Report on working capital management assistance provided by punjab national bank

18,124 views

Published on

Report on working capital management assistance provided by punjab national bank

Published in: Business, Economy & Finance
14 Comments
30 Likes
Statistics
Notes
No Downloads
Views
Total views
18,124
On SlideShare
0
From Embeds
0
Number of Embeds
63
Actions
Shares
0
Downloads
0
Comments
14
Likes
30
Embeds 0
No embeds

No notes for slide

Report on working capital management assistance provided by punjab national bank

  1. 1. REPORT ON WORKING CAPITAL MANAGEMENT ASSISTANCE PROVIDED BY PUNJAB NATIONAL BANK A Project report Submitted to the University of Mysore, Mysore. in partial fulfillment of the requirement for the award of the Degree in Master of Business Administration. by Savitha Bai P Reg.No.08MB3741 Guide Mr. Yadhunandan H HARANAHALLI RAMASWAMY INSTITUTE OF HIGHER EDUCATION, HASSAN, 573 201 2009-10 HARANAHALLI RAMASWAMY
  2. 2. INSTITUTE OF HIGHER EDUCATION HASSAN CERTIFICATE Certified that, the project entitled “REPORT ON WORKING CAPITAL MANAGEMENT ASSISTANCE PROVIDE BY PNB” conducted at Punjab National Bank, Hassan, is a bonafide work carried out by Miss. SAVITHA BAI P in partial fulfillment for the award of degree in Master of Business Administration of the University of Mysore, Mysore during the year 2009-10. (Mr. Yadhunand.H) (S.R. Jayaram) Guide Principal
  3. 3. DECLARATION I hereby declare that, this project report entitled “REPORT ON WORKING CAPITAL MANAGEMENT ASSISTANCE PROVIDE BY PNB” conducted at Punjab National Bank, Hassan prepared by me under the guidance of Mr. Yadhunand.H Lecturer, Department of Business Administration, Haranahalli Ramaswamy Institute of Higher Education, Hassan.in partial fulfillment of the requirement for the award Master of Business Administration. I further declare that this project report is prepared from the information collected from the PUNJAB NATIONAL BANK and that the same is purely for academic purpose and that the report has not been submitted to any other institution of higher learning for the award of any degree, diploma or other similar title. Date: -5-2010 SAVITHA BAI .P Place: Hassan Reg. No. 08MB3741
  4. 4. ACKNOWLEDGEMENT I, express my deep sense of gratitude and sincere thanks to, Mr. Pattabiraman Manager of. Punjab National Bank, who gave me an opportunity to conduct this Research Project. I state with great pleasure this report would not have been possible without the wonderful help from various quarters, the list of which is quite too long. I will take this opportunity to express my deep sense of gratitude to Mr. Yadhunand.H Lecturer, HRIHE, Hassan for his guidance, continuous encouragement and valuable suggestions at every stage of the Project. I would also like to extend my deep sense of gratitude to my parents and all my family members, friends, who have directly or indirectly supported and helped me in the completion of my project successfully Last, but not the least I would like to extend my thanks to all the unseen hands that have made this project possible. Date: -5-2010 SAVITHA BAI P Place: Hassan Reg. No. 08MB3741
  5. 5. SL. NO CONTENT PAGE NO Introduction 1-5 CHAPTER-1 Literature Review 6- CHAPTER-2 Company P rofile CHAPTER-3 Data Interpretation & Analysis CHAPTER-4 Summary of finding suggestion CHAPTER - 5 conclusion Bibliography
  6. 6. INTRODUCTION a. EXECUTIVE SUMMARY The prime objective of any business is to maximize the value of the company and to maximize the wealth of its shareholders. Working capital management has its own role to play in attaining this goal. Working capital is the funds required for day to day working in a business concern. The working capital management involves deciding upon the amount and composition of current assets and how to finance those assets. There should be a proper trade off between risk and profitability in each decision relating to it. This project work has been undertaken to know the procedures involved in the working capital management in PUNJAB NATIONAL BANK. An attempt is made to
  7. 7. study the factors contributing towards working capital and the sources on which the company is depending for funds. The research study was also conducted to derive working capital ratios, to know the performance and efficiency of working capital management and to know the kind of policy adopted in this part of the management. For analyzing the factors and conditions influencing working capital tables and graphs were drawn based on the study. Based on this study the major findings are that from the overall finance point view, company is not performing well. Some of the symptoms may be great deal of time is taken in managing current assets and liabilities, arranging short-term financing, negotiating favorable credit terms, controlling movement of cash, receivables, inventory etc. It is also been found that important financial ratios like all the liquidity position, current ratio, working capital ratio comparatively below the industry standards and are causing concern. This research study indicates that in order to improve the over all performance of PNB the management must take all possible steps, review and modify various policies, cash budgets and inventory status by using sound information management system to enable management to have a close control over the various operations. b. STATEMENT OF THE PROBLEM: A strong banking sector is important for flourishing economy. The failures of the banking sector may have an adverse impact on other sectors. The skill for working capital is some what unique and novel, through the goals are to make an efficient use of funds for minimizing the risk of loss to attain project objective. It involves deciding upon the amount and composition of current assets and how to finance these assets. Working capital management is not a simple one. It enables an enterprise to start and conduct its operations. Working capital requirements is estimate under optimistic assumptions, but what the expectations come true, the firm may be confronted with a difficult situation. The optimum working capital investment to be determined by decision on the level of capacity utilization. We have human and natural resources in abundance but our
  8. 8. capital resources are limited and arresting the pace of development, storage of funds for working capital has caused many business to fail and in many cases has restarted their growth. Working capital which is concerned with short term financial decision, have been relatively neglected in the literature of finance. From the banker’s point of view, it is working capital gap (total current assets minus total current liabilities excluding bank borrowing). This is actually needed by a borrower for working capital. It is the successful play with finance traders that generally decides the fortune of any business enterprise. c. OBJECTIVE OF THE STUDY:  To understand and analysis how far the theoretical issues of financial management have been practically used in the bank where the present study is made.  To ascertain the financial appraisal of working capital by using selected ratios.  To study the assessment of working capital involving computation of maximum permissible bank finance and sanctioning of credit limits.  To study the need for analyzing working capital management.  To suggest modification of existing system of working capital appraisal. SOURCE OF DATA: PRIMARY DATA The study is based on collection of primary as well as secondary data. There are several method of primary data collection 1. Interview Method 2. Public Method SECONDARY DATA Secondary data are those, which have already been collected by some one else which have been passed through statistical process, previous Bank Records,
  9. 9. Records and files etc. d. SCOPE OF STUDY: The present study is conducted keeping in view the working capital financing to ten selected companies in Hassan by Punjab National Bank. SAMPLING UNIT: Manager and employees of the PNB, Hassan. e. RESEARCH METHODOLOGY: Research design is a conceptual structure. In which research is conducted. It constitutes the blue print for the collection, measurement, analysis of data. The quality of the project work depends on the methodology adopted for the study. Research methodology is a way to systematically solving the research problems allotting procedures, steps of plans. It explains the various steps that are generally adopted by the researcher in studying the research problem along with logic behind them. In simple words, research methodology means the way in which we would complete our prospected task. f. LIMITATION OF THE STUDY: Because of heavy work, the external guide cannot spend more time for interaction. As time uses limiting factors a detailed study is not possible. The study is limited to the selected number of firm located in Hassan only. Since the bank is so wide so it was not possible for me to cover all the branches of PNB.
  10. 10. CHAPTER - 1 LITERARY OF REVIEW 1.1 WORKING CAPITAL MANAGEMENT: Capital required for a business can be classified under two main categories: Fixed capital Working capital Fixed capital: funds are required to every business for two purposes for its establishment and carry on its day to day operation. At time of long term funds are required to create production facilities through purchase of fixed assets such as plant and machinery, land, building, furniture, etc., funds invested are for permanent or fixed basis which are called “ Fixed capital”
  11. 11. Working capital: To carry out daily operation short term funds are required to take care purchase of raw materials, payment of wages, transportation expenses, etc, these funds are known as “Working capital”. INTRODUCTION OF WORKING CAPITAL: Working capital may also be regarded as lifeblood of business. In other words of “SHUBIN” working capital is the amount of funds necessary to cover the cost of operating the enterprise”. Working capital represents both current assets and liabilities. It is know as “Circulating capital”. The term circulate indicates the change or flow of current assets and liabilities, which are fluctuate not constant. Fig : 1.1 shows the working capital in circulating
  12. 12. 1.2 NEED OF WORKING CAPITAL: A study of working capital is of major importance to internal and external analysis because of its close relationship with the day- to- day operation of business. It has to obtain raw material, pay wages, transportation expenses, warehousing expensing, grant credits to its customers. The sale of goods will not immediately be converted into cash. It may have to pass through various stage to complete its operating cycles: In case of manufacturing firm: Conversion of cash into raw material Conversion of raw material into working progress Conversion of work in progress into finished goods Conversion of finished goods into debtors and bills receivable through sales Conversion of debtors and bills receivable into cash Fig 1.2 Show the operating cycle of manufacturing firm In case of trading firms:
  13. 13. Conversion of cash into inventories Conversion of inventories into account receivable Conversion of account receivable into cash Fig: 1.3 Shows the operating cycles of trading firm 1.3 TYPES OF WORKING CAPITAL: 1. PERMANENT WORKING CAPITAL: It means the minimum amount of investment in all current assets which is regarded at all time to carry on minimum level of business activities . The magnitude of current assets increases and decreases over a period of time due to increase in the level of activity. There is always a minimum level of current assets required at all time by the firm to carry on its business operation. Tandon committee named it as “Core current assets”. It has the following features:  It classified on the basis of time factors  It constantly changes from one assets to another  Its size increase with the growth of business operation  It changes from firm to firm
  14. 14. 2. TEMPORARY WORKING CAPITAL: It is also known as “fluctuating or variable working capital”. here the working capital keeps on changing depending upon the changes in production and sales. The extra working capital required to support the changes in production and sales is known as temporary working capital. 3. GROSS WORKING CAPITAL: It is also known as “guess working capital”. the amount of funds invested in the various components of current assets. 4. NET WORKING CAPITAL: The amount difference between current assets and current liabilities is called net working capital. The concept of net working capital enables a firm to determine the exact amount available for operational requirements. 5. NEGATIVE WORKING CAPITAL: When current liabilities exceeds current assets, negative working capital emerges. This happens when a firm is nearing crisis which might arise due to inefficiency of operative force. 6. CASH WORKING CAPITAL: It is one, which is calculated from the item appearing in the profit & loss a/c. it shows the real flow of money or value at a particular time is considered to the most reliable approach in working capital. The cash working capital indicates the adequacy of cash flow, which is an essential pre-requisite of business. 1.4 OBJECTIVE OF WORKING CAPITAL: The basic objective of working capital management is to manage the firm’s current assets and liabilities in such a way that the satisfactory level of working capital of business is maintained.
  15. 15. 1.5 DETERMINANTS OF WORKING CAPITAL: A large number of factors influence working capital needs of a firm. 1. Nature of industry:- The composition of current assets is a function of the size of a business and the industry to which it belongs. Small companies have smaller proportions of cash, receivables and inventory than large corporation. A public utility concerns mostly employ fixed assets in its operations, while a merchandising department depends generally on inventory and receivables. 2. Size of Business:- Size means not in length and width but, size means which is measured in term of a scale of operation. A firm with larger scale of operation will need more working capital than a small firm. 3. Manufacture cycle:- It means the manufacturing process. Depending upon the duration of manufacturing process the working capital is determined. Longer the manufacturing process, the higher will be the requirement of working capital and vice -versa. 4. Production policy:- The production policies pursued by the management have a significant effect on the requirement of working capital in the business, in case of labour intensive industries the working capital requirement will more but in case of highly automatic plant, the requirement of long term funds will be more and working capital will be less. 5. Volume of sales:- This is an important factors affecting the size and components of working capital. The volume of sales and the size of working capital are directly related to
  16. 16. each other. As the volume of sales increase, there is an increase in the investment of working capital or vice - versa. 6. Term of purchase & sales:- A concern that purchases its requirement on credit and sells its products/services on cash requires lesser amount of working capital. 7. Business Cycle:- Business expands during the period of prosperity and declines during the period of depression. Consequently more working capital is required during the period of depression. 8. Rate of Stock Turnover:- A firm having high rate of stock turnover will need lower amount of working capital as compared to a firm having a low rate turnover. 9. Seasonal Variation:- Generally during the busy season a firm required larger working capital, than in the slack season. 10. Earning capacity & dividend policy:- Firms having more earning capacity than others due to quality of their products, monopoly condition etc., and also firms which maintain a steady high rate of cash dividend in respective of its generation of profits need more working capital. 11. Price level changes:- The rising prices will acquire the firms to maintain larger amount of working capital as more funds will be required to maintain the same current assets. The effect of rising prices may be different firms. Some firms may be affected much while some others may not be affected at all by the rise in prices. 12. Operating efficiency:-
  17. 17. The operating efficiency of the firm relates to the optimum utilization of resources at minimum cost. The firms will efficiently contributing to its working capital is proved & pace of the cash cycle is accelerated with operating efficiency. Although it may not be possible for a firm to control the prices of material or the labour. It can certainly ensure efficient and effective use of its material, labour and other resources. 13. Taxes:- Prevalent rate of taxes of the country play a vital role if the rate of tax is low, then need of working capital is also low otherwise it will be more because a major chunk of the cash goes to the government in the form of tax. 14. Other Factors:- Certain other factors such as management ability, irregularities of supply, import facility, asset structure, importance of labour, banking facilities etc,. also influence the requirements of working capital. 1.6 SOURCES OF WORKING CAPITAL
  18. 18. 1.7 DANGERS OF INADEQUATE WORKING CAPITAL: • It stagnates growth. It becomes difficult for the firm to undertaking profitable projects due to non-availability of the working capital funds. • It becomes difficult to implement operating plans and achieve the firm’s profit target. • Operating inefficiencies creep in when it becomes difficult even to meet day to day commitments funds, thus the rate of return on investment slumps. • Paucity of working capital funds renders the firm unable to avail of attractive credit opportunities etc., • The firm losses its reputation when it is not in position to honour it’s short term obligations. As a result, the firm face tight credit terms. • Because of inadequacy of working capital, the firm might lose its orders and ultimately leads to insolvency. 3.8 DANGERS OF EXCESS WORKING CAPITAL: • It result in unnecessary accumulation of inventories. Thus, the chances of inventory mishandling, waste, and theft and losses increases. • It is an indication of defective credit policy and slack collection period. Consequently, higher incident of bad debts adversely affects profits. • Excessive working capital makes the management complacent, which degenerates into, managerial inefficiency. • Tendencies of accumulating inventory to make speculative profit grow. This may tend to make dividend policy liberal and difficult to cope with the future when the firm is unable to make speculative profits. • This leads to deceptive values of real assets of the company.
  19. 19. PNB FOR TRADERS CONSOLIDATD SCHEME FOR FINANCING TO TRADERS FOR FINANCING STOCK/RECEIVABLES /OTHER BLOCK ASSETS (RBD 21 dt O8.O4.09, 33/05,51/05,33 dt 18.06.09, SME 18 DT 12.10.09, SME 9 DT 03.07.09, SME 17 DT 25.09.09) OBJECTIVE:- To meet the working capital and term loan requirements of retail and wholesale traders, distributors/agencies, who deal in goods/commodities (indigenous or imported) and term loan for furnishing of the shop/showroom . Fair price shops and consumer cooperative stores, etc. shall also be covered under the scheme. SANCTION (SME 18 DT 12.10.09) :- Now, it has been decided that hence forth all application of trading advances
  20. 20. (including retail trade) as well as advances to doctors/gramin chiktsak will be processed/ sanctioned as in the case of other SME advances. (described in general guidelines on SME advances). CLASSIFICATION (SME 9 DT 03.07.09): Now the ministry of micro, small & medium enterprises has issued the clarification no 5(6)/2/2009-MSME. POL dated 12th June 2009 inter-alia clarifying that “Retail Trade” is a service enterprises under the definition of MSMED Act 2006. Therefore all retail trade advances as falling within the service enterprises definition, i.e., micro enterprises having investment in equipment up to Rs. 10Lakh, small enterprises having investment in equipment above Rs. 10 Lakh & up to Rs. 2 Crore and medium enterprises having investment in equipment above Rs.2 Crore & up to Rs.5 Crore are to be classified accordingly. This is one of the significant and major clarification. We are sure that branches will immediately take steps to correctly classify all retail trade advances under the respective categories, i.e., micro, small & medium and also make efforts to take advantage and further improve the lending. Besides retail trade, certain other activities are specifically clarified by the ministry to be included under the definition of service enterprises as per the act. CLARIFICATION: (SME/17 DT 25.09.09):- Collateral Security :- Vide our circular No.9/09 of 3rd july 2009 followed by letter dated 10th August 2009 addressed to circle heads, it was clarified that retail trade (as well as loans to education institutions/training institutes) though are part of MSME yet credit guarantee under CGTMSE scheme is not available. Therefore, it was advised that the collateral security norms to retail trade financing shall continue to be as per circulars mentioned under para I above. Classification: Advances to retail traders will be classified under different segments of MSME as per following criteria: Units having investment in equipment: I) Upto Rs 10 Lakh-- micro enterprises; ii) Above Rs 10 Lakh & upto Rs 2 Crore -- small enterprises; iii) Above Rs 2 Crores & up to Rs 5 Crore -- medium enterprises
  21. 21. * investment in equipment (original cost of land & building, furniture & fittings and other items not directly related to the service rendered or as may be notified under the MSME Act, 2006. Since report of SME advances viz., PNBREP 1/23 is being amended, it may not pick up retail trade advances. As such, we shall continue to obtain outstanding of retail trade separately though PNBREP 1/16c for monitoring outstanding vis-à-vis budgets under retail trade. Report 1/23 shall continue to be generated separately for monitoring MSME advances other than retail trade. (i) As advised above, advances under the scheme are not covered under credit guarantee scheme of CGTMSE till further instructions as the matter is still under consideration of guarantee trust. (ii) circles to ensure achievement of budgets allocated by RBD HO for advances to traders for the year 2009-10 which are over and above the budgets allocated by the SME Division for achievement under SME sector. While discontinuing the super trade scheme, the branches were advised to follow the following procedure in respect of existing loans sanctioned under super trade scheme, as conveyed vide RBD Advances circular No.21 AND 33 dated 8.04.2009 and 18.06.2009 respectively: (i) The existing term loan account under the super trade scheme may be allowed to continue under the scheme till adjustment (ii) The existing working capital advances to retail trade categories of traders be brought under the purview of modified and consolidated scheme for financing to traders within a period of six months; (iii) Similarly, existing working capital accounts under super trade scheme relating to service sector, professional and self employed category may be converted to normal scheme for financing working capital to such sectors within six months from 08.04.2009. We hope that this process has since been completed by the branches otherwise these loans would be treated under the category of commercial real estate and will attract higher slab of rate of interest as applicable to commercial real estate category. ELIGIBILITY:- (i) Traders, who are individuals, firms, HUFs, cooperative societies registered under any law relating to cooperative societies and companies etc. promoters/co-obligants must have existing satisfactory relationship of minimum/ at least six months with the bank.
  22. 22. (ii) Traders should comply with applicable statutory requirements, such as state/ central sales tax registration certificate, licence under shops & commercial establishment act, registration with excise department, etc. (iii) Advances against goods or any other item prohibited by RBI/GSWOT analysis is a tool for auditing an organization and its environment. It is the first stage of planning. And helps marketers to focus and key issue. Swot analysis it is an effective the organization potential by identifying strength, weakness and to examine the opportunities and threats which may affect the organization, carrying out an analysis using SWOT tool will be enough to reveal the changes which can be implemented easily and gain result G ovt. from time to time will not be covered under this scheme. (iv)Advances is to be considered for genuine trade transactions and not utilized for hoarding/ speculative purposes. Circle heads may consider advances under the scheme within their powers and give administrative clearance to the proposals vested within the power of the lower authorities permitting deviations with regard to existing satisfactory relationship of at least six months of the promoter/ co-obligants with the bank on merits of the case. While considering /permitting deviations, they shall have to personally satisfy themselves about the KYC issues, credit worthiness and past conduct of the party with the existing bank, if any.(RBDA33 dt 18.06.2009) PURPOSE:- i) Financing of stock in trade, book debts( not older than four months) and other assets to be used in the trade. ii) Acquiring of assets for furnishing of shop & show room like partition, fixture and furnishing etc, purchase of air-conditioners, other gadgets and delivery van required for running the business. NATURE & EXTENT OF LOAN: Working capital/term loan (fund based & non-fund based)-need based METHOD OF ASSESSMENT: i) For fund based working capital limits up to rs.200lac-as per NAYAK committee recommendations
  23. 23. ii) For fund based working capital limits above rs.200lac-on the basis of CMA data applicable for traders (maximum permissible bank finance system); iii) Term loan for acquiring of assets for furnishing of shop & show room like partition, fixture and furnishing etc, purchase of air- conditioners, other gadgets and delivery van required for running the business should be restricted to a maximum of Rs. 100 lac for metro and urban centre and Rs.25lac for SU and rural centre. However, advance be restricted up to 20% of the entitlement (as mentioned above ), in case the shop/show room is rented/leased. MARGIN: - 1) Term Loan --30% ; 2) Working capital limits:- a) Against stock : 30% - 40%, keeping in view nature of stock, price fluctuation, shelf life etc. higher margins may be fixed in cases where commodities financed are perishable or life span is short. Such higher margins may be decided by sanctioning authority on case-to-case basis. b) * Against Receivables: 40%. * To avoid double financing, DP against paid up stock and receivables be calculated after netting of receivables and creditors as advised in the guidelines. SECURITY: For working Capital Limit/ Term loan :- i) Primary security:- Legally enforceable charge by way of Hypothecation / Pledge/ Assignment, etc. on Stock/Book/Debts/Fixed assets/Block assets of the borrower; ii) collateral security:- Legally enforceable equitable/registered mortgage of IP/ pledge or creation of charge on liquid security having realizable/surrender value equal to the amount of loan/credit facilities; However, in case of loans/limits up to rs.5lac, advance should be collaterally secured by way of suitable third party guarantee and mortgage of IP may not be insisted upon.
  24. 24. In case the mortgage of IP is offered by third party, the mortgagor must be made guarantor in the account. The revised security norms, as stipulated above will be applicable, in case of fresh sanctions/enhancements. However, keeping in view the satisfactory conduct of the account, sanctioning authority may renew/review the limits with the existing collateral securities provided by way of mortgage of IP/liquid security/guarantee etc. Circle heads may permit relaxation in amount of collateral security by way of mortgage of IP liquid security to the extent of 50% of the loan/limit of the proposals vested within their powers within the powers of the lower authorities on merits of the case, where loan/limit is Rs.50 Lac & above, risk rating of the party is BB & above subject to slippage to NPA of the circle during the year 2008-2009 under trading advances not exceeding 1% of the O/S in this category as at the end of previous year (RBDA/33 dt18/06/09) CALCULATION OF DRAWING POWER IN CASE OF WORKING CAPITAL LIMITS: a) Sanctioning Authority may stipulate the periodicity of obtaining inventory/ stock statement on monthly/quarterly basis, depending on nature and merit of individual case. the quarters for this purpose will be May, August, November and February. Incumbents to ensure checking of inventory/stock statement, as per extant guidelines. Drawing power in the account will be worked out on the basis of inventory/stock statement, inclusive of debtors, (not more than 4 months old) of the preceding month/quarter. b) In case of borrower who are whole-sellers/distributors, circle head may permit DP against advance payment made by them to PSUs/Blue Chip companies (the companies which are financially sound and have good track record of earning ) pin private sector for procurement of goods. However, such drawings be restricted up to 50% of CC limits sanctioned or up to powers for sanction of unsecured advance, whichever is lower. Regarding netting of sundry debtors against sundry creditors for calculating Drawing power, following instructions may be followed: i) Borrowers to provide, as on the date of inventory, complete statement of stocks, sundry creditors for purchase of stocks and sundry debtors (receivables)
  25. 25. ii) The actual amount of sundry creditors may be netted against sundry debtors and the excess amount of sundry creditors, if any, may be deducted from the value of stocks to arrive at the value of security and the Drawing Power may be calculated after providing for the stipulated margin. Sundry debtors (receivables older than four months should not be considered for netting against sundry creditors. iii) Further, all the sundry debtors including those considered for netting against sundry creditors shall be got hypothecated to the bank. iv) The amount of sundry debtors, if any, after netting, may be considered for financing under post sales limit, such as DD,BD,ABC,CC, book debts, etc., as per terms of sanction. v) While netting the sundry debtors and sundry creditors, it should be ensured that there is no double financing from the financial system I.e. traders should not avail loan against unpaid stocks. The above facility in regard to netting of sundry debtors against sundry creditors to be provided only to those traders who are maintaining regular books of account which are subject to audit. REPAYMENT:- (i) working capital limit up to rs.5 Lac granted by way of term loan (WCTL) will be repayable in equal monthly/quarterly installments within a period of 3 to 5 years. Commencement of repayment be linked with generation of revenue by the business with in a maximum period of 3 months of 1st disbursement. (ii) The term loan for acquiring fixed assets will be repayable in equal monthly/quarterly installments within a period of 5 to 7 years including moratorium period of 3-6 months. (iii) working capital limits shall be sanctioned for a period of one year and shall be renewed / reviewed annually. RATE OF INTEREST: Existing concession in rate of interest, which was linked to availability of collateral security by way of mortgage of IP / liquid security in respect of advances up to Rs.2 Crore stands withdrawn. Rate of interest in such interest rate is linked to credit risk rating of the borrower.
  26. 26. i. up to Rs.2 lac BPLR (11.50%) ii. Above Rs.2 lac & up to Rs. 50 lac BPLR + 1.00% (12.50%) iii. Above Rs.50 lac BPLR + 1.00% (as per credit risk rating given below) AAA BPLR + 1.00% AA BPLR + 1.50% A BPLR + 2.00% BB BPLR + 2.50% C BPLR + 3.00% D BPLR + 3.00% B BPLR + 3.00% C BPLR + 3.00% D BPLR + 3.00% Further, term premia of 0.50% is to be charged for loans repayable in 3 years & above. Sanctioning authority may allow 0,50% rebate in rate of interest to the borrowers securing above 75 score under PNB score model, for advances above Rs.2 lac & up to Rs.50 lac Circle head are empowered to relax rate of interest by 100 basis points in cases, where applicable rate of interest has increased by 200 basis points or above due to charge in structure of levying rate of interest I.e. from availability of collateral security (earlier scheme) to credit risk rating of the party (modified scheme) up to limit of Rs. 200 lac on merit of the case subject to minimum of BPLR (RBDA/33 dt 18.06.09). Note :- 1) Rate of interest on existing advances under erstwhile super trade scheme for a period of three months will continue to be charged as advised vide RMD: L&A Cir. No. 17 dated 31.01.09 and subsequent circulars issued on the subject. Meanwhile, it is advised to get the credit risk rating of the party done based on their latest balance sheet for arriving at the applicable rate of interest after 6 months (RBDA/33 dt 18.06.09).
  27. 27. 2. Existing concession in rate of interest, which was linked to availability of collateral security by way of mortgage of IP/28id security in respect of advances up to Rs. 2 crores under erstwhile trading scheme (primarily stock based). Stands withdrawn. Hence, rate of interest in such cases will also be linked to credit risk rating of the borrower. Suitable changes in the respective interest codes be made immediately. LOANING POWERS:- Advances under the scheme will be considered at the Hub/CCPC (expect where relaxation has been accorded by RBD, HO in term of the loaning powers for working capital and term loan as delegated vide L&A Circular. No. 57 dated 28.04.08 and subsequent circulars issued on the subject. INSURANCE:- Stocks/Assets charged be got comprehensively insured with agreed bank clause at borrower’s cost and the policy to remain with the Bank. Circle head may relax/ waive the condition on merit of the case. CONFIDENTAL REPORTS:- Confidential reports on borrowers/ guarantors shall be prepared on bank’s prescribed forms before sanction/ renewal of limits. DOCUMENTATION: i) Loan documents as prescribed by the bank be obtained, depending upon nature of facility sanctioned and advised by the bank with regard to financing of stocks and debtors from time to time. ii) In case of financing by way of working capital term loan branches to obtain the working capital term loan agreement, in addition to the other relevant documents. iii) Guarantee deed- PNB 58H Iv) Necessary document for creation of equitable mortgage and tripartite agreement wherever required shall be obtained. v) Any other document as required under law/sanction MONITORING & FOLLOW UP : i) The existing system of preparation of Quarterly Review sheets and PMS
  28. 28. (wherever applicable) by the branches be followed. ii) Forms under quarterly monitoring system (QMS) as applicable for traders and merchant exporters, would be obtained and submitted to sanctioning authority in case of fund based/ NFB facilities in terms of the extant guidelines of the bank. iii) the stocks should be checked as per periodicity stipulated in sanction and in accordance with guidelines issued by HO from time to time regarding verification of stocks. GENERAL GUIDELINES 1. Branches while opening accounts under the scheme will capture the following code in Finance, working capital- CCOTH & term loan - TLERT, sub - sector code- 70010, purpose of advance- RETTD 2. Borrowers to deal with the bank exclusively. 3. Sanctioning authority to ensure that realistic sales projections are taken for assessment of the limit. 4. Advances will be classified under retail segment for the purpose of segment reporting under accounting standard- 17, up to the exposure as defined in L&A Cir. No. 100 dated 21.08.07 5. Working capital limits up to Rs. 5 lac can be granted by way of working capital term loan (WTCL) depending upon repaying capacity of the borrower. 6. Existing advances under super trade scheme will be brought under this scheme of advances to trades within a period of three months from the issuance of the above guidelines and drawings in the account be allowed on the basis of monthly / quarterly inventory report (stocks & receivables) after maintaining the required margin. In case, borrower does not comply with the guidelines of the scheme, his account will be categorized under commercial real estate advance and rate of interest will be levied accordingly as circulated by RMD, HO: from time to time. A communication to this effect be sent to the party and record thereof be maintained in the document file. 7. It is advised that risk rating of all advance under erstwhile super trade scheme should be got done based on their latest balance sheet for arriving at the application rate of interest after 3 months.
  29. 29. 8. Penal interest for non-compliance of term & conditions be charged as per extant guidelines of the bank. 9. Where interest is linked with value of collateral security by way of mortgage of IP/ liquid security, applicable interest rate code linked with credit risk rating of the borrower be captured immediately in the CBS system. 10. Extant guidelines of PNB score model issued by RMD,HO: on the subject are to be strictly complied with. 11. Guidelines for advance against commodities covered under selective credit control of reserve bank of India advised from time to time should strictly be adhered to. 12. Other instructions issued by the bank on the subject be adhered to including the following: i) Guidelines of pre sanction and post sanction follow up circulated vide L&A cir. No. 58 dated 01.06.06 and subsequent circulars issued on the subject are to be complied with. ii) Guidelines for financing debtors issues vide L&A circular 55 dated 10.05.07 and subsequent circular issued on the subject are to be complied with. iii) Guidelines for financing to HUFs including L&A Cir. 11 dated 05.02.07 and subsequent circular issued on the subject are strictly complied with. Iv) Guidelines for advance against stocks issued by L&A circulars 84 dated 12.06.04 and subsequent circular on the subject are strictly complied with. Status of Existing Accounts under PNB Super Trade Scheme:- 1. Fresh advances under Super Trade Scheme of the bank were kept in abeyance vide RBD: ADV: Cir No. 18/08 dated 10.04.08. it has now been decided to discount the scheme. Existing advances under super trade scheme shall no be brought under the purview of the modified scheme within a period of three months, falling which such advances will be categorized under commercial real estate. A communication to this effect be sent to the concerned borrowers and record thereof be maintained in document file. 2. Existing working capital accounts under super trade scheme relating to services sector, professionals & self-employment category may be converted to normal scheme for financing working capital finance to such sectors within six
  30. 30. months w.e.f. 08.04.09. 3. Exiting term loan accounts under super trade scheme may be allowed to continue under the same scheme till adjustment of these accounts. Further, it has been decided to extend the period for conversion of account of erstwhile super trade scheme to the consolidated scheme for financing to traders from the existing three months to six months. (Term loan for purchase/ construction of shop/ show-room or purchase of plot & construction as circulated vide L&A circular No. 33/05 dated 04.04.2005 and L&A Circular No. 51/05 dated 30.04.2005 is kept in abeyance for the time being. No fresh advance under the scheme be considered till further instructions) TERM LOAN FOR PURCHASE OF SHOP/ SHOWROOM (LA 33 dt 4/4/05) Term loan may be allowed to traders for purchase of shop/showroom subject to following terms and conditions: Amount: Rs.100 lacs. Loan for furnishing of show room be also allowed upto 20% of cost of shop/showroom. Margin: Minimum 25% circle head may reduce it upto 15% on selective basis. Security: (i) Equitable/registered mortgage of shop/showroom. In case where mortgage can not be created immediately tripartite agreement (be got drafted from local council/law officer of RO/ZO) among bank, borrower and vendor be obtained. OR collateral
  31. 31. security of another property valuing at least 100% of loan amount. (ii) Suitable guarantee. Circle head may waive obtaining of guarantee on merits. Rate of interest: as per interest rate chart on retail lending schemes annexed. In case the borrower does not start trading business within 6 months of purchase of shop/possession, whichever is earlier, penal interest at 2% above the applicable rate of interest from the date of disbursement of loan is to be charged. Repayment: 3-10 years including moratorium of 6-12 months. However, interest may be recovered of monthly basis during the moratorium period. Misc Guidelines: (i) in case loan is given only for purchase of shop/showroom sanctioning authority may waive stipulation of exclusive dealing with the bank if advance cheques towards repayment of loan instalment are obtained. (ii) proposal appraisal including comfortable DSCR etc shall be ensured. Documentation: term loan agreement - Annexed with the circular, guarantee deed -58 H, necessary documents for creation of mortgages & tripartite agreement wherever required be obtained. All other guidelines for financing of traders shall remain unchanged. TERM LOAN FOR PURCHASE OF LAND/PLOT AND CONSTRUCTION THEREON (LA 51 dt 30/4/05): Term loan for purchase of land/plot and construction thereon may be allowed under the above scheme subject to following additional terms and conditions: Margin: 40%, circle head may reduce it up to 25% on selective basis. Penal interest: in case the borrower does not start construction within six months from the purchase of plot and does start business within 12 months from the purchase of plot, penal interest at 2% above the applicable rate of interest from the date of disbursement of loan is to be charged. Other term & condition of the scheme I.e. extent of loan, rate of interest, security, loaning powers, etc. shall remain unchanged. ADMINISTRATIVE CLEARANCE FOR FINANCE TO JEWELERS:- (RBDA/50 dt 18.10.08);- In view of increasing incidence of
  32. 32. impairment in the accounts of jewellers dealing in trading of gold, gem and jewellery, it has been decided that administrative clearance from the respective circle head will be obtained before sanction of fresh advance to such jewellers by the concerned sanctioning authority within his/her discretionary powers, under the captioned scheme. Proposals for such advance within the powers of circle head will, however, be dealt with at his/her level independently, without clearance from any authority. Further, it has been decided that the sanctioning authority/ hub In charge must verify the mortgage document carefully before sanction of advance CHAPTER -2 COMPANY PROFILE
  33. 33. INTRODUCTION The banking section will navigate through all the aspects of the Banking System in India. It will discuss upon the matters with the birth of the banking concept in the country to new players adding their names in the industry in coming few years. The banker of all banks, Reserve Bank of india (RBI), Indian Banks Association (IBA) and top 20 banks like IDBI, HSBC, ICICI, ABN AMRO, etc. 2.1 Industry scenario Punjab National Bank(PNB) was registered on May 19, 1894 under the Indian Companies Act with its office in Anarkali Bazaar Lahore. The Bank is the second largest government-owned commercial bank in India with about 4,500 branches across 764 cities. It serves over 37 million customers. The bank has been ranked
  34. 34. 248th biggest bank in the world by Bankers Almanac, London. The bank's total assets for financial year 2007 were about US$60 billion PNB has a banking subsidiary in the UK, as well as branches in Hong Kong and Kabul, and representative offices in Almaty, Dubai, Oslo, and Shanghai. o 1895: PNB commenced its operations in Lahore. PNB has the distinction of being the first Indian bank to have been started solely with Indian capital that has survived to the present. (The first entirely Indian bank, the Oudh Commercial Bank, was established in 1881 in Faizabad, but failed in 1958.) PNB's founders included several leaders of the Swadeshi movement such as Dyal Singh Majithia and Lala HarKishen Lal, Lala Lalchand, Shri Kali Prosanna Roy, Shri E.C. Jessawala, Shri Prabhu Dayal, Bakshi Jaishi Ram, and Lala Dholan Dass. Lala Lajpat Rai was actively associated with the management of the Bank in its early years. o 1904: PNB established branches in Karachi and Peshawar. o 1940: PNB absorbed Bhagwan Dass Bank, a scheduled bank located in Delhi circle. o 1947: Partition of India and Pakistan at Independence. PNB lost its premises in Lahore, but continued to operate in Pakistan. o 1951: PNB acquired the 39 branches of Bharat Bank (est. 1942); Bharat Bank became Bharat Nidhi Ltd. o 1961: PNB acquired Universal Bank of India. o 1963: The Government of Burma nationalized PNB's branch in Rangoon (Yangon). o September 1965: After the Indo-Pak war the government of Pakistan seized all the offices in Pakistan of Indian banks, including PNB's headoffice, which may have moved to Karachi. PNB also had one or more branches in East Pakistan (Bangladesh).
  35. 35. o 1960s: PNB amalgamated Indo Commercial Bank (est. 1933) in a rescue. o 1969: The Government of India (GOI) nationalized PNB and 13 other major commercial banks, on July 19, 1969. o 1976 or 1978: PNB opened a branch in London. o 1986 The Reserve Bank of India required PNB to transfer its London branch to State Bank of India after the branch was involved in a fraud scandal. o 1986: PNB acquired Hindustan Commercial Bank (est. 1943) in a rescue. The acquisition added Hindustan's 142 branches to PNB's network. o 1993: PNB acquired New Bank of India, which the GOI had nationalized in 1980. o 1998: PNB set up a representative office in Almaty, Kazakhstan. o 2003: PNB took over Nedungadi Bank, the oldest private sector bank in Kerala. At the time of the merger with PNB, Nedungadi Bank's shares had zero value, with the result that its shareholders received no payment for their shares. o PNB also opened a representative office in London. o 2004: PNB established a branch in Kabul, Afghanistan. o PNB also opened a representative office in Shanghai. o PNB established an alliance with Everest Bank in Nepal that permits migrants to transfer funds easily between India and Everest Bank's 12 branches in Nepal. o 2005: PNB opened a representative office in Dubai.
  36. 36. o 2007: PNB established PNBIL - Punjab National Bank (International) - in the UK, with two offices, one in London, and one in South Hall. Since then it has opened a third branch in Leicester, and is planning a fourth in Birmingham. o 2008: PNB opened a branch in Hong Kong. o 2009: PNB opened a representative office in Oslo, Norway, and a second branch in Hong Kong, this in Kowloon. o 2010: PNB received permission to upgrade its representative office in the Dubai International Financial Centre to a branch. 2.2 COMPANY PROFILE: Established in 1895 in Lahore, Punjab National Bank is one of the oldest banks in India having a virtual presence in every important center of the country. The bank has over 35 million customers through 4540 offices including 421 extension counters, out of which 2/3 of its branches in rural and semi rural areas-the largest among nationalized banks, which makes it enjoy one of the highest penetration rate of banking activities in the country. Punjab National Bank caters to a wide variety of audience through spectrum of services including corporate and personal banking, industrial finance, agricultural
  37. 37. finance and international finance. Sitting on a vast banking resources and significant presence in almost every lending sphere, the bank has a capital adequacy ratio (CAR), well above the Basel-2 regulatory requirement, at 12.96% as on June 2008, despite being exposed to numerous market and credit risk elements. Constantly strengthening the capital adequacy ratio through internal accruals and a regular increase in Tier 1 capital has put the bank on a very comfortable and formidable position. Punjab National Bank has a net interest margin (NIM) higher than the industry average due to a mix of improving yields and low cost funding base and has one of the healthiest low cost current account saving account (CASA) ratio of 41.31%. It also enjoys the highest rating by all four domestic rating agencies and one of the few banks to boast a AAA rating on its perpetual debt issue. The bank has ambitious plans of major technological up-gradation to establish capability of having 100,000 terminals under the Core Banking Solutions (CBS) with a greater thrust on increasing international footprints. The bank has successfully migrated to the Basel 2 accord in February this year. With over 38 million satisfied customers and 4668 offices, PNB has continued to retain its leadership position among the nationalized banks. The bank enjoys strong fundamentals, large franchise value and good brand image. Besides being ranked as one of India's top service brands, PNB has remained fully committed to its guiding principles of sound and prudent banking. Apart from offering banking products, the bank has also entered the credit card & debit card business; bullion business; life and non-life insurance business; Gold coin & assets management business etc., Since its humble beginning in 1895 with the distinction of being the first Indian bank to have been started with Indian capital, PNB has achieved significant growth in business which at the end of March 2009 amounted to Rs 3,64,463 crore. Today, with assets of more than Rs 2,46,900 crore, PNB is ranked as the 3rd largest bank in the country (after SBI and ICICI Bank) and has the 2nd largest network of branches (4668 including 238 extension counters and 3 overseas offices).During the FY 2008-09, with 39% share of low cost deposits, the bank achieved a net profit of Rs 3,091 crore, maintaining its number ONE position amongst nationalized banks. Bank has a strong capital base with capital adequacy ratio as per Basel II at 14.03% with Tier I and Tier II capital ratio at 8.98% and 5.05% respectively as on March’09. As on March’09, the Bank has
  38. 38. the Gross and Net NPA ratio of only 1.77% and 0.17% respectively. During the FY 2008-09, its’ ratio of priority sector credit to adjusted net bank credit at 41.53% & agriculture credit to adjusted net bank credit at 19.72% was also higher than the respective national goals of 40% & 18%. PNB has always looked at technology as a key facilitator to provide better customer service and ensured that its ‘IT strategy’ follows the ‘Business strategy’ so as to arrive at “Best Fit”. The bank has made rapid strides in this direction. Along with the achievement of 100% branch computerization, one of the major achievements of the Bank is covering all the branches of the Bank under Core Banking Solution (CBS), thus covering 100% of it’s business and providing ‘Anytime Anywhere’ banking facility to all customers including customers of more than 2000 rural branches. The bank has also been offering Internet banking services to the customers of CBS branches like booking of tickets, payment of bills of utilities, purchase of airline tickets etc. Towards developing a cost effective alternative channels of delivery, the bank with more than 2150 ATMs has the largest ATM network amongst Nationalised Banks. With the help of advanced technology, the Bank has been a frontrunner in the industry so far as the initiatives for Financial Inclusion is concerned. With it’s policy of inclusive growth in the Indo-Gangetic belt, the Bank’s mission is “Banking for Unbanked”. The Bank has launched a drive for biometric smart card based technology enabled Financial Inclusion with the help of Business Correspondents/Business Facilitators (BC/BF) so as to reach out to the last mile customer. The BC/BF will address the outreach issue while technology will provide cost effective and transparent services. The Bank has started several innovative initiatives for marginal groups like rickshaw pullers, vegetable vendors, diary farmers, construction workers, etc. The Bank has already achieved 100% financial inclusion in 21,408 villages. Backed by strong domestic performance, the bank is planning to realize its global aspirations. In order to increase its international presence, the Bank continues its selective foray in international markets with presence in Hongkong, Dubai, Kazakhstan, UK, Shanghai, Singapore, Kabul and Norway. A second branch in Hongkong at Kowloon was opened in the first week of April’09. Bank is also in the process of establishing its presence in China, Bhutan, DIFC Dubai, Canada and Singapore. The bank also has a joint venture with Everest Bank Ltd. (EBL), Nepal. Under the long term vision, Bank proposes to start its operation in Fiji Island,
  39. 39. Australia Amongst Top 1000 Banks in the World, ‘The Banker’ listed PNB at 250th place. Further, PNB is at the 1166th position among 48 Indian firms making it to a list of the world’s biggest companies compiled by the US magazine ‘Forbes’. Financial Performance Punjab National Bank continues to maintain its frontline position in the Indian banking industry. In particular, the bank has retained its NUMBER ONE position among the nationalized banks in terms of number of branches, Deposit, Advances, total Business, operating and net profit in the year 2008-09. The impressive operational and financial performance has been brought about by Bank’s focus on customer based business with thrust on SME, Agriculture, more inclusive approach to banking; better asset liability management; improved margin management, thrust on recovery and increased efficiency in core operations of the Bank. The performance highlights of the bank in terms of business and profit are shown below: Parameters Mar'07 Mar'08 Mar'09 CAGR Operating Profit* 3617 4006 5744 26.02 Net Profit* 1540 2049 3091 41.67 Deposit 139860 166457 209760 22.47 Advance 96597 119502 154703 26.55 Total Business 236456 285959 364463 24.15 Outlook: Punjab National Bank has always stood with the time even in the most dire of circumstances. The bank is facing stiff challenges from its private sector counterparts. According to the RBI data, the banking business composition breakup between private sector banks and nationalized banks stood at 4% and 60% respectively, But the equation has taken a paradigm shift in favor of private sector banks owing to phased liberalizations of the BFSI sector, the composition stood at 21% as against nationalized banks share with reduced 49% in 2007. In a macro-prudential analysis of the Indian economy, it seems as the Indian banking industry has come a long way and entered in its ever challenging growth
  40. 40. phase in a very prominent time as more than 49% of population financially excluded offers immense opportunity to the bank. Pursuing its financial inclusion, Punjab National Bank has opened more than 7.86 lakh No frills Accounts and intends to cover 30,000 villages, 75 million people by 2010 through Biometric Technology apart from comprehensive scheme launched for covering finance and insurance (health and life) for rickshaw pullers, project for empowering women weavers, vegetables vendors, etc. The core focus of the bank will be on retaining and further improving low cost deposits, lending to agriculture and small and medium enterprises and repositioning of subsidiaries and joint ventures. At the time of global financial turmoil, where the banks all over the world are creeping under tremendous pressure, Punjab National Bank has managed to insulate itself away from fatal transactions and has strictly adhered to the RBI guidelines. 2.3 PRODUCT AND SERVICE: Savings Fund Account - Total Freedom Salary Account, PNB Prudent Sweep, PNB Vidyarthi SF Account, PNB Mitra SF Account Current Account - PNB Vaibhav, PNB Gaurav, PNB Smart Roamer Fixed Deposit Schemes - Spectrum Fixed Deposit Scheme, Anupam Account, Mahabachat Schemes, Multi Benefit Deposit Scheme Credit Schemes - Flexible Housing Loan, Car Finanace, Personal Loan, Credit Cards Social Banking - Mahila Udyam Nidhi Scheme, Krishi Card, PNB Farmers Welfare
  41. 41. Trust Corporate Banking - Gold Card scheme for exporters, EXIM finance Business Sector – PNB Karigar credit card, PNB Kushal Udhami, PNB Pragati Udhami. PNB Vikas Udhami Apart from these , the PNB also offers locker facilities, senior citizens schemes, PPF schemes and various E- services Industrial finance Agricultural finance Financing of trade International banking Personal banking Home loan Auto loan ATM/ Debit card Deposit interest rate Credit interest rate Other services: Locker facilities, senior citizen schemes, merchant banking, electronic fund transfer & clearing services, etc. 2.4 VISION AND MISSION :- Vision:- To evolve and position the bank as a world class, progressive, cost effective and customer friendly institution providing comprehensive financial and related services. Integrating frontiers of technology and serving various segments of society especially weaker section. Committed to excellence in serving the public and also excelling in corporate values. Mission:- To provide excellent professional services and improve its position as a leader in financial and related services.
  42. 42. Build and maintain a team of motivated workforce with high work ethos. Use latest technology aimed at customer satisfaction and act as an effective catalyst for socio economic development. 2.5 VALUES AND ETHICS:- Bonding and Integrity Ethical conduct Periodic disclosure Confidentiality and fair dealing Compliance with rules and regulations 2.6 AWARDS:- Awards & Achievements of Punjab National Bank in Recent Times "Best IT Team of tYear At the IDRBT Banking Technology awards for the year Award" 2005-06.
  43. 43. SKOTCH Challenger for Change Management for the year 2005-06 Award Best IT User in Banking & Financial Services by NASSCOM in partnership with Economic Times Industry - 2004 for Excellence in Corporate Governance – 2005 by Golden Peacock Award Institute of Directors FICCI's Rural for Excellence in Rural Development - 2005 Development Award Skotch Challenger Award for Exemplary for becoming a pioneer in Public Banks - 2005 use of Technology Golden Peacock National Training - 2004 by Institute of Directors & 2005 National Award for Ranked 2nd for 4 consecutive years - 2002, 2003, 2004 Excellence in SSI & 2005 Lending Banking Technology Awards 2004 Runner up in 'Best IT Jointly Adjudged by IBA, Finacle & TFCI Team of the Year Award 2005' Money Outlook Award - 2004 Runner up in 'Best Bank (public Sector) of the year Award' -2005 for excellence in export perforamnce for 3 consecutive Niryat Bandhu Gold years 2001, 2002 & 2003 Trophy by Federation of Indian Exporters Organization (FIEO) 21st Amongst Top 500 by the leading Financial Daily The Economic Times, Companies June 2005 9th amongst India's Top 50 Most Trusted Service A.C Nielson Survey, The Economic Times Dec 2004 Brands 3rd Rank amongst Banking Sector in India The Bankers' Almanac, January 2006 323rd Rank in the World 368 amongst Top 1000 The Banker, London July 2005 Global Banks Skoch Challenger Award Winner for becoming a pioneer in public banks by for Exemplary Use of Skoch consultancy services pvt ltd, Gurgaon 2005 Technolgy
  44. 44. FICCI's Rural Award for excellence in rural development 2005 Development Award Amity Business School, Noida has conferred the Award to PNB, after an in-depth research to analyse the strengths and core competencies of the Global 500 Amity Global Corporate companies and banks which have already made an Excellence Award indelible most admired impression on the Indian economy. 2008 & 2007 & 2005 Banking Technology IBA, Finacle & TFCI jointly adjudged PNB as runner up Awards in "Best IT Team of the year Award" 2005 PC Quest Users’ Choice Best IT Implementation 2007 Award & 2005 Symantec Visionary Information Security Impact 2005 Award Money Outlok adjudged PNB as runner up in "Best Money Outlook Award Bank (Public Sector) of the year Award" 2005 Banking Technology IBA, Finacle & TFCI runner up Award for Outstanding Awards Achiever of the Year (Individual). 2005 Golden Peacock Innovative Product/Service Award 2010 (for BCP implementation) Golden Peacock Award Winner in the ‘Large Joint Entry’.2009 & for Excellence in 2007 & 2005 Corporate Governance Skoch Challenger Award For upliftment of Weaker sections of society 2006 for Change Management IDRBT Banking Best IT Team of the Year Award 2006 Technology Awards National Award For First Prize by By Ministry of Small Scale Excellence in lending to Industries.2006 Tiny sector Skoch Challenger Award for capacity building for Skoch Consultancy Services Pvt Ltd 2007 FTC initiative Computer Associates Excellence in EMS Roll Out. 2007 Excellence Award For Best IT Implementation by IDG Media Pvt. CIO 100 Award Ltd.2007, 2008 & 2009 National Award for Excellence in Lending to For Lending to Micro enterprises 2007 Micro Enterprises Award for the use of Institute for Development and Research in Banking Technology for Financial Technology (IDRBT), Hyderabad. 2008
  45. 45. Inclusion. Dun & Bradstreet Award for “Priority Sector Dun & Bradstreet 2009 Lending including Financial Inclusion”. National Award for Excellence in Lending Khadi & Village Industry Commission, Ministry of for Institutional Finance Micro, Small & Medium Enterprises, Govt. of India in Propagating KVI (Interest Subsidy Eligibility Certificate Scheme) Programmes in NORTH 2009 ZONE National Award for Excellence in Lending Khadi & Village IndustryCommission, Ministry of for Institutional Finance Micro, Small & Medium Enterprises, Govt. of India in Propagating KVI (Interest Subsidy Eligibility Certificate Scheme) Programmes in 2009 CENTRAL ZONE National Award for Excellence in Lending Khadi & Village IndustryCommission, Ministry of for Institutional Finance Micro, Small & Medium Enterprises, Govt. of India in Propagating KVI (Interest Subsidy Eligibility Certificate Scheme) 2009 Programmes in NATIONAL LEVEL National Award for Excellence in Lending Khadi & Village IndustryCommission, Ministry of for Institutional Finance Micro, Small & Medium Enterprises, Govt. of India for Propagating KVI (Prime Minister Employment Generation Programme) Programmes in 2009 NORTH ZONE National Award for Excellence in Lending Khadi & Village IndustryCommission, Ministry of for Institutional Finance Micro, Small & Medium Enterprises, Govt. of India for Propagating KVI (Prime Minister Employment Generation Programme) Programmes in 2009 CENTRAL ZONE India Pride Award by dainik Bhaskar and Daily Excellence in PSU 2009 News analysis Indira Gandhi Rajbhasha Promoting Hindi 2009 Shield Emerson Uptime 2009 Champion Awards “Best InfoSphere 2009 (for implementation of Enterprise Wide Data Warehouse Solution” Warehouse) Award by IBM
  46. 46. ORGANISATION STRUCTURE
  47. 47. HIERARCHY
  48. 48. 2.7 SWOT ANALYSIS:- SWOT analysis is a tool for auditing an organization and its environment. It is the
  49. 49. first stage of planning. And helps marketers to focus and key issue. Swot analysis it is an effective the organization potential by identifying strength, weakness and to examine the opportunities and threats which may affect the organization, carrying out an analysis using SWOT tool will be enough to reveal the changes which can be implemented easily and gain result Govt. from time to time will not be covered under this scheme. STRENGTHS  Wide network.  Large number of customers.  Fast adaptability to technology.  Brand recognition.  Excellent training. WEAKNESS  Casual behavior.  High gross NPA.  Corruption and red tapism.  Slow decision making due to large hierarchy. OPPORTUNITIES  Fast growing Indian economy.  High growth in banking sector.  Liberal markets.  Micro financing.  Home to home banking service.  Diversification towards other fields.  Globalization.  Decentralized decision making.  Awards & incentives. THREATS  Large number of market players.  Provide better services.  Building a long term customer.  Fast decision making.  Competitive edge.  Changing culture.
  50. 50. CHAPTER - 3 DATA ANALYSIS & INTERPRETATION PROVISIONAL BALANCE SHEET AS AT 31st MARCH 2010
  51. 51. LIABILITIES 31-3-2009 31-3-2010 Rs. Ps. Rs. Ps. a. DEPOSITS 1) Demand Deposits a. current account from others (firms institutions etc) 10262766.19 6807796.77 b. current account from banks 0.00 0.00 c. cash credit (credit balance) 1928373.37 915828.81 d. call deposits on demand from public 0.00 0.00 e. inoperative accounts 10years and above 222253.05 279405.05 f. inoperative accounts –others 3280845.13 2957608.77 Sub Total 1 (a) (a to f) 15694246.74 10960639.40 (b) Refund payable accounts 0.00 0.00 (c) Saving fund accounts 74590628.15 76050297.02 (d) Term deposits 0.00 0.00 a. MBFD/Sugam/Anupam from others 4194499.00 2080611.00 b. Special fixed deposits from others 576255.00 234010.00 c. Other fixed deposits from others 3876582.00 4579494.00 d. Spectrum – Fixed Deposits 94231542.00 105933640.00 e. Fixed deposits from banks 0.00 0.00 f. Mini deposits 0.00 0.00 g. Cash certificate 0.00 0.00 h. DRI Deposits 0.00 0.00 i. Recurring Deposits 207331030.00 2813341.00 Sub Total 1 (d) ( I to ix) 104952208.00 115641096.00 b. BORROWING 1) In india-from banks a. Reserve bank of india 75573.40 0.00 b. Other bank (overdrafts) c. Call/short term money 2) Other institutions and agencies Sub total 1(a to c) 75573.40 0.00 3, BILL PAYABLE a) Cash order 299587.30 485352.10 b) Draft payment 0.00 0.00 c) Gift cheque payment 1817.00 1817.00 d) Rupees travellers cheque payment 0.00 0.00 Sub total 3(a to d) 301404.30 487169.10 4. INTER BRANCH BALANCE a) Balance due to H.O b) Balance due to other officer (imprest)
  52. 52. c) Intersol account 5. INTEREST ACCURED ON DEPOSITS/ BORROWINGS 193070.00 192670.00 a) Saving fund -3.00 b) MBFD/ Sugam /Anupam/Spectum 39155.30 41582.50 c) Other term deposits d) Borrowings 232225.30 234249.50 Sub total 5 (a to d) 6. OTHER LIABILITIES a) Sundries 0.00 9000.00 7000.00 b) Provision for expenses-paid through suspense 24289.00 c) Provision for expenses-payable to others 58760.00 -1.00 d) Tax deducted at sources by bank but not deposited e) Other items 65760.00 33288.00 Sub total 6 (a to e) 10742.00 - B) other a. Suspended interest b. Sundry provision NPA - - 7. ACCEPTANCES,ENDORSEMENT AND OTHER - - OBLIGATION (A) Inland letter of credit Outward (parties & other banks) (B) foreign letter of credit - - (i) import credits (ii) export credits (C) Guarantees on behalf of constituents 171000.00 469700.00 a. In india b. Out side India c. Stock invest 247502.00 502988.00 8. BILLS FOR COLLECTION BEING BILLS RECEIVED (A) Payable in india 99602.00 557900.00
  53. 53. a. Received from parties b. Received from branches (B) payable out side india 9. OTHER CONTRAITEMS 99602.00 557900.00 196193389.89 222006839.38 GRAND TOTAL (Item 1 to 9)
  54. 54. PROVISION AL BALANCE SHEET AS AT 31st MARCH 2010 PROPERTY & ASSETS 31-3-2009 31-3-2010 Rs. Ps. Rs. Ps. 1. CASH IN HAND Cash in hand in India 1658517.67 676263.00 Foreign currency notes (converted in to rupees) Balance with RBI in current account Sub total 1 (a to c) 1658517.67 676263.00 2. BALANCE WITH SBI AND OTHER BANKS In current account 3857556.43 239743.37 In India Outside India In deposit account In India Outside India Sub total 2 (a to b) 3857556.43 239743.37 3. MONEY AT (ALL AND SHORT NOTICE) In India - - With banks With financial institution - - Outside India 4. ADVANCES (A) Advances (other than protested) Bills purchased & discounted Payable in India 24920.00 - Payable outside India Cash credit, overdrafts & loans repayable on demand 31135531.57 37706742.08 Term loan 74672136.28 77154551.32 Sub total 4 (a to e) 105832588.28 114861293.40 (B) Protested advances 730741.30 683376.30 5. PREMISES (After depreciation) 6. OTHER FIXED ASSETS (After depreciation) Safe, furniture & fixture 333369.00 527047.12 Motor car ,cycle & other vehicles Software capitalised 7.OTHER ASSETS: Interest accrued & outstanding on advances 293099.00 347066.00 Interest accrued on deposits with other banks Stationery in hand Stamps in hand 8.REFUND PAID ACCOUNT 9.SUSPENSES ACCOUNT
  55. 55. Advance payment made but recoverable/ adjustment 23919.00 30842.00 10.INTER BRANCH BALANCE Balance with head office 23390898.08 23462009.08 Intersol account 60065799.13 65118888.94 Sub total 10 (a to b) 83456697,21 88580898.02 11.NON BANKING ASSETS Acquired in satisfaction of claims 12.ACCEPTANCE, ENDORSEMENT & OTHER 171000.00 469700.00 OBLIGATIONS 13.BILLS RECEIVABLE Being for bills for collection 99602.00 557900.00 14. OTHER CONTRAITEMS - - 15. EXPENDITURE - 15032710.17 GRAND TOTAL (item 1 to 14) 196193389.89 222006839.38 PROVISIONAL PROFIT AND LOSS ACCOUNT FOR THE YEAR
  56. 56. ENDED 31st MARCH 2010
  57. 57. EXPENDITURE 31-3-2009 31-3-2010 Rs. Ps. Rs. Ps. 1, Interest paid on deposits (i) Fixed deposits 7505704.10 8635177.20 (ii) Saving fund 2342981.00 2236774.00 (iii) Inter – bank deposits 4000.00 (iv) Recurring deposits 134351.00 210829.00 Sub Total 1(I to iv) 9987036.10 11082780.20 2. interest paid on borrowing (i) bank overdraft & discount paid on TT’s 21143.00 21263.49 3.interest paid on others - - 4. payment to and provision for employees a. Basic pay 1657429.32 1549227.97 b. Special allowance 75594.76 75241.77 c. Dearness allowance 741870.48 952224.95 d. Other allowance 141243.08 129341.55 e. Overtime 9929.70 0.00 f. City compensatory allowance 0.00 278.71 g. Employer’s contribution to PF 136115.81 120750.16 h. House rent allowance 101787.13 73519.80 i. Medical aid 27309.00 69732.00 j. Leave fare concession 20649.00 8782.07 k. Leave encashment 68979.79 17149.36 l. Conveyance allowance 9179.63 8146.82 m. Uniform 1634.40 0.00 n. Rent paid for residential premises 30555.00 48764.54 o. Bank’s contribution to pension fund 50294.85 53906.87 Sub total 4 (a to o) 3093714.95 3127772.64 5. rent ,taxes & lighting a) Rent paid for office premises 115396.00 115396.00 b) Water lighting & electrical charges 44892.66 63209.99 c) Miscellaneous taxes 30678.00 15.00 Sub total 5 (a to c) 190966.66 178620.99 6. stationery used 139.00 535.00 (i) stationery locally purchased/printed 43493.00 26504.00 Sub total 6 (I to ii) 43632.00 27039.00 7.depreciation on (i) S.F.F 73472.00 94314.00 8.Law charges 8864.00 0.00 9.Postage, Telegrams, Telephones etc a. Postage 9533.00 7643.00 b. Telegrams 60.00 0.00 c. Telephones 45435.20 102058.00 Sub total 9 (a to c) 55028.20 94415.00 10. Repairs maintenance (including AMC) S.F.F 27380.00 51309.00 11. Insurance of any kind at banks cost Others 900.00 240.00 12. Other expenditure a. Repair/renovation to rented premises 40.00 10384.00 b. Subscription to news paper & periodicals 11656.00 10990.00
  58. 58. PROVISIONAL PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31st MARCH 2010 INCOME 31-3-2009 31-3-2010 Rs. Ps. Rs. Ps. 1.Interest earned a. Cash credit 1223157.73 1175001.00 b. Demand loan 682454.00 742654.00 c. Overdraft 1245754.00 1223092.00 d. Term loan 7653633.15 6886469.50 e. Miscellaneous interest 3306.00 1329.00 f. Hundian 57496.00 29441.00 Sub total 1 (a to f) 10865800.88 10057986.50 2. commission exchange & brokerage a. Collection charge on outward instruments/ bills 60716.49 33102.50 b. IDBC&IUBC 56182.00 38964.00 c. Issue/ cancellation of drafts/ transfers 211300.02 152892.10 d. Inland letters of guarantee 2918.00 5044.00 e. Incidental charges (on deposit accounts) 154440.66 242345.36 f. Services charges/processing fee/documentation 146496.00 charges 141470.00 g. Inland documentary credits 0.00 259.00 h. All others 0.00 16599.00 i. ECGC insurance agency commission 0.00 9548.00 j. CBS intersol service charges 0.00 106550.00 k. Rent on safe deposit vaults (locker rent) 72234.00 81999.00 l. Issue of duplicate pass book/statement of accounts/ drafts/ pay orders 156.00 1176.00 m. ATM/ kiosk charges 153712.00 22811.00 n. RTGS/NEFT/ECS 167.00 3632.00
  59. 59. o. Insurance business 0.00 1602.00 Sub total 2 (a to o) 853296.17 863019.96 3. miscellaneous income Rent recovered from officers for use of furniture 575.00 756.40 Godown rent 0.00 62.00 Miscellaneous income – retail banking 92741.83 48524.50 Miscellaneous income – agency service 13995.55 0.00 4.interest/subsidy received from H.O 107312.38 49342.90 5889230.73 6602151.00 GRAND TOTAL (1 to 4) 17715640.16 17572500.36 3.1 CUSTOMERS EVALUATION Type Total Percentage Proprietorship 6 60% Partnership 4 40% Company - - Total 10 100
  60. 60. 7 6 5 4 Proprietorship 3 Partnership 2 1 0 1 2 3 Interpretation According to this table 60% of the clients are proprietorship, 40% are partnership. Thus we can say that clientele of the PNB, consist of smaller concerns which are proprietorship, partnership etc, in nature. 3.2 NATURE OF BUSINESS Type Total Percentage Manufacturing - - Services 02 20% Trading 06 60% Other 02 20% Total 10 100
  61. 61. 7 6 5 4 Series1 Series2 3 Series3 2 1 0 Services Trading Other Interpretation: The above table shows that the nature of business carried by the clientage. According to the table 60% are trading concerns, 0% are manufacturing, 20% are services, whereas 20% is in other business. Thus we can conclude that majority clientele are those engaged in trading. 3.3 ANALYSIS OF QUANTUM OF WORKING CAPITAL REQUIREMENT BY THE CLIENTAGE Ranges Rs. Total Percentage Less than 1 lakh - - 1,00,000 to 5,00,000 1 10% 5,00,000 to 2 20% 10,00,000 10,00,000 to 1 10% 15,00,000 15,00,000 to 1 10% 20,00,000
  62. 62. 20,00,000 to above 5 50% Total 10 100% 6 5 4 - 3 - 2 1 0 0 0 0 ve 0 0 0 0 0 ,0 ,0 ,0 ,0 o 0 0 0 b 0 ,0 ,0 a ,0 ,0 0 5 to 0 5 1 2 1 to 0 to to to 0 ,0 0 0 0 0 0 0 0 0 ,0 ,0 ,0 0 ,0 ,0 0 0 0 0 ,0 ,0 2 0 ,0 ,0 0 5 1 1 1 5 Interpretation The above table shows the range of working capital required. According to the table 10% of the organization falls between the range of 1 lakhs, 20% falls between 5 lakhs to 10 lakhs, 10% falls between 10 lakhs to 15 lakhs, 10% falls between 15 lakhs to 20 lakhs and remaining 50% falls between 20 lakhs and above. Thus we can conclude that the majority of the working capital required is by clients is over 50 lakhs. 3.4 OPINION REGARDING QUANTUM APPROVED BY PNB FOR WORKING CAPITAL FINANCE: Opinion Total no. of Percentage companies Yes 08 80% Acceptable 01 10% No 01 10% Total 10 100%
  63. 63. 9 8 7 6 5 Series1 4 Series2 3 2 1 0 Yes Acceptable No Interpretation: The above table shows the customers opinion regarding Punjab National Bank Ltd. Working capital criteria according to it 80% opinion is that the financial working capital is yes 10% opinion is that the criteria of the financial working capital is no. thus we can say that the working capital is at satisfactory level. 3.5 PROPORTION OF WORKING CAPITAL FINANCED BY PNB Range Total no. of Percentage companies Less than 15% 03 30% 15% to 25% 02 20% 25% to 50% 04 40% 50% to 100% 01 10% Total 10 100%
  64. 64. 4.5 4 3.5 3 2.5 Series1 2 Series2 1.5 1 0.5 0 Less than 15% 15% to 25% 25% to 50% 50% to 100% Interpretation: The above table shows the proportion of working capital financed by Punjab National Bank. The table shows that PNB, Finance 30% of working capital range of less than 15% to 20%of working capital range between 15% 25%, 40% of working capital range is between 25% to 50% and the remaining 10% of working capital range is between 50% to 100%. Thus we can conclude that mostly 25% to 50% of working capital is financed by PNB. SECTION B: EVALUATION OF OPERATIONAL EFFECT OF THE BANK 3.6 RATIO OF INDICATION OF PRODECTIVITY, LIQUIDITY AND PROFITABILITY: A) OPERATIONAL RATIO 1. Interest earned to total income: Interest earned / total income
  65. 65. PARTICULARS 2007-2008 2008-2009 2009-10 Interest Earned 869 1086 1013 Total Income 1569 1961 2220 Ratio 0.57 0.55 0.46 2500 2000 1500 Interest Earned Total Income 1000 Ratio 500 0 1 2 3 Interpretation: The above table shows the amount of interest earned out of earning of the bank. It can be seen that the income from interest has constituted a major portion of the total income. And more over it keeps fluctuating from 57 in 2007-08 to 46 in 2009- 10 also. 2. Interest paid to total income: Interest paid / total income PARTICULARS 2007-2008 2008-2009 2009-10 Interest paid 865 1000 1200 Total Income 1569 1961 2220 Ratio 0.55 0.51 0.54
  66. 66. 2500 2000 1500 Interest paid Total Income 1000 Ratio 500 0 2007-2008 2008-2009 2009-10 Interpretation: The interest paid in comparison to total income earned is seen to be fluctuated over three years, rising during 2009 - 2010 and falling in the subsequent year. B. Profitability ratios : 1. Net profit to total income: Net profit / total income Rs. In lakhs PARTICULARS 2007-2008 2008-2009 2009-10 Net profit 481 401 253 Total income 1569 1961 2220 Ratio 0.31 0.20 0.11
  67. 67. 2500 2000 1500 Net profit Total income 1000 Ratio 500 0 2007-2008 2008-2009 2009-10 Interpretation: This ratio indicates the profitability of the bank by dividing net profit by total income. It can be seen that the net profit has increased from 2007-2008 to 2008-2009 and decreased in 2009-10 when compared to total income. This indicates that the expenditure has increased year to year compared to last year. C. productivity ratio: 1. Per employee deposits: Total deposits / No. of Employees Rs. In lakhs PARTICULARS 2007-2008 2008-2009 2009-10 Total deposits 1561 1952 2011 No. of 12 10 10 Employee
  68. 68. Ratio 0.130 0.195 0.201 2500 2000 1500 Total deposits No. of Employee 1000 Ratio 500 0 2007-2008 2008-2009 2009-10 Interpretation: This ratio indicates about how much deposit is being catered by an employee in the bank. The performance of employees is very good in this regard as it can be seen in the above table it shows an increasing trend from 130% in 2007-2008 to 195% to 201% in 2009-10. 2. Per employee advances: Total advances / No. of Employees Rs. In lakhs PARTICULARS 2007-2008 2008-2009 2009-10 Total advance 1277 1066 1155 No. of Employee 12 10 10 Ratio 0.106 0.107 0.115
  69. 69. 1400 1200 1000 800 Total advance No. of Employee 600 Ratio 400 200 0 2007-2008 2008-2009 2009-10 Interpretation: The ratio discloses clearly from the above table that the bank has taken effective steps in the profitable development of funds. The average capacity, capability and efficiency of the employees has considerably increased in handing more advances in 2009 - 2010 as compared to the position in 2008-2009. 3. Per employee income: Total income/ No. of Employee Rs. In lakhs PARTICULAR 2007-2008 2008-2009 2009-2010 S Total income 1569 1961 2220 No. of 12 10 10 Employees Ratio 0.130 0.196 0.222

×