-An insight on the financials of the 3rd largest Public Sector

Bank in India

Presented by:

Group 8

Section A

MBA-JAN 131

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INTRODUCTION

TIMELINE:

• In 1849, Punjab under the British witnessed a period of development giving rise to a new educated class fired with a desire for freedom from slavery.

• Amongst the cherished desires of this new class was also an overriding ambition to start a SWADESHI BANK with the Indian Capital and Management representing all sections of the Indian community.

• The idea was first mooted by Rai Mool Raj, who had a long cherished idea that Indians should have a national bank of their own.

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• Rai Mool Raj , Lala Lajpat Rai sent around circular inviting selected friends insisting on a joint stock bank as the first step in the genesis of this bank.

• On May 23, 1894, the efforts materialized. The founding board was drawn from different parts of the country with a common objective of a national bank which would further boost the economic interest of the country.

•The bank opened for business on 12th April 1895.

•A maiden dividend of 4% was declared after ONLY 7 months of operation.

• With its Ups and Lows , during independence PNB as a symbol of trust and a name you can bank upon repaid many deposits of its customer who were on the other side of the boarder.

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•In 1951, the bank took over Bharat Bank Ltd. and became the 2nd largest bank in the private sector.

•In 1969 Government of India Nationalized PNB

•1986 witnessed another acquisition, Hindustan Commercial Bank which added 142 branches to PNB’s network.

• 1990s saw the rise in opening foreign branches like London, Leicester, South Hall, Bhutan

•Forbes Global 2000 Ranking – PNB was ranked #1243 in 2006.

• Fortune India 500 Ranking- PNB was ranked #26 in 2011

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BANKING CONCEPTSCash Reserve Ratio (CRR)- is the amount of funds that all Scheduled Commercial Banks (SCB) excluding Regional Rural Banks (RRB) are required to maintain without any floor or ceiling rate with RBI with reference to their total net Demand and Time Liabilities (DTL) to ensure the liquidity and solvency of Banks (Section 42 (1) of RBI Act 1934). The current CRR is 4.75% and at present no incremental CRR is required to be maintained by the banks.

Statutory Liquidity Ratio (SLR)- Apart from CRR, every bank is required to maintain in India at the close of business every day, a minimum proportion of their Net Demand and Time Liabilities as liquid assets in the form of cash, gold and un-encumbered approved securities. The ratio of liquid assets to demand and time liabilities is known as Statutory Liquidity Ratio (SLR). Present SLR is 23%. (Reduced w.e.f. 11/08/2012 from earlier 24%). RBI is empowered to increase this ratio up to 40%. An increase in SLR also restricts the bank’s leverage position to pump more money into the economy.

Rs. (Crs.)

MAR 12

MAR 11

MAR 10

CASH WITH RBI

16,557.73

22,053.34

16,997.20

SLR 7,029.97 5,804.71 4,690.22

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1.) Repo Rate-The rate at which the RBI lends money to commercial banks is called repo rate. It is an instrument of monetary policy. Whenever banks have any shortage of funds they can borrow from the RBI.A reduction in the repo rate helps banks get money at a cheaper rate and vice versa.

The current Indian interest rate RBI (base rate) is 7.75%

2.) Interest Rate-

• Fixed Deposits- Fixed Deposit, also called Term Deposit is an investment where the interest rate is guaranteed not to change for the nominated term, so you know exactly what your investment is worth.The current rates is 4.00% to 9.00% depending upon the time period

• Loans & Advances- a.) Benchmark Prime Lending Rate (BPLR) -According to the

Reserve Bank of India (RBI), banks are free to fix the Benchmark Prime Lending Rate (BPLR) with the approval of their respective Boards. Banks are free to decide the BPLR but their interest rates have to have a reference to the BPLR fixed. The BPLR is the interest rate that commercial banks charge their most credit-worthy customers.

BPLR is 14% w.e.f 01.05.2012

Rates & Interest

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b.) BASE RATE :The Base Rate is the minimum interest rate of a Bank below which it cannot lend, except in cases allowed by RBI.

The Base Rate w.e.f 9.02.2013 is 10.25%

c.) Bulk Deposit Rate: Rate of Interest for Single deposit of above Rs.10 Crore (Wholesale Deposit).

The current rate is 7.00% to 9.25% depending on the time period

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RATIO ANALYSIS1. CURRENT RATIO:

CURRENT ASSETS CURRENT LIABILITIES

Meaning:It establishes the short term solvency of a firm. It means how much cashMoney or easily convertible cash assets the company has to pay back theCurrent Liabilities.

Rs (Crs.) YEAR MAR 12 MAR 11 MAR 10

CURRENT ASSETS 182,228.02 152,441.74 112,000.71

CURRENT LIABILITIES 393,112.66 325,227.00 259,647.49

CURRENT RATIO 0.46 0.47 0.43

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9-Mar 10-Mar 11-Mar0.41

0.42

0.43

0.44

0.45

0.46

0.47

0.48

0.460.47

0.43

CURRENT RATIO = CURRENT ASSET/CUTTENT LIABILITY

•For financial institutions like banks , current liability mainly consists of the term deposits, savings accounts, current account of its customers compared to which its current assets consisting of cash in hand, bank balances, and Over draft facility given is very low.

•Banks are liable to pay their customers as and when they want to withdraw their deposits which increases the current liability.

•These are the reason why we have low current ratio of approximately around 0.50.

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2. Operating Profit Ratio:

(Net Income-Operating Expenses/Total Income) X 100

Meaning •This gives the profit only after deducting the operating expenses.•It does not take into account of any other expenses.

YEARRS. (Crs.)

Mar 12 Mar 11 Mar 10

Net Income 17,617.04 15,419.92 12,088.20

Operating Expense

9,405.85 8,367.96 5,761.36

Operating profit 8,211.19 7,051.96 6,326.84Operating profit

ratio 35.68% 46.46% 48.88%

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•The operating profit is showing a decrease in 2011 because the operating expense rises.

•Operating expense consists of director’s salary, provision for employees, rent, lighting, insurance increased due to increased operations, inflation and expansion of branches.

Mar '12

Mar '11

Mar '10

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00%

35.68%

46.46%

48.88%

Operating profit ratio

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3. NET PROFIT RATIO:

NET PROFIT /TOTAL INCOME x 100

Meaning: It gives the profit margin to total income. As in what part of total income is left with the company after deducting the expenses.

YEAR

(Rs. Crs.)

12-Mar 11-Mar 10-Mar

NET PROFIT 4,884.20 4,433.50 3,905.36

TOTAL INCOME 40,630.63 30,599.06 25,032.22

Net Profit Ratio 12.02% 14.49% 15.60%

139-Mar 10-Mar 11-Mar

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

12.02%

14.49%

15.60%

Net Profit Ratio

The total income of the bank is increasing but the net profit is not increasing because of increase in operating expenses, employee cost, depreciation, and other indirect cost.

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4.Net Interest Margin

(Interest earned – interest expended)/Earning Assets)X100

Meaning:The use of net interest margin is helpful in tracking the profitability of a bank’s investing and lending activities over a specific course of time.

Year

Rs.(Crs.)

Mar 12 Mar 11 Mar 10

Net Interest 13,414.44 11,807.34 8,522.89

Earning Assets Cash Credit, Overdraft &

Loans 143,607.10 114,491.10 82,207.07

Term Loans 142,747.12 120,675.59 99,935.36

Government Securities 99,759.45 79,501.72 65,970.43

Other Approved Secutires 223.27 373.86 492.18

Debentures & Bonds 7,636.75 4,862.89 3,032.68

Total 393,973.69 319,905.16 251,637.72

Net Interest Margin 3.40% 3.69% 3.39%

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NPA- Non Performing Assets

•An asset is classified as non-performing asset (NPAs) if dues in the form of principal and interest are not paid by the borrower for a period of 90 days.

•Increasing NPAs have a direct impact on banks profitability as legally banks are not allowed to book income on such accounts and at the same time banks are forced to make provision on such assets as per the Reserve Bank of India (RBI) guidelines.

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•Gross NPA: The amount of principal + interest outstanding is the gross NPA of the bank.

•Net NPA: The amount of principal of loan due is the net NPA of the bank. Interest is deducted from the gross NPA to take out the NET NPA

20122011

2010Rs(Crs.)

0

1000

2000

3000

4000

5000

6000

7000

8000

90008719

4379

3214

4454

2038

981

GROSS NPA NET NPA

YearRs(Crs.)

2012 2011 2010

GROSS NPA 8719 4379 3214

NET NPA 4454 2038 981

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INDUSTRY ANALYSIS •Public Sector Banks are banks where the majority stake (more than 50%) is held by the Government.

•There are 26 Public Sector Banks in India.

PNB SBIBank of Baroda

Canara Bank

Bank of India

No. of branche

s in India

5000 20193 4171 3000 3079

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CURRENT RATIO – Industry Analysis

MAR 12Rs.(Crs.) PNB SBI Bank of

Baroda Canara Bank Bank of India

CURRENT ASSETS

182,228.02 526,309.59 172,198.13 144,543.87 156,113.65

CURRENT LIABILITIES

393,112.66 1,124,562.45 402,271.56 335,924.85 331,459.46

CURRENT RATIO

0.46 0.47 0.43 0.43 0.47

Industry Average considering these big players is 0.45 and so far as PNB is considered the current ratio is similar to that of the industry average.

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Net profits of the banks and Net profit ratio

BanksRs(Crs.) PNB SBI Bank of

BarodaCanara Bank

Bank of India

Net Profit for the Year Mar 12

4,884.20 11,686.01 5,006.96 3,282.71 2,677.52

12-Mar12-Mar

12-Mar12-Mar

12-Mar

PNBSBI

Bank of Baroda Canara

Bank Bank of India

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

12.02%

9.67%

15.13%

9.71%

8.42%

Net Profit Ratio

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DEBT EQUITY RATIO

Meaning:What is the ratio of the total long term borrowing to your net worth? It also shows the leverage of the banks. It gives the solvency of the firms.

=LONG TERM DEBTS/NET WORTH

PNB SBIBank of Baroda

Canara Bank

Bank of India

Debts (Rs. Crs.)

37,264.27 127,005.57 23,573.05 15,525.39 32,114.23

Net Worth(Rs. Crs)

27,817.08 83,951.20 27,476.85 22,689.96 20,961.79

Debt Equity Ratio 1.34 1.51 0.86 0.68 1.53

Average of the Industry if you take these big players = 1.19 (Mar 12)

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Price Earning Ratio ( P/E Ratio )

Meaning:It shows how many times is the market price of the share to the earnings from it. It also helps to determine the expected future growth of the company from the investor point of view.

=MPS/EPS

PNB SBI Bank of Baroda

Canara Bank

Bank of India

EPS(Rs.) 144 174.15 121.79 74.1 46.66

MPS(Rs.) 1035 2200 639 323 361

PE Ratio 7.19 12.63 5.25 4.36 7.74

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Thank you !