lal and Sardar Dyal Singh Majithia. Incorporated under

the Act VI of 1882, Indian Companies Act, the Bank commenced

operations on April 12, 1895 from Lahore, with an authorised total

capital of Rs 2 lac and working capital of Rs 20,000. Prophetically, the

Bank chose "Stability" as its telegraphic address, as the future course of

events were to prove - the Bank withstood various financial crises

including the trauma in the form of partition of India when the Bank had

to close 92 offices (33%) in west Pakistan which constituted 40% of its

deposits and 15 of its staff fell victims to the frenzy. The registered office

was shifted to Delhi and the Bank honoured all the deposit claims of the

refugees even on the basis of whatever little evidence they could

produce. Subsequently, the Bank registered impressive performance

and grew from strength to strength.

A pioneer throughout, the Bank distinguished itself by appointing

auditors in 1895 long before it was mandatory; introduced the "teller"

system in 1944 (another first ); established profit sharing bonus,

provident fund and voluntary outside audit well before they formed

keystones of good management.

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PUNJAB NATIONAL BANK

Nationalisation came in 1969 which unleashed a new chapter in the

long history of the Bank. Keeping with the economic ideology of

catalyzing development and amelioration of poverty by funding various

self-employment schemes, PNB expanded its presence rapidly in

unbanked areas. The Bank donned the role of a facilitator in providing

the vital input of credit and consistently exceeded the national goals in

respect of priority sector lending. With its large presence throughout the

country and with a view to strengthening the rural credit delivery system,

the Bank sponsored Regional Rural Banks (RRBs).

PNB has established itself firmly as one of the premier banking

institutions in the country with a long tradition of sound and prudent

banking. The bank's growth has been aided by take-over/merger of 7

private sector banks during different periods in its history. The first ever

and the only merger of a nationalized bank with PNB was in 1993, viz.,

New Bank of India.

By late 1980s when the first whiff of liberalization came about, the Bank

initiated strategic moves towards diversification; and in 2002, 20% of

government ownership was disinvested through a very successful IPO

to the public. In 2003, the erstwhile Nedungadi Bank Ltd (e-NBL), a

Kerala based private bank was amalgamated with Punjab National

Bank. This was the seventh merger in PNB’s history of more than 115

years. PNB’s management team has been quite successful in managing

the mergers and ensuring the integration process in a smooth and

effective manner.

It may be added that no other bank in the nationalized bank group has

a track-record of so many mergers. This has improved the franchise

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PUNJAB NATIONAL BANK

value of the Bank, particularly, in the relatively underrepresented Kerala

region. In order to meet future capital requirements on account of

implementation of Basel II norms, in March 2005, the Bank came out

with Follow-on Public Offer (FPO) through the book building process,

reducing the shareholding of Govt of India to 57.8%.

Punjab National Bank with more than 5000 domestic offices

including Extension Counters has the largest network amongst the

nationalized banks i.e. next only to SBI. The bank has a strong

franchise value and provides a host of financial products and services,

both to the retail customer and corporate business. It has continued to

fulfill its social responsibilities and made significant progress in adoption

of technology, keeping with its objective of transforming itself into a

techno-savvy Bank.

During 2008-09, the Bank achieved the landmark of becoming the

largest Nationalized Bank to bring ALL BRANCHES/EXTENSION

COUNTERS into Core Banking Solution (CBS). The strong franchise

enjoyed by the Bank, combined with its technological capabilities

provides the Bank competitive advantages.

The Bank also continues to discharge its social obligations and

addresses environmental concerns with added vigour, which include

free medical camps, distribute artificial limbs, tree plantation and blood

donation camps, besides donations to Hospitals, Schools etc. The Bank

supports various societies, charitable institutions and NGO

/organisations working for the benefit of downtrodden, weaker sections

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PUNJAB NATIONAL BANK

of society, orphans, underprivileged, spastics, handicapped, mentally

retarded children, women in shelter homes, etc. The Bank also

contributes for fighting diseases like diabetes, tuberculosis, AIDS,

leprosy etc. Donations are also extended for purchase of water coolers,

ambulances and building infrastructure facilities at hospitals/schools.

About the topic

Credit risk is defined as the possibility of losses associated with

diminution in the credit of quality of borrowers or counter parties. In a

banks portfolio, losses stem from outright default due to inability or

unwillingness of a customer or counter party to meet commitments in

relation to lending, trading, settlement and other financial transactions.

As credit risk is one of the challenging tasks to banks I have

selected this topic for my study in order to know the various types of risk

and the types of strategies the banks use to mitigate the risk.

OBJECTIVES OF THE STUDY:

1. To know the methods to be implemented in banks.

2. To know the various methods used by bank to mitigate credit risk.

3. To know the various types of credit risk in bank.

4. To know the executing methods used in managing credit risk.

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PUNJAB NATIONAL BANK

DATA COLLECTION METHOD

Primary data:

Primary data collected through the interaction with chief manager,

senior manager and bank staff.

Secondary Data:

Secondary data collected from bank circulars, bank guidelines book

and internet.

Brief Findings

Current system of credit risk management

Punjab national bank has a system of checks and balance in

place of extension of credit. The aspect covered under the present

system is multiple credit approvals, independt audit and risk review and

risk rating system for various categories of system and corresponding

pricing mechanism. The bank maintains a diversified portfolio of risk

assets, and ensures on going control of risk considerations .All credit

exposures above RS 5 Crores are assigned risk waiting assigned by

domestic credit rating agencies recognized by RBI

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PUNJAB NATIONAL BANK

The credit risk management system at the branch level has been

maped out in detail

1. Internal rating based (IRB) approach the standardized approach

adopted so far, provides incentives to banks improving their credit

risk management techniques.

2. Banks may have discretion and flexibility in defining the exposure

classes, such as corporate, project finance, etc.

3. Unless suitable modified, the adoption of the new Accord in its

present format would result in significant increase in the capital

charge for banks.

LIMITATIONS

1.The study restricted to only one branch.

2.The time constraint was a limiting factor, as more time required

carrying out study on other aspects of the topic.

3.Due to secrecy it is difficult obtain actual facts and figures of

advances of branches.

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PUNJAB NATIONAL BANK

INDUSTRIAL PROFILE

Overview:

The enhanced role of the banking sector in the Indian economy,

the increasing levels of deregulation along with the increasing level of

the competition have facilitated globalization of the Indian banking

system and placed numerous demands on banks. Operating in this

demanding environment has exposed banks to various challenges. The

last decade has witnessed major changes in the financial sector-new

banks, new financial institutions, new instruments, new windows and

new opportunities- and, along with all this, new challenges. While

deregulation has opened up new vistas for banks to augment revenues,

it has entailed greater competition and consequently greater risks.

Demands for new products, particularly derivatives, has required banks

to diversify their product mix and also effect rapid changes in their

processes and operations in order to remain competitive in the globalize

environment.

The benefits of globalization have been well documented and are

being increasingly recognized. Globalization of domestic banks has also

been facilitated by tremendous advancement in information and

communication technology. Globalization has thrown up lot of

opportunities but accompanied by concomitant risk. There is a growing

realization that the ability of countries to conduct business across

national borders and the ability to cope with the possible downside risks

would depend, inter – alia, on the soundness of the financial system and

the strength of the individual participants. Adoptaion of appropriate

prudential, regulatory, supervisory, and technological framework on par

with international best practices enables strengthening of the domestic

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PUNJAB NATIONAL BANK

banking system, which would help in fortifying it against the risks that

might arise out of globalization in India

we had strengthened the banking sector to face the pressures that

may arise out of globalization by adopting the banking sector reforms in

a calibrated Mann followed the twin governing principles of non-

disruptive progress and consultative process 1.

Legal prescriptions for ownership and governance of banks in banking

regulation Act, 1949 have been supplemented regulatory prescriptions

issued by RBI from time to time.

Application of advanced technology:

Technology is a key driver in the banking industry, which creates

new business modules and process, and also revolutionizes distribution

channels. Banks which have made in adequate investment in

technology have consequently faced and erosion of there market

shares. The beneficiaries are those banks which have invested in

technology. Adoption of technology also enhanced the quality of risk

management systems in banks. Recognizing the benefits of

modernizing their technology infrastructure banks is taking the right

initiatives. While doing so, banks have four options to choose from: they

can build a new system those selves, or buy best of he modules, or buy

a comprehensive solution, or outsource. In this context banks need to

clearly define their core competencies to be sure that they are investing

in the areas that will distinguish them from other market players, and

give them a competitive advantage.

The global challenges which banks face or not confined only to

the global banks. These aspects are also highly relevant for banks

which are part of a globalized banking system. Further, over coming

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PUNJAB NATIONAL BANK

these challenges by the other banks is excepted to not only stand them

in good stead during difficult times but also augurs well for the banking

The MissionOur mission is to groom professionals of tomorrow by

• Imparting high quality education in Management andInformation Technology• Developing intellectual capabilities through a challengingCurriculum• Providing training and development services• Fostering research• Extending consultancy services to the industry• Disseminating information through the publication of

books, journals and magazines.

The VisionTo be an Institute of Academic Excellence known fortotal commitment to superiority in management andIT education and research with a holistic concern forquality of life, environment, society and ethics.

Punjab national bank Founding Principles

1. To remove Superstition and ignorance.

2. To spread education among all to sub -serve the first principle.

3. To inculcate the habit of thrift and savings.

4. To transform the financial institution not only as the financial heart

of the community but the social heart as well.

5. To assist the needy.

6. To work with sense of service and dedication.

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PUNJAB NATIONAL BANK

7. To develop a concern for fellow human being and sensitivity to the

surroundings with a view to make changes/remove hardships and

sufferings.

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PUNJAB NATIONAL BANK

Awards

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PUNJAB NATIONAL BANK

 

Awards & Achievements of Punjab National Bank in Recent Times

  PNB Awarded Rajbhasha Awards

Shri K.R. Kamath, Chairman & Managing Director, PNB receiving RBI Rajbhasha Awards from Dr. D.Subbarao, Governor, RBI. Other dignitaries present on the dias are RBI Dy. Governors Dr. K.C.Chakraborthy and Dr. Subir Gokarn.

PNB adjudged Best Managed Bank by SCOPE

Hon’ble President of India Smt. Pratibha Devisingh Patil giving SCOPE Best Managed Bank Gold Trophy Award to Sh. K.R. Kamath, CMD- PNB.  Seen in picture are  Sh. Praful Patel- Union Minister for Heavy Industries, Sh. A Sai Prathap, Minister of State & Sh. M.V. Tanksale, ED- PNB.

Wind Power India 2011 Awards

Won Second Prize under the category of "Best Wind Power Project Financier" 2011 by World Institute of Sustainable Energy.

PNB Awarded SKOCH Challenger   Award 2011   on Financial Inclusion

 Punjab National Bank declared winner of "SKOCH Challenger Award on Financial Inclusion".  Sh. M.V. Tanksale and Shri Rakesh Sethi, EDs, PNB receiving award from Dr. C Rangarajan, Chairman of the Prime Minister's Economic Advisory Council, at a function held at New Delhi.

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PUNJAB NATIONAL BANK

  PNB Awarded Best Technology Bank 2010

 Punjab National Bank declared winner of "Best Technology Bank 2010".  Sh. M.V. Tanksale, ED, PNB and  Sh. Ajay Misra, GM, PNB receiving award from Hon’ble   Ex-President of India Sh. A.P.J Abdul Kalam at the Banking Technology Conference held at Mumbai.

PNB AWARDED GOLDEN PEACOCK AWARD FOR TRAINING

PRESS RELEASE

PNB declared winner of the Golden Peacock Awards for Training. Smt. Sushma Bali, GM and Sh. J.P. Kapoor, DGM, PNB receiving award from Hon'ble Sh. K Sankaranarayanan, Governor of Maharashtra and Sh. P.N. Bhagwati Ex-Chief Justice of India.

PNB AWARDED NIRYAT BANDHU BRONZE TROPHY

PRESS RELEASE Hindi

PRESS RELEASE English

Sh. K.R.Kamath, CMD, PNB receiving Niryat Bandhu Award from Hon’ble Sh. Jyotiraditya Scindia, Minister of State for Commerce and Industry. Seen in the picture is Sh. S.K.Dubey, GM, PNB.

PNB Received Excellent Performance in Lending Under PMEGP Scheme award

SME PRESS RELEASE Hindi

MSME PRESS RELEASE

Sh. Nagesh Pydah, Executive Director, PNB receiving 'excellent performance in lending under PMEGP scheme' award from Sh. Dinsha Patel, MoS (Independent Charge) and Sh. Dinesh Rai, Secretary, Ministry of Micro, Small & Medium Enterprises.

K,R.Kamath, CMD, PNB is receiving the Best Bank Award

at Hyderabad from Shri D. Subbarao, Governor, RBI . Dr. K.C. Chakrabarty, Dy. Governor, RBI, Mr. Samba Murthy, Director, IDRBT, Mr. S Ganesh Kumar, CGM, IDRBT and Mr. Ajay Misra, GM, PNB are also seen in the photograph.

Outlook Money Award 2010  Outlook Money Award for the year

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PUNJAB NATIONAL BANK

2010 for "Best Home Loan Provider"

Outlook Money Award 2010 Outlook Money Award for the year 2010 for "Best Education Loan Provider"

2nd prize of Indira Gandhi Rajbhasha Shield by Dept. of Indian Official Language, Ministry of Home Affairs, GOI

for promoting Hindi for the year 2008-09.

Gold trophy of SCOPE Meritorious Award for Excellence in Corporate Governance in 2009

By Standing Conference of Public Enterprises.

5th Social and Corporate Governance Award Under the Category of "Best Corporate Social Responsibility Practice"

By Bombay Stock Exchange for 2010

Skoch Awards 2010 for "Computerisation of RRBs"

By Skoch for 2010

Global HR Excellance Award 2010 for the outstanding Contribution to the cause of Education

World HRD Congress

Asia Best Employer Brand Award" for Excellence in Training

By World HRD Congress for 2010

Award for Brand Excellance" under Banking & Financial Services

By CMO Asia for 2010

"CSR Excellence Award 2010" By ASSOCHAM

Skoch Challenge Award 2010For Livelihood Linkage of the milk producers in Bulandshahr District, Uttar Pradesh

Best use of Technology for Financial Inclusion for 2009-10.

By IDRBT.

Best Employer Brand Award By Employer Branding Institute,

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PUNJAB NATIONAL BANK

Regional Round Award Winners-Indore

India

Golden Peacock Award for Excellence in Corporate Governance

By Institute of Directors for 2009.

India Pride Awards for excellence in PSU

By Dainik Bhaskar in association with Daily News and Analysis for 2009.

Dun & Bradstreet Award for “Priority Sector Lending including Financial Inclusion.

By Dun & Bradstreet for 2009.

National Award for Excellence in Lending for Institutional Finance in Propagating KVI Programmes in NATIONAL LEVEL

By Khadi & Village Industry Commission, Ministry of Micro, Small & Medium Enterprises, Govt. of India, (Interest Subsidy Eligibility Certificate Scheme) for 2009.

National Award for Excellence in Lending for Institutional Finance for Propagating KVI Programmes in CENTRAL ZONE

By Khadi & Village Industry Commission, Ministry of Micro, Small & Medium Enterprises, Govt. of India(Prime Minister Employment Generation Programme) for 2009.

National Award for Excellence in Lending for Institutional Finance in Propagating KVI Programmes in NORTH ZONE

By Khadi & Village Industry Commission, Ministry of Micro, Small & Medium Enterprises, Govt. of India(Interest Subsidy Eligibility Certificate Scheme) for 2009.

National Award for Excellence in Lending for Institutional Finance in Propagating KVI Programmes in CENTRAL ZONE

By Khadi & Village Industry Commission, Ministry of Micro, Small & Medium Enterprises, Govt. of India(Interest Subsidy Eligibility Certificate Scheme) for 2009.

 

35

PUNJAB NATIONAL BANK

PUNJAB NATIONAL BANK SERVICES

Anywhere Banking:

Anywhere Banking is a technology-based, customer-friendly

service designed to provide greater convenience to our customers. With

Anywhere Banking facility,once customer has an account with any of

the select branches, Customer can operate it

From any other designated branch across 85 cities.

FACILITIES:

Individuals I joint account holders (operated severally) maintaining

Current I 58 I OD Accounts:

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PUNJAB NATIONAL BANK

I. Withdrawal of cash

2. Remittance of cash

3. Transfer of funds

4. Balance enquiry

5. Issue of mini statement

6. Depositing local cheques for collection

7. Purchase of Demand draft

Firmsl Companies I Other Bodies maintaining Current I OD I OCC

Accounts:

1. Transfer of funds between accounts; from one Anywhere

Banking branch to another anywhere banking branch.

2. Depositing of local cheques for collection and crediting to the

respective account at any Anywhere Banking branch.

FEATURES:

1. Cash withdrawal upto Rs.50, OOO/ - per occasion

2. Transactions permitted on production of ident ity card issued

exclusively for

ANYWHERE BANKING facility

3. Facilities of both intra-city and inter-city transactions.

4. HOME CLEARING - on line debit of cheques drawn on our own A

WB branches within the city / clearing zone.

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PUNJAB NATIONAL BANK

Tele services

Access information about your account right from your home,

office or from anywhere over telephone. A round the clock teller

answering the enquiries from anywhere presenting voice information at

any time.

You can make the following enquiries/requests over telephone:

Balance in the account including clear balance. Last five

transactions in the account.

Request for cheque book. Request for pass sheet.

Change in pass word. Fax on demand.

Note: The facility is password protected to ensure secrecy. Ask your

Branch Manager for details and enroll today itself the service 'is

absolutely lice of cost

Personal Banking:

Deposits

Savings Bank Account

Current Account

SERVICES

• CBS (Core Banking Services)

• ATM Service |

• Safe Deposit |

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PUNJAB NATIONAL BANK

• Service Charges

• CBS ( Core Banking Solution)

• Core Banking Solution (CBS) is networking of branches,

which enables Customers to operate their accounts, and avail banking

services from any branch of the Bank on CBS network, regardless of

where he maintains his account. The customer is no more the customer

of a Branch. He becomes the Bank’s Customer. Thus CBS is a step

towards enhancing customer convenience through anywhere and anytime

Banking.

All CBS branches are inter-connected with each other. Therefore,

Customers of CBS branches can avail various banking facilities

from any other CBS branch located any where in the world. These

services are:

To make enquiries about the balance; debit or credit entries in

the account.

• To obtain cash payment out of his account by tendering a

cheque.

• To deposit a cheque for credit into his account.

• To deposit cash into the account.

• To deposit cheques / cash into account of some other person

who has account in a CBS branch.

39

PUNJAB NATIONAL BANK

• To get statement of account

• To transfer funds from his account to some other account – his

own or of third party, provided both accounts are in CBS

branches.

• To obtain Demand Drafts or Banker’s Cheques from

any branch on CBS – amount shall be online debited to his account.

• ATM (Automated Teller Machine) Service:-

The Bank's 17 ATM of 14 branches of the Bank are connected to

Central ATM Switch at Data Center and Customers are able to do

all the transactions through any of the Branches of the Bank in

Thane, Navi Mumbai & Pune. By using ATM Customer can

transfter their fund from one Branch account to Other Branch

account by ATM Link Process.

• Safe Deposit Locker

• Keep your valuables safe with Punjab national bank

• Senior Citizen

• 0.75% Additional Interest to Senior Citizen

• Service Charges

40

PUNJAB NATIONAL BANK

Outward ClearingRs 60/-

Upto Rs 1 lac – Rs 120/-

Above Rs 1 lac - Rs 0.25% of the amount

Upto Rs 50,000/- – No charges

Above Rs 50000 to Rs 1 lac - Rs 0.10% of the amount9

Locker Rent Rs 300/-

Applicable as per Size of locker 12Cheque purchase commissionRs 3 per

Thousand 13Safe CustodyRs 50 per Month14LCMaximum Int. Rate on

Loan plus 2% more15Solvency CertificateUp to Rs 2 lac – Rs 400/-

Above Rs 2 lacs – 0.20% of the amount

Maximum Rs 3000/- 16Pay Order / D D CancellationRs 30/-

DEPOSIT SCHEMES

Fixed Deposit

Recurring Deposit

41

PUNJAB NATIONAL BANK

Reinvestment Deposit

Monthly / Quarterly Interest Scheme

Fixed Deposit Interest Rate

15 to 45 days4.50%46 to 90 days5.50%91 to 180 days6.00%181days to

below 1 year7.00%1 year & below 18months7.75%18months & below 2 years

8.50%2 years upto 3 years8.25%Above 3 year 8.00%For senior citizen

additional 0.75% Interest

(On all Fixed Deposits above 1 year)

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PUNJAB NATIONAL BANK

• Recurring depositInterest Rate

1 year & below 18months7.75%18months & below 2 years

8.50%2 years upto 3 years8.25%Above 3 years8.00%For senior citizen

additional 0.75% Interest

• Reinvestment DepositInterest Rate

1 year & below 18months7.75%18months & below 2 years 8.50%2

years upto 3 years8.25%Above 3 years 8.00%For senior citizen additional

0.75% Interest

• Montly / Quarterly Interest Deposit

LOANS

Housing Loans |

Vehicle Loan | Article Loan |

Term Loan For Business | Builders & Contractors

Housing Loans

Purpose:Purchase flat or Construction of HouseRate of interest:@

10.50% p.a. upto Rs 25 lakhs for 5 years.:@ 11.00% p.a. upto Rs 25 lakhs for

43

PUNJAB NATIONAL BANK

5yr-15yr.:@ 11.00% p.a. above Rs 25 lakhs for 5 years:@ 11.50% p.a. above

Rs 25 lakhs for 5yr-15yr.Eligibility:Individual.Security :Mortgage of Flat

Purchased / House constructed Repayment:Maximum Upto 15 years.E. M. I.

per Rs. 1 LakhRate of Interest10.50%11.00%11.50%5 years2149

2174 2199 10 years-1378140615 years-11371168

Vehicle Loan

NEW VEHICLE (Commercial Use)Rate of Interest:@ 12.00% p.a.

Loan Amount :80% of Invoice Value +

Registration Charges + InsuranceOLD VEHICLEIn case of Old Vehicle upto

5 years:50% of Agreement value

or valuation whichever is less.Rate of Interest:Upto Rs 2 lakh @ 13.75 % p.a.

Above Rs 2 lakh @ 15.00% p.a.Security:Vehicle &

Salary/Income.Repayment :Maximum 5 years*Conditions Apply

TERM LOAN FOR BUSINESS

Purpose:Business Expansion

Purchasing Machinery

Raw Material

Setting New ProjectRate of InterestLOAN AMOUNT

INTERESTMEDIUM TERM BUSINESS & SMALL SCALE

IND.

Upto Rs 50 Lacs13.50%ABOVE Rs 50 Lacs upto 3 crores13.00%ABOVE Rs 3

crore 12.00% Eligibility:Individual / Firm / Partnership Firm / Company

etcLoan Amount:As per requirementMargin :30%**Conditions Apply

44

PUNJAB NATIONAL BANK

TERM LOAN FOR BUILDERS & CONTRACTORS

Purpose:Business Expansion

Purchasing Machinery

Raw Material

Setting New ProjectRate of InterestLOAN AMOUNT INTERESTAny

Amount15.00% Eligibility:Individual / Firm / Partnership Firm / Company

etcLoan Amount:As per requirementMargin :30%*Repayment :Maximum 7

years.

Article Loan

Purpose:Purchase of Furniture & Fixtures,

Electronic / Consumable Appliances etc.Rate of Interest:@14%

p.a.Eligibility:IndividualLoan Amount:Maximum upto Rs. 5 lacs.Margin:30%

*.Security :Article / Furniture / Immovable PropertyRepayment:Upto 5 years.

Education loan

• To brighten the future of bright & committed students by

extending financial assistance to pursue higher professional / technical

45

PUNJAB NATIONAL BANK

courses studies in India & Abroad through Educational Universities /

Institutes / Organisations of good reputation & recognition. ”

Purpose:Higher Education. Rate of Interest :Upto Rs. 10 Lacs @ 10%

p.a.

Above Rs. 10 Lacs & Upto Rs. 20 Lacs @11% p.aLoan Amount:Upto Rs.

10 Lacs for studies in India.

Upto Rs. 20 Lacs for studies in Abroad. Security:Collateral security

owned by Parents or Guarantor. 'Whole Life' Insurance Policy on the life

of the student, for the amount of loan.Repayment :Max. 120 months,

including moratorium period

Professional Loan

• Criteria:Doctor

Advocate

Architect

CA & EngineerRate of Interest LOAN AMOUNT INTEREST UPTO

Rs 10 Lacs12.50%ABOVE Rs 10 Lacs To Upto Rs 50

Lacs12.00%ABOVE Rs 50 Lacs12.50% Eligibility:Individual / Firm /

Partnership Firm / Company etcLoan Amount:As per requirementMargin

:30%**Conditions Apply

46

PUNJAB NATIONAL BANK

General Facilities

-Safe Custody Services

-Safe Deposits Locker

-Nomination facility

Other Services/Facilities

47

PUNJAB NATIONAL BANK

PLANNING AND DEVELOPMENT WING

1. Development Section.

2. Economic Research Section.

3. Management Information and Planning Section.

4. Customer Service Section.

5. Publicity and Public Relations Section.

6. Corporate Merchant Banking Division.

7. Marketing, Research & Product Development Section.

8. Corporate Cash Management Services.

FINANCIAL AND GENERAL ADMINISTRATION WING:

a) General Administration Department -

1. Furniture and Bills Section. 2. Premises, Policy and Administration Section. 3. Technical Cell. 4. Records and Tappal Section. 5. Premises and Estate Section. 6 Printing Section. 7 Stationery Section. 8 Central Security Cell. 9 Estate Policy and Control Section.

48

PUNJAB NATIONAL BANK

b) Accounts and Taxation Department -

1. Balance Sheet and Central Accounts Section.

2. Staff Provident Fund.

3. Staff Welfare Fund.

4. Pension Fund.

5. Government Accounts Section.

6. Executor, Trustee and Taxation Section.

7. DD Reconciliation Section.

8. ATM and Debit Card Reconciliation Section.

9.

DEPARTMENT OF INFORMATION TECHNOLOGY- WING'

1. Planning Establishment & Training Group.

2. Administrative Software Group.

3. Service Units Software Group.

4. Branch Software Group.

5. Delivery Channel & Communication Group.

6. Procurement Group.

7. Payment System Group.

8. New Projects Group.

9. Core Banking Group.

49

PUNJAB NATIONAL BANK

Credit Risk Management in Banks

An Overview

The financial sector especially the banking industry III most

emerging economiesincluding India is passing through a process of

change. As the financial activity has become a major economic activity

in most economies, any disruption or imbalance in its infrastructure will

have significant impact on the entire economy. By developing a sound

financial system, the banking industry can bring stability within the

financial markets.

Deregulation in the financial sector had widened the products

range in the developed markets. Some of the new products introduced

are LBOs, structured transaction, credit cards, housing finance,

derivatives and various off balance sheet items. Thus new vistas have

created multiple sources for banks to generate higher profits than the

traditional financial intermediation. Simultaneously they have opened

new areas of risk also. Many unknown issues that are intricately related

to new products have exposed banks to various risks across the globe

and India is no exception.

50

PUNJAB NATIONAL BANK

During the past decade, the Indian banking industry continued to

respond to the emerging challenges of competition, risks and

uncertainties. Risks originate in the forms of customer default, funding a

gap or adverse movements of markets.

Measuring and quantifying risks is neither easy nor intuitive. Our

regulators have made some sincere attempts to bring prudential and

supervisory norms conforming with international bank practices with an

intention to strengthen the stability of the banking system.

Banks in general face the following risk:

Liquidity Foreign Exchange

Credit Market

Intrestrate Operational

The industry has undergone drastic changes in the last three

decades. Horizontal expansion of the financial markets, deregulation

across the globe in financial markets and stiff competition have led the

banks to multiply their activities. Increased activities in the industry have

exposed the banks to more uncertainties and more risks.

51

PUNJAB NATIONAL BANK

Risk Management in Banks is broadly divided into six

sections:

Funds Management is a major activity of the banks. Liquidity

management is an integral part of funds management. Banks mobilize

the deposits and deploy funds in advances and investments. Banks also

float funds through various subsidiary services extended to their clients.

There will be always a time gap between the availability of

resources and their deployment. Hence banks will often swing between

excess liquidity and liquidity crunch in their funds position. Liquidity

management essentially deals with efficient handling of inflows and

outflows of funds. Section -I discusses the liquidity management in

banks in India and across the globe.

Cash Management is a subset of the entire funds management.

The lead time is reduced in collection of cheques and other

instruments by the banks, if they introduce efficient cash management

services. From the bank's point of view it increases the fee based

income. Cash management services are one innovative product

introduced by the banks in the recent times. Section-II discusses the

cash management techniques adopted by banks and corporate clients.

Credit risk is as old as money. When the default rate increases in

52

PUNJAB NATIONAL BANK

the portfolio of the bank< it may lead to its total collapse. To circumvent

the credit risk, the system tries to design innovative products. Section-III

discusses the credit risk management in banks.

The Baslc committee defines the operational risk as "the risk of

direct or indirect loss resulting from inadequate or failed internal

processes, people and systems or from external events". This defination

excludes operational: risk but includes legal risk. Such operational risks

can be broadly classified into four categories as information technology

risk, human resource risk, loss to assets risk and .'relationship risk.

Quantification of operational risk is a major challenge to the .risk

management group of the bank: Section IV attempts to elucidate few

issues involved in the operational risk management.

53

PUNJAB NATIONAL BANK

One of the core activities of the regulators is proper of the

system. The Basle committee had set certain guidelines for the bank s.

The Reserve Bank of India had set up an advisory committee under the

chainn:Ulship of M S Verma and the committee had submitted its report

in May 2001. The committee recommended corporate governance,

internal controls, risk management, loan accounting transparency and

disclosures, financial conglomerates and cross border banking

supervision. The supervisor should provide a safety net to the financial

system. Section -V discusses the important issues of any risk

management technique.

54

PUNJAB NATIONAL BANK

Credit Risk Management at Punjab

national bank

Introduction

Credit risk is defined as the possibility of losses associated with

diminution in the credit quality of borrowers or counter parties. In a

bank's portfolio, losses stem from outright default due to inability or

unwillingness of a customer or counter party to meet commitments in

relation to lending, trading, settlement and other financial transactions.

Alternatively, losses result from reduction in portfolio value arising from

actual or perceived deterioration in credit quality. Credit risk emanates

from a bank's dealings with an individual, corporate, bank, financial

institution or a so vereign.

Credit risk takes in the following forms:

1. In the case of direct lending: principal/and or interest amount not be

repaid;

2. In the case of guarantees or letters of credit: funds not forthcoming

from the constituents upon crystallization 0 f the liability.

3. In the case of treasury operations: the payment or series of payments

due from the counter parties under the respective contracts may not

be forthcoming or ceases;

4. In the case of securities trading businesses: funds/ securities

settlement may not be effected.

55

PUNJAB NATIONAL BANK

Credit Risk Management

In this backdrop, it is imperative that Punjab national bank has

credit risk management system, which is sensitive and responsive to

these factors. The effective management of credit risk is a critical

component of comprehensive risk management and ie essential for the

long-term success of Punjab national banking organisation. Credit risk

managemnt encompasses identification, measurement, monitoring and

control of the credit risk sources.

56

PUNJAB NATIONAL BANK

Punjab national bank has system of checks and balances

in place for extension of credit viz.:

1. Separation of credit risk management from credit sanction

2. Multiple credit approvers making financial sanction subject to

approvals at various stages viz. credit ratings, risk approvals, credit

approval grid, etc.

3. An independent audit and risk review function.

4. The level of authority required to approve credit will increase as

amounts and transaction risks increase and as risk ratings worsen.

5. Every obligor and facility must be assigned a risk rating.

6. Mechanism to price facilities depending on the risk grading of the

customer, and to attribute accurately the associated risk weightings

to the facilities.

7. Banks ensure that there are consistent standards for the origination,

documentation and maintenance for extensions of credit

8. Banks has a consistent approach towards early problem recognition,

the classification of problem exposures, and remedial action.

9. Banks maintain a diversified portfolio of risk assets; have a system to

conduct regular analysis of the portfolio and to ensure ongoing

control of risk concentrations.

10. Credit risk limits include, obligor limits and concentration limits by

industry or geography. The Boards should authorize efficient and

effective credit approval processes for operating within the approvall

imits.

57

PUNJAB NATIONAL BANK

11. Bank has systems and procedures for monitoring financial

performance of customers and for controlling outstanding within

limits.

12. A conservative policy for provisioning in respect of non -performing

advances adopted adopted.

13. Bank has an experience, judgment and commitment to technical

development.

14. Banks should have a clear, well-documented scheme of delegation

of powers for credit sanction.

Treatment of Credit risk at bank.

The unsecured portion of NPA accounts net of specific provisions

is also to be subject to risk weighting mechanism; unsecured portion

means the NPA amount obtained after deducting the eligible and

guarantee amounts.

Factors considered for sanction loans:

1) Individual Capacity.

2) Securities

3) Additional securities

4) Prompt repayment of L02.

5) Deposits in Banks

Individual Capacity:

Bank considers individual capacity h) repayment of loan with term

or agreed term with bank and also considers his transaction with bank if

any.

58

PUNJAB NATIONAL BANK

Securities:

Bank considers securities of borrowers while lending money to

him. Ex: Shares cel1ificate, Insurance policies

Additional Securities:

Banks consider or accept additional securities like land, home and

other securities while sanctioning new loan to customers when

customers has existing loan in bank.

Prompt repayment of Loan:

Existing transaction or previous transact ion consider while grant

new loan to customers/ Clients. His prompt repayment of loan consider

for new loans.

Bank Deposits

Bank deposits with bank or any other banks consider as security for

loans.

Existing Credit Risk Management at Punjab national bank

Follow up clients/Customers.

Recovery systems.

Review of loan.

Additional securities

Providing additional loans to make repayment of existing

loans.

Loan Review Mechanism.

59

PUNJAB NATIONAL BANK

Low and High credit risk ratings.

Low interest rate for high credit rating companies

High interest rate for low credit rating companies

Single/group borrower limits

Authorities to branches • Authorities to Committees.

Following Up customers/Clients:

Bank remind borrowers to repay loan and interest according to

term and condition which he has agreed while taking loan from banks,

and also ensure that ifhe fails to pay the loanwhat is next step of banks.

Recovery Systems:

Bank directly collect dues from customers. They have separate

department, which look

\after all matters related to recovery of loan.

Review of loan:

If the amount not recovered within specified term mentioned as per the

policy of bank, bank goes for review of loan if required.

Additional Securities:

Additional securities will be taken from the customer in two situations:

1) If existing loan extended by the bank.

2) When additional loan is given to the customer in addition to

existing loan.

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PUNJAB NATIONAL BANK

Low and High credit risk ratings.

Interest rate is depend on credit worthyness of the company, if the

credit worthy ness of the company is high he will be charged low

interest, opposite is the case for low credit worthiness

Following Securities as eligible for treatment as Credit risk

mitigates:

1) Bank Deposits 2) Gold Jewellery ( Benchmarked to 99.99 purity) 3) State Govt securities 4) Central Govt securities 5) National Saving Certificates 6) Life Insurance Policies 7) Equities ( Including convertible bonds) 8) Mutual fund securities9) Land and Building 10) Plant and Machinery

61

PUNJAB NATIONAL BANK

Guarantors Types

• State Government

• Central Government

• Public Sector Entities

• Banks

• Primary Dealers Corporate

Techniques for Measuring Credit Risk

In the measurement of credit risk, models may be classified along

three different dimensions:

1. The techniques employed,

2. The domain of applications in the credit process and

3. The products to which they are applied.

Techniques:

The following are the more commonly used techniques:

1. Econometric Techniques such as linear and multiple

discriminate analysis,

Multiple regression, logic analysis and probability of default, etc.

2. Neural networks are computer-based systems that use the same

data employed in the econometric techniques but arrive at the

62

PUNJAB NATIONAL BANK

decision model using alternative implementations of a trial and error

Depth of Reviews

The loan reviews should focus on:

Approval process;

Accuracy and timeliness of credit ratings assigned by loan

officers;

Adherence to internal policies and procedures, and applicable

laws / regulations;

Compliance with loan convents;

Post-sanction follow-up;

Sufficiency of loan documentation;

Portfolio quality; and

Recommendations for improving portfolio quality

Collection strategies:

Credit models may be used in deciding on the best collection or

workout strategy to pursue. If, for example, a credit model indicates that

a borrower is experiencing short term liquidity problems rather than a

decline in credit fundamentals, then an appropriate workout may be

devised.

63

PUNJAB NATIONAL BANK

RISK MANAGEMENT

The Bank has initiated implementation of parallel run of new

capital adequacy framework under Basel II during the year and is fully

geared for a smooth switchover within the RBI prescribed time

schedule, The Bank's Board has been driving the policy initiatives and

putting appropriate strategies in place for effectively managing the

Credit, Market and Operational risks, Top Executive Risk Committees,

headed by the Chairman & Managing Director, are in place to effectively

address all issues related to the management and mitigation of various

business/control risks.

CORPORATE SOCIAL RESPONSIBILITIES) RURAL DEVELOPMENT

Rural Development and Self-Employment Training Institutes

(RUDSETls) co-sponsored by the Bank have been engaged in providing

training to rural youths to pursue various self-employment activities.

RUDSETls, numbering 20 across India, have so far trained I .87lakh

unemployed youth, with a settlement rate of 67%. The Bank, under

Punjab national bank Centenary Rural Development Trust, has

promoted 14 self-employment training institutes. These institutes have

so far trained 56520 rural youth, with an impressive settlement rate

of72%. The Trust is also extending support to Society for the

Educational and Economic Development (SEED), a voluntary

organization workingforthe welfare of socially marginalized children.

The Bank's 'Rural Clinic Services' scheme has assisted doctors in

opening 21 additional clinics during 2006-07, taking the total of such

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PUNJAB NATIONAL BANK

clinics to 493 across India. Under 'Jalayoga', a scheme for facilitating

availability of safe drinking water in rural areas, the Bank has

completed 35 projects so far. Tapping the spirit of voluntarism among its

employees, the Bank, under the Rural Service Volunteer Scheme, has

assisted 500 villages, benefiting over 2 lakh families since its inception

in 1985.

As a responsible corporate social citizen, the Bank has donated

hi-tech and solar powered 'Mobile Sales Van' to assist women

entrepreneurs, SHGs and artisans in their entrepreneurial ventures.

CUSTOMER ORIENTATION

The Bank, during the year, introduced several new measures

towards further improving customer centricity and service quality to

match the competitive market conditions and customer

expectations. In a noteworthy initiative, the Bank has implemented 'Six

Sigma' project for enhancing the knowledge base of its frontline staff on

products and services. Keeping track of services quality at branches

has been a hallmark of the Bank's unprecedented customer orientation.

During the

year, customer survey from a sample of 25 branches each in five

metros, viz., Bangalore, Chennai, Delhi, Kolkata and Hyderabad,

covering 10000 customers was conducted by consultant of repute to

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PUNJAB NATIONAL BANK

further improve the level of customer service. Further, as a member of

Banking Codes and Standards Board of India (BCSBI), set up by RBI,

the Bank has brought out a booklet on "Code of Commitment to

Customers" to create awareness among the customers as well as staff

about the Uniform Fair Practice Code used as benchmark standard by

all banks in India.

HUMAN RESOURCES DEVELOPMENT

Knowledge enrichment for employees continued to be a top

priority for the Bank during FY07. Close on the heels of achieving the

one lakh mark in training/re-skilling during its centenary year, 2006-07

featured the tally moving up further to 1,09,661 covering diverse

functional areas. During the year, the Bank effected a major

organizational restructuring exercise for grater business focus and

expeditious decision making, apart from moves to decentralize

operational activities.

The Bank also adopted a fast track promotion policy and

implemented cash incentive scheme for high performers. Punjab

national bank is also the only Bank in the country to have formed 'Club

2020' a group, comprising young talent, to spearhead strategic changes

in the fast changing banking environment.

Focus on specialized expertise led to recruitment of 541 officers

through campus and direct recruitment in diverse areas like marketing,

financial analysis and risk management. Continued focus on quality

drive enhanced the number of ISO 900I Certified Branches and

Administrative Offices to 805 and 14 respectively as at March 2007.

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PUNJAB NATIONAL BANK

Analysis of the financial statement

Financial statements and reports are the tools which provides

information of the firms financial affairs. This information is required for

financial analysis & decision making. It assesses the financial status of

organization which is prepared with help of accounting principle.

Financial statement has mainly as follow:

Balance sheet

Profit & loss account

Profit and Loss account:-

Meaning:- profit and loss account is one of the essential document which

shows the summary of revenues, expenses and net income of the firm during

the particular financial period.

Functions of the Profit and Loss account:-

It gives a concise summary of the firm’s revenue and expenses during

the particular period.

It measures the firm’s profitability.

It represents the activity of the firm.

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PUNJAB NATIONAL BANK

Ratio Analysis:-

Ratios are classified into four parts like:-

1. Liquidity ratios

2. Activity ratios

3. leverage ratios

4. profitability ratios

Limitations of the analysis:-

There are no standard formula fixed to judge the performance. Since

management problems are so complex that they cannot be reduced to a

formula.

Forming of the ratio should be made with care.

due to price fluctuation it may distort the result

there are chances of making window dressing in the financial

statements of the firm, it has some limitation for Credit officer has to

consider the financial statements and reports which produce information

of the firm’s financial affairs. These are prepared with help of accounting

principle. It helps in decision making.

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PUNJAB NATIONAL BANK

The main financial statements are

1. balance sheet

2. profit and loss account

3. funds flow and cash flow statements

These financial statements will help the credit officer to calculate the

following to ratios to make the credit rating

1. liquidity ratio

2. activity ratio

3. leverage ratio

4. profitability ratio

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PUNJAB NATIONAL BANK

Findings

1. The proposed standardized Basel2 to approach does not fits the

needs of smaller banking organization engaged primarily

traditional banking.

2. The current nor proposed capital frameworks yet address what is

perhaps the most critical risk factor for the smaller banks -

geographic and sectoral concentrations of credit risk.

3. Internal ratting based approach provides positive incentives to

banks in improving their credit risk management techniques.

4. Banks may have discretion and flexibility in defining the exposure

classes that which corporate, project finance, etc.

5. Unless suitably modified the adoption of the new accord in its

present format would result in significant increase in the capital

charge for bank.

6. Additional cost of capital will increase to the bank and bank may

go for capital market to raise the found.

7. Bank as well documented schemes delegation powers for credit

sanction.

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PUNJAB NATIONAL BANK

Recommendations

1. The bank will now have to adopt the credit risk

assessment system which is an international standard

specified for the banking system.

2. Due to increased sensitivity towards risk under the new

norms, the risk will come down significantly. This will lead

to an increase in the regulatory capitalization levels,

which will increase the cost of capital, which may be

passed on to the customers.

3. The banks will have to exercise due care in maintaining

the portfolio of risk assets in order not to increase unduly

the required regulatory capitalization level. This may in

turn in duce conservatism in the bank in taking of risky

portfolio of advances, a danger they have to guard

against. It will indeed be a delicate balancing task.

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BIBLIOGRAPHY

1 Bank circulars.

2 Internal magazines.

3 www.mis.org.

4 www.punjabnationalbankindia.com.

5 www.rbi.org.in.

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