Punjab National Bank Ratio Analysis

Chapter-1

INTRODUCTION

Financial Management is that managerial activity which is concerned with the planning and controlling of the firms financial resource. Through it was a branch of economies till 1890, as a separate activity of discipline it is of recent origin. Still, it has no unique body of knowledge of its own, and draws heavily on economics for its theoretical concept even today. The focus of financial management was mainly on certain episodic events like formation, issuance of capital, major expansion, merger, reorganization and liquidation in the life cycle of the firm. The approach was mainly descriptive and institutional. The instruments of financing, the institutions and procedures used in capital markets, and the legal aspects of financial events formed the core of financial management. The outsider’s point of view was dominant. Financial management was viewed mainly from the point of the investment bankers, lenders and other outsider interests. Every business organization has to maintain appropriate funds to meet the long term as well short term needs irrespective of nature and size and kind of the firm. Proper funds maintaining in an enterprise increase the value of the firm. In business organization basis for financial analysis and decision making in financial information is required financial information is needed to predict compare and evaluate the firms earning ability and aid in economic decision making and investment and finance decision making . The basic financial statements of grate significance to owners management and investors and balance sheet, profit and loss account and cash flow statement. Finance is nothing but drafts currency notes and coins and short-term financial instruments, which are acquiring the funds in business and their effective utilization.

MEANING OF THE FINANCIAL MANAGEMENT: According to “GUTMAN and DOGAL”: “The activity concerned which planning raising controlling administrating the funds used in the business and finding out various sources for raising funds for the firm “.

IMPORTANCE OF FINANC IAL MANAGEMENT:  Financial management helps proper allocation of funds for increasing the profitability.  To increase the size o f the business enterprise the firm should deals with the financial management.  It deals with the separation of owners and management.  It helps in increasing wealth of the owners and as well as nation.  Financial management will take sound financial decision.

AN OVER VIEW OF FINANCIAL MANAGEMENT AIMS OF FINANCIAL MANAGEMENT: •

Acquiring sufficient funds

•

Proper utilization of funds

•

Maximizing the profitability

•

Increasing the value of the firms

Acquiring sufficient funds in the organization based on assessment of needs and requirements of the funds. It may be short term or long term needs and acquiring funds from long term sources or short –term sources.

FAVORABLE ARGUMENT: Every financial decision should be based on cost benefit analysis. If the benefit is more than the cost, the decision will help in maximizing the wealth.

UNFAVORABLE ARGUMENT

:

The objective of wealth maximization may also face difficulties when ownership and management are separated.

NATURE AND SCOPE OF FINANCIAL MANAGEMENT:  ESTIMATING FINANCIAL REQUIREMENTS : The first task of financial management is to estimation of the short term and long term financial requirements. It is based on the proper financial plan. It may be either long period of time or short period of time.  DECIDING CAPITAL STRUCTURE : Capital structure means build up off a funds in an organization. These funds are receiving from long-term sources. If we want to purchase fixed assets there is a need of determination of capital structure.  SELECTING A PATTERN OF INVESTMENT : After receiving the funds from various sources the next step in invest the amount either fixed assets or working capital with the help of capital budgeting techniques and working capital analysis we have to make the investment in a profitable line.  PROPER CASH MANAGEMENT : Cash management is also important task of financial management. It deals with various day to day expenses like payment of expense and raw material purchase and payment to creditors and other expenses for this we have to maintain optimum level of cash balance in the organization.

IMPLEMENTING FINANCIAL CONTROLS: In effective system if financial management how to use various control devices like ratio analysis budgetary control and B.E.P. analysis etc..,

FINANCIAL FUNCTIONS DECISIONS:

The financial decisions broadly classified into three categories: Investment decisions Financial decisions Dividend decisions

INVESTMENT DECISIONS: It is divided into two categories 1. Long term investment decisions 2. Short term investment decisions

LONG TERM INVESTMENT DECISIONS: These decisions to deal with the capital budgeting analysis. Capital budgeting is the process of making investment for long period of time. That is return are received more than one year for EX: Set up of new units, Expansion of present unit, Replacement of permanent assets

SHORT TERM INVESTMENT DECISIONS: It refers the working capital analysis. It relates to the allocation of funds for cash receivable and the trade off between liquidity and profitability influences an inventory such decisions.

FINANCIAL DECISIONS: The financial decision is not only concerned with how to finance new assets but also concerned with the best overall mix of financing for the firm. The financing manager has to select best source of finance, which will make optimum capital structure. It means where maximizing the profits and minimizing the risk increasing the value of the firm that is called as optimum capital structure.

DIVIDEND DECISIONS: Dividend is nothing but simply we can say that profit. The third major financial decision relates to the distribution of profit. The term dividend refers “TO THAT PART OF

PROFITS OF A COMPANY WHICH IS DISTRIBUTED AMONG ITS SHARE HOLDERS.” The higher rate of dividend may raise the market price of the share and thus maximize the wealth of share holders.

FINANCIAL ANALYSIS: Financial analysis is a statement, which represent the changes in financial position. The information contained in these statements is used by management creditors and investors and others to judge the operating performance of the firm. According to AICPA definition analysis of financial statements is an interpretation of results there of financial analysis is the process of identifying the financial strengths and weaknesses of the firm by property establishing relationship by means of ratios between the items of the balance sheet and profit and loss account.

FINANCIAL SATAEMENT ANALYSIS: In the words of MYER

“Financial statement analysis largely a study of relationship among

the various financial factors in a business disclosed by a single set statements and study of these factors as shown in a series of statements.” STEPS INVOLVED IN THE ANALYSIS: 

Compilation of financial data



Study of data



Systematic classification of data



Scientific arrangement of classified groups of data



Establishing relationship with related data for further comparison



Supplementing with appropriate comments analysis



Interpretation of the analysis.

RATIO ANALYSIS:

Ratio analysis is the most widely used tool of analysis. A ratio is a “quotient to two numbers and is an expression of relationship between the two amounts”. It indicates a quantitative relationship, which is used for a qualified judgment and decision-making. The ratios may be compared with the previous year or base year ratios of the same firm. “The relationship between two accounting figures expressed mathematically is known as a financial ratio”. British Institute of management has classified the ratios into two categories.  Primary ratios  Secondary ratios

PRIMARY RATIOS: Ratio indicating the relationship between profits and capital employed area primary ratio. SECONDARY RATIO: These ratios give the information about the financial position and capital structure of the company.

OBJECTIVES OF RATIO: The objectives of working out ratios and consequential analysis are :  To study the liquidity of the firm .  To find the profitability of the organization .  Leverage that is financing by debt or equity or preference shares .  To know operating efficiency of the organization .  To know Effective utilization of assets .

ADVANTAGES OF RATIO ANALYSIS:  To identify the significant accounting data relationship.  A ratio indicates trends in which will help in decision making and forecasting Ratio analysis helps in assessment of liquidity profitability and solvency of the

 firm

 To know the over all operating efficiency and performance of the firm.  It helps in understanding financial statements.



It provides basis not only for intra-firm comparison but also for inter-firm company.  It helps the management in controlling the affairs of the firm.

ACCOUNTING RATIOS CAN BE EXPRESSED IN VARIOUS WAYS: Such as •

A pure ratio say ratio of current assets to current liabilities.

•

A rate say current assets are two times of current liabilities.

•

A percentage says current asset are 200% of current liabilities.

DIAGNOSTIC ROLE OF RATIOS: The essence of the financial soundness of a company lies in balancing its goal commercial strategy product, market choice and resultant financial needs. The company should have financial capability and flexibility to purpose its commercial strategy. Ratio analysis is a very useful analysis technique to raise permanent question on a number of managerial issues while assessing the financial wealth and health of the company with the help of ratio analysis answer to the following question may be sought. 1. How profitable is the company? What a accounting policies and practices does the company follow? Are stable? 2. Is the profitability of the company high/low/average? 3. Is the return on equity high/low/average? It is due to b. Return on investment c. Financing Mix d. Capitalization of Resource 4. Can the company sustain its impressive profitability or improve its profitability given competitive and other environmental situations? 5. How effectively Does Company utilizes its assets in generating sales. 6. What are the trends in collection period inventory turnover and fixed assets turnover? 7. What is the level of current assets relative to current liabilities? It is reasonable given the nature of the company’s business?

8. What is the Mix of current assets? Is the proportion of slow moving inventories high? 9. How promptly the company pays its creditors? The answer for all these questions can be known through the care observation of company’s financial position through ratios.

STANDARDS OF COMPARISON: The ratio analysis involves comparison for a useful interpretation of the financial statements. A single ratio in itself does not indicate favorable or unfavorable condition. It should be compared with some standards of comparison may consists of •

Ratio calculated from the past financial statements of the some firm.

•

Ratio developed using the projected or performed financial statements of the same firm.

•

Ratios of some selected firms especially most progressive and successful at the same point in time.

•

Ratios of the industry to which the firm belongs some times future ratios are used as the standard of comparison ratio can be developed from the projected or performed financial statements. The comparison of past ratios with future ratios shows the firm’s relative strength and weakness in the past and future.

This kind of a comparison indicates the relative financial position and performance of the firm can easily resort such a comparison and it is not difficult to get the published financial statements of the similar firm.

USERS OF RATIO ANALYSIS: The ratio analysis is on of the most powerful tools of financial Analysis. It is used as a device to analysis and inter-prate the financial health of an enterprise. 1. Managers : These are the persons who among the business. Financial ratios are important to managers for evaluating the results of their decisions. Financial ratio also helps the managers in decision forecasting and planning co-ordination and control of business activities.

2. Shareholders/Investors: Those who are interested in buying and selling the shares of a company are naturally interested in the financial ratios. These ratios are helps in knowing the safety of their investment. This ratios tells that the position of the firm whether it is good or not. 3. Creditors: The creditors are interested to know whether their loan principal and interest will be paid when due suppliers and other creditors are also interested to know their dues in time. 4. Workers: Generally the workers are entitled to payment of bonus in which depends on the size of profit earned. The knowledge also helps them in conducting negotiations for wages and bonus.

5. Government: The ratio analysis of a company or industry is useful to the management in framing the policies and then the financial ratios are useful to the government in taking decision relating to taxes. 6. Researchers: The financial ratios being a mirror of business condition of great interest to undertaking in accounting theory as well as business affairs and practices. SIGNIFICANCE OF RATIO ANALYSIS:

Ratio analysis stands for the process of determining and presenting the relationship items and groups of items in the financial statements. It is an important technique of financial analysis. It is a way by which financial stability and health of a concern can be judged. The following are the main points of importance of ratio analysis.

USEFUL IN FINANCIAL POSITION ANALYSIS: Accounting ratios reveal the financial position of the concern. This helps the banks, insurance companies and other financial institution in lending and making investment decisions. USEFUL IN SIMPLIFYING ACCOUNTING FIGURES: Accounting ratios simplify summarizes and systematize the accounting figures in order to make them more understandable and in lucid form. They highlight the interrelationship, which exists between various segments of the business as expressed by accounting statements. Often the figures standing alone cannot help them to convey any meaning and ratios help them to relate with other figures. USEFUL IN ASSESSING THE OPERATINAL EFFICIENCY: Accounting ratios helps to have an idea of the working of a concern. The efficiency of the firm becomes evident when analysis is based on accounting ratio. They diagnose the financial health by evaluating liquidity, solvency profitability the capabilities of various units. USEFUL IN FORECASTING PURPOSE: If accounting ratios are calculated for a number of years, then a trend is established. This trend in setting up of future plans and forecasting. For Example: expenses as a percentage of sales can be easily forecasted on the basis of sales and expenses of the past years. USEFUL IN LOCATING THE WEAK SPORTS OF THE BUSINESS: Accounting ratios are of great assistance in locating the weak spots in the business even though the overall performance may be efficient weakness in financial structure due to in correct policies in past are reveals through accounting ratios. If a firm finds that increase in

distribution expenses is more than proportionate to the results expected for achieved it can be remedial measures to overcome this adverse situation.

USEFUL IN COMPARISON OF PERFORMANCE: Through accounting ratios comparison can be made between one department of a firm with another of the same firm in order to evaluate the performance of various department in the order to evaluate the performance of various departments in the firm manager is naturally interested in such comparison in order to know the proper and smooth functioning of such departments ratios also help him to make any change in the organization structure. Management has to protect the interest of all concerned parties. Their survival depends on their operating performance from time to time. Management uses ratios analysis to determine the firm’s financial strength and weakness and according takes actions to improve the firm’s position. The various concerned parties include the owners, investors, creditors, customers, consumers etc…, they are interested to know the firms operating performance to get their expected returns. The owners of the company will observe the profitability of the firm and the effective utilization of the assets of the firm. The investors can observe about the net profit tax, which can be available for them to get the desired, dividends; The creditors will think about the debt payment capacity of the firm. Ratio analysis is very useful yardstick to determine the financial position of the firm and it will protect the interest of the parties, through careful security of financial statements.

LIMITATIONS OF RATIO ANALYSIS: Ratio analysis provides an indication of company’s profitability, liquidity, leverage and solvency, ratio do not provide answers, and they are a guide to management and others of the areas of weakness and strengths of a company.

Many firms are much diversified and are engaged in number of different activities. This makes it difficult to developed meaningful set of averages in order to compare performance. No company or firm is content being average. They to be the best. Thus it may be argued that comparing a company’s performance against an overage is not flattering or indicative of a company’s position in an industry. Ratios can be purposely distorted by companies to make it look better than it actually is. A company could sell its receivable at a discount for cash. As a result, its collection ratio of account receivables would be low, leading one to believe its efficiency is better than it actually. In order to state whether a ratio is good or bad it must be intelligently interpreted. A high current ratio may indicate a liquidity position, which is positive or excessive liquidity cash, which is negative.

It is difficult to compare companies as they very often follow different accounting principles. A company may value inventory under “Last in First out” principle, where as another may depreciate under the straight-line method, while its competitor may use accelerated depreciation.

TYPES OF RATIOS: Several ratios calculated from the accounting data, can be grouped into various classes according to financial activity or function to be evaluated management is interested in evaluating every aspect of the firms performance. They have to protect the interests of all parties and see that the firm grows profitably. In view of requirements of the various users of ratios, we may classify them into the following four important categories. 1. Liquidity ratios 2. Leverage ratios 3. Activity ratios 4. Profitability ratios

1. LIQUIDITY RATIOS: Liquidity ratios are measures the firm’s ability to meet current obligations. It is externally essential for a firm to be able to meet preparation of cash budgets and cash flow and find flow statements. It’s establishing a relationship between cash and current assets to current obligations. The failure of a company to meet its obligations due to lack of sufficient liquidity will result in poor credit worthiness cost of creditors confidence a very high degree of liquidity is also bad idle assets earn nothing. The most common ratios, which indicate the extent of liquidity a. Current ratio. b. Quick ratio or Acid test or liquid ratio. c. Absolute liquid ratio or cash position. Ratio (a) CUURENT RATIO Current ratio may be defined as the relationship between the current assets and liabilities. This ratio is also known as working capital ratio. It is most widely used to make

the analysis of a short-term financial position. It is calculated by dividing the total of current assets by the total current liabilities. Current assets include cash and those assets that can be converted into cash within a year such as marketable securities debtors and inventories and prepaid expenses also considered as current assets.

Current liabilities are those obligations which are payable within a short period generally within a year.

Current Ratio=current assets /current liabilities (b) QUICK ASSETS RATIO: Quick ratio may be defined as the relationship between quick/liquid assets and current liabilities. An asset is liquid if it can be converted into cash immediately or reasonably soon without a loss of value and Inventories are considered to be less liquid. Quick Ratio=Quick assets/ Current liabilities

(c) ABSOLUTE LIQUID RATIO OR CASH RATIO: Receivables, debtors and bills receivable are generally more liquid then inventories yet there may be doubts regarding their realization into cash immediately or in time.

LEVERAGERATIOS:

Leverage ratios may be calculated from the balance sheet items to determine the preparation of debt in total financing. Many variations of the ratios exist, but all these ratios indicate the same thing. Leverage ratios are also computed from the profit and loss items by determining the extent to which operating profits are sufficient to cover the fixed cha(a) Debt equity ratio (b) Total debt ratio (c) Capital equity ratio (d) Proprietary ratio

(e) Fixed assets ratio Leverage ratios are designed to measure the contribution of owners against following information.



The company’s ability to cover all its obligations including short term and long term obligations

 The margin of safety afforded to the creditors by the equity  The extent of control of share holders over the enterprise  The potential ratio earnings from the long term funds

(a) DEBT EQUITY RATIO

The ratio relates to all the creditors on assets to the owners funds. It is computed by dividing the total debt, both the current and long term by it’s tangible net worth consisting of common stock and invested more in the business than the owners.

Debt equity ratio=long term liabilities/capital employed

(b)TOTAL DEBT RATIO

In order to know the long term solvency of the firm we may know by computing several debt ratios. Total debt ratios show the relation between total debt to net assets or capital or capital employed.

Total debt ratio=total debt/capital employed

(c) CAPITAL EQUITY RATIO:

It is another form of leverage ratio are may want to know how much funds are contributed together by lenders and owners for rupee of owners contribution. This can be found out by calculating the ratio of capital employed or net assets to net worth. Capital equity ratio=Net assets/Net wort

(d) PROPRIETARY RATIO This ratio indicates the general financial strength of the concern. It is a test of the soundness of the financial structure of the concern. The total shareholders fund (net worth) is compared with the tangible assets of the company.

Proprietory Ratio=Net worth or proprietary fund/Total assets

(e) FIXED ASSETS TO CAPITAL EMPLOYED RATIO

This ratio indicates the extent of fixed assets the firm employed in the total capital employed during the period. It is calculated by dividing fixed assets by capital employed. Fixed assets to capital employed turn over ratio=fixed assets/capital employed

ACTIVITY RATIOS: Activity ratios reflect how effectively the company is managing its resources. These ratios express the relationship between the level of sales and the investment assets like inventory receivable fixed assets etc. The important activity ratios are a. Stock or inventory turnover ratio b. Total assets turnover ratio

c. Fixed assets turnover ratio d. Working capital turnover ratio e. Current assets turnover ratio

(a) INVENTORY TURNOVER RATIO

A ratio showing how many times the company’s inventory is soled and replaced over a period. It is calculated as.

Inventory turn over ratio=sales/inventory

(b) TOTAL ASSETS TURNOVER RATIO

This ratio ensures whether the capital employed has been effectively used or not. This is also the test of managerial efficiency and business performance. Higher total capital turnover ratio is always required in the interest of the company. This ratio is measured on the basis of the following formula.

Total assets turnover ratio=sales/total assets

c) FIXED ASSETS TURNOVER RATIO

This ratio expresses the number of times fixed assets are being over in a given period and how well the fixed assets are being used in the business.

Fixed assets turnover ratio= sales/ Net fixed assets

(d) WORKING CAPITAL TURNOVER RATIO

This ratio shows the number of timers capital is turned over in a stated period. It is calculated as follows. The higher is the ratio is lower is the investment in working capital and greater are the profits.

Working capital turnover ratio=sales/net working capital

(e)

CURRENT ASSETS TURNOVER RATIO:

The firm may wish to know its efficiency of utilizing currents in organization. A high gross profit margin ratio is assign of good management. A gross profit margin ratio may increase due to any of these factors. 1. Higher sales prices and cost of goods sold remaining constant. 2. Lower cost of good a sold sale price remaining constant. 3. Combination of variations in sales price and cost and margin widening. Current assets turnover ratio= sales / net fixed assets

PROFITABILITY RATIOS: 1. Gross profit ratio 2. Net profit ratio 3. Operating profit ratio

PROFITABILITY AS RELATED TO INVESTMENT

1. Return on investment 2. Return on shareholders 3. Return on capital employees

PROFITABILITY RATIOS: Profit is the main objective of the every organization. A company should earn profits to serve and grow over a long period of time. It is a fact that sufficient profits must be earned to sustain the operations of the business to be able to obtain funds from investors for expansion and growth and to contribute towards the social overheads for the welfare of the society. The profitability ratios are calculated to measure the operating efficiency of the company. Creditors and owners are also interested to know the profitability of the firm. Creditors want to get interest and repayment of principal regularly and return on investment to investors. This is possible only when the company earn the enough profits.

GROSS PROFIT MARGIN RATIO: The gross profit margin reflected the efficiency with which management produces each unit of product. The high gross profit margin relative to the industry average implies that the firm is able to produce at relatively lower cost. A high gross profit margin ratio is assign of good management. A gross profit margin ratio may increase due to any of these factors. 1. Higher sales prices cost of goods sold remaining constant. 2. Lower cost of goods sold sale price remaining constant. 3. Combination of variations in sales price and cost margin widening.

OPERATING EXPENSE RATIO: The operating expense ratio explains the changes in the profit margin ratio. The ratio is computed by dividing operating expenses by net sales. The operating expense ratios a

yardstick of operating efficiency but it should be used cautiously. It is affected by a number of factors such as external uncontrollable factors and internal factors and managerial efficiency.

EXPENSES RATIO: Expenses ratio indicate the relationship of various expenses to net sales. The operating ratio reveals the average total variations in expenses. But some of the expenses may be increasing while some may be falling. Expense ratios are calculated by dividing each item of expenses or group of expenses with the net sales to analysis the causes of variation of the operating ratio. The lower the ratio the greater is the profitability and higher the ratio and lower the profitability.

GROSS PROFIT RATIO: This ratio shows the relationship between gross profits with sales to measure the relative operating efficiency of the company. It also reflects its pricing policies. It is computed by dividing sales minus the cost of goods sold by sales sometimes, it is calculated by taking cost of goods sold instead of sales. It indicates the position of trading result. Gross profit can be measure by deducting the “Cost of Goods Sold” from the net sales. Gross profit is the relationship between prices, sales volume and costs. The Gross profit margin reflects the efficiency of the management. Gross profit ratio=gross profit/net sales*100

NET PROFIT RATIO: Net profit to sales is also called net profit margin ratio. It is calculated by dividing net incomes by net sales. This ratio provides good insight into the overall efficiency of the business. A higher ratio shows the higher overall efficiency of the business and better utilization of the total resources and at the same time the ratio indicates poor financial planning and low efficiency also.

Net profit is obtained by deducting operating expenses, interest and taxes from the gross profit. This ratio indicates the firm’s capacity to withstand adverse economic conditions. Net profit ratio= Net profit/ Net sales*100

OPERATING PROFIT RATIO: This ratio indicates the relationship between Operating profit and sales. It is worked out by dividing Operating profit by net sales. The net profit ratio may mislead by showing high efficiency even though the efficiency is extremely low.

Operating profit ratio= Operating profit/ Net sales*100

RETURN ON CAPITAL EMPLOYED: This ratio explains the relationship between net profit after tax and capital employed. This ratio explains about the amount of return that was attained through the investment of capital. Net profit after tax is the profit that was available after the deduction of all operating expenses. This ratio reveals the earnings and earning capacity of the capital employed in the business. Return on capital employed= Net profit/ Capital employed

RETURN ON SHAREHOLDERS FUNDS (or) EARNING PER SHARE: The returns on shareholders funds explain the relationship between profit after tax and the total shareholders funds. Shareholders equity consists of performance share capital ordinary share capital and reserves and surplus. This ratio shows the owners funds have been used by the firm and may be used in comparing the profitability of similar firms. The ratio carries the relationships of return to the sources of funds provided by the owners of the firm. This measures the rate of return on shareholders funds. The higher the ratio, the safer an and advantage the financial position.

Earning per share= (profit after tax-preference share)/number of equity shares

Chapter-2 OBJECTIVES OF METHODOLOGY & CONCEPTS

In this chapter an attempt is made to present the objectives, scope, methodology, limitations of the study and various concepts used.

Objectives of the study:



To analyze financial performance of P.N.B during 2006-10.



To suggest necessary measures for improving the financial performance of the bank.



To analyze the working capital of the company.



To suggest measures with regard to loans and advances of the bank.

Scope of the study:

The study is a longitudinal study. It considers a period of five years.

Methodology:

The following lines described the methodology adopted.

Primary sources:

Interaction with guide to understand the general and specific aspects of the problem, executives to understand the implication of the ratios, the perspective measures to rehabilitate the bank and employees of the company to know cost reduction possibilities.

Secondary sources:

Annual reports of the company, journals, magazines and books.

Data collection:

Data are collected through interview with five executives-senior manager (finance),

senior

manager(purchase),

senior

manager

(personnel),

senior

manager (production), senior manager (marketing) using an unstructured interview method in a phased manner and from annual reports of the five years selected for study.

Data analysis:

The collected data are analyzed by applying ratio analysis, break even and indexed analysis.

Significance of the study:

The study will be helpful to executive to make a review of the changes in financial situations and deliberate on the measures to be taken to improve the performance.

Chapter-3

BANK’S PROFILE & HISTORY VISION “To be a Leading Global Bank with Pan India footprints and become a household brand in the Indo-Gangetic Plains, providing entire range of financial products and services under one roof.”

MISSION “Banking for the unbanked” 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 governmentowned commercial bank in India with about 4,500 branches across 764 cities. It serves over 37 million customers. The bank has been ranked 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, Shanghai, and Dubai

History 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. 1904: PNB established branches in Karachi and Peshawar. 1940: PNB absorbed Bhagwan Dass Bank, a scheduled bank located in Delhi circle. 1947: Partition of India and Pakistan at Independence. PNB lost its premises in Lahore, but continued to operate in Pakistan. 1951: PNB acquired the 39 branches of Bharat Bank (est. 1942), Bharat Bank became Bharat Nidhi Ltd. 1960s: PNB amalgamated Indo Commercial Bank (est. 1933) in a rescue. 1961: PNB acquired Universal Bank of India. 1963: The Government of Burma nationalized PNB's branch in Rangoon (Yangon). 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). 1969: The Government of India (GOI) nationalized PNB and 13 other major commercial banks, on July 19, 1969. 1976 or 1978: PNB opened a branch in London.

1993: PNB acquired New Bank of India, which the GOI had nationalized in 1980. 1998: PNB set up a representative office in Almaty, Kazakhstan. 2003: PNB took over Nedungadi Bank, the oldest private sector bank in Kerala. Rao Bahadur T.M. Appu Nedungadi, author of Kundalatha, one of the earliest novels in Malayalam, had established the bank in 1899. It was incorporated in 1913, and in 1965 had acquired selected assets and deposits of the Coimbatore National Bank. 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. PNB also opened a representative office in London. 2004: PNB established a branch in Kabul, Afghanistan. PNB also opened a representative office in Shanghai. 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. 2005: PNB opened a representative office in Dubai. 2007: PNB established PNBIL - Punjab National Bank (International) - in the UK, with two offices, one in London, and one in South Hall, Middlesex. Since then it has opened a third branch in Leicester, and is planning a fourth in Birmingham. 2008: PNB opened a branch in Hong Kong.

Chairmen of Punjab National Bank : 1895-1898 Sardar Dyal Singh Majithia 1898-1905 Rai Bahadur Lala Lal Chand 1905-1910 Bhagat Ishwar Dass 1911-1912 Rai Bahadur Lala Lal Chand 1912-1913 Rai Bhadur Lala Sukddyal 1913-1915 Bhagat Ishwar Dass 1917-1920 Dr. Hira Lal Bhatia 1920-1931 Lala Dhanpat Rai 1931-1937 Dr. Maharaj Krishana Kapoor 1938-1942 Rai Bahadur Diwan Badri Dass 1943-1953 Lala Yodh Raj 1953-1954 Shriyansh Parshad Jain 1954-1959 Seth Shanti Parkash Jain 1960-1964 Ram Nath Goenka 1964-1967 Kamal Nayan Bajaj 1968-1972 Somesh Chander Trikha 1972-1975 Parkash Lal Tandon 1975-1977 Tirath Ram Tuli 1977-1980 Om Parkash Gupta 1980-1981 Syam Lal Chopra 1981-1985 Sudarshan Lal Baluja 1985-1990 Jagdish Sharan Varshney 1990-2000 Rashid Jilani 2000-2005 Surinder Singh Kohli 2005-2007 Satwant Chand Gupta 2007- 2009 Dr. K.C. Chakrabarty 2009- K. R. Kamath

Acquisitions by PNB 1939: PNB acquired Bhagwandas Bank 1951: PNB acquired the 39 branches of Bharat Bank. 1961: PNB acquired Universal Bank of India 1960s: PNB amalgamated Indo Commercial Bank 1986: PNB acquired Hindustan Commercial Bank 1993: PNB acquired New Bank of India 2003: PNB took over Nedungadi Bank, the oldest private sector bank in Kerala

PERFORMANCE DURING THE LAST 5 YEARS The Bank’s performance in the last 5 years has been impressive in all major parameters with business doubling to reach Rs. 286000 crore in 2007-08. The Bank’s average growth in major parameters and achievement in the last 5 years is given below: PARAMETERS Total Deposit Total Advances Operating Profit Net Profit Interest Income Non - Interest Income Gross NPA Net NPA Gross NPA (%) Net NPA (%) Cost of Deposits (%) Yield of Advances (%) Business Per employee

Mar, 04 87916 47224 3121 1109 7780 1867 4670 449 9.35 0.98 5.01 9.08 2.28

Mar, 05 103167 60413 2404 1410 8460 1676 3741 119 5.96 0.20 4.43 8.10 2.77

Mar, 06 119685 74627 2917 1439 9337 1521 3138 210 4.10 0.29 4.32 8.31 3.31

Mar, 07 139860 96597 3617 1540 11236 1730 3391 726 3.45 0.76 4.53 9.17 4.07

Mar, 08 166457 119502 4006 2049 14265 1998 3319 754 2.74 0.64 5.59 10.36 5.05

Dec, 08 197069 141659 4156 2225 14083 2064 3264 552 2.28 0.39 6.26 11.51 6.06

Profit Per Employee (in lac)

1.88

2.42

2.48

2.68

3.66

5.38

Return on Assets (%)

0.92

1.17

1.09

1.03

1.15

1.37

Recent Initiatives Taken by the Bank in brief

The Bank in the recent past has moved away from a hybrid 4 tier to a 3 tier structure with a nomenclature of Circle Offices for the intermediate tier. The objective was to have a cost effective delayered structure to expedite decision making at all levels.

Having taken aggressive IT initiatives, 100% CBS enabled Bank to centralize

many activities

thereby increasing the efficiency and productivity across the Bank. The activities are being centralized to transform the branches as points of sales for customer acquisitions, customer retention and better customer service.

Bank proposes to set up one lac touch point to realize the target of 15 crore customers and 10 lac crore business figures by extensive deployment of technology. We expect to increase our branch network to 5000, Number of ATMs to 8000. The bank will engage 12,000 Business correspondents for existing branches; four such BCs will be attached to one branch (25000 touch points). Bank will set up 15,000 kiosks in branchless location with CBS and internet facility each kiosk will have four business correspondent attached to it (75,000 touch points).

To further improve the customer service alternate delivery channels like ATMs and Internet banking are promoted and are enabled for Transfer of funds, bill payments, ticket booking, tax payment and donations to charitable organizations. E-bays have been set up for faster customer service.

The Bank has been giving greater thrust towards Financial Inclusion, SME Business and Agriculture lending. The Bank has achieved 100% Financial Inclusion in 11,043 villages. The Bank is gearing up for Metro/Urban Financial Inclusion in a big way and is committed to cover unbanked rural & urban areas under its commitment to Financial Inclusion, both at geographical and functional levels. Rajasthan Govt. Financial Inclusion project has brought in more than 25 lakhs customers in our fold. Several other Special Schemes have been launched for BPL Customers including a Micro Finance Branch in Mukundpur, Delhi; 9 Financial Literacy & Education Counselling Centres in Punjab & Haryana; Scheme for Rickshaw Pullers launched at Varanasi, Allahabad, Lucknow & Patna; Common Service Centre at Village Panapur Bihar. For

Agriculture Sector we have introduced PNB Krishak Saathi Scheme, increased limit of loans without collateral to 1 lakh and introduced several other facilities to promote rural development.

New products have been launched like MIBOR linked deposit schemes, Depository services, Gold Coin business; CMS, Score Based Lending Schemes, Centralization of backend activities etc.

For faster processing of retail loans, separate Retail Processing Hubs have been set-up at centralized locations. Facility of submission of online application for Car, Education, Personal & Pension Loans is provided.

Towards the objective of having a larger international presence, a subsidiary at UK has been made operational. A new branch of PNB – IL has been made functional in Leicester, besides the existing two branches. The Bank also has a branch at Kabul; an Off-Shore Banking Unit at Mumbai; a new branch at Hongkong and Representative Offices at Dubai, Kazakhstan, Shanghai & Norway. The Bank has joint venture in Nepal with Everest Bank Limited. We are having arrangements with various exchange houses abroad. The technology solutions for all the overseas operations of the bank are provided from India, thereby ensuring cost effective services to the overseas clients.

The Bank has launched two variants of Consumer credit card i.e. Gold and Classic. For customer convenience, host of features like photo card, SMS alerts and interface with PNB’s Internet Banking are being offered. The credit card will be globally accepted. This card will be accepted at over 3.5 Lac merchant establishments and 30,000 ATMs in India as well as at over 29 million merchants establishments and over 1 million ATMs throughout the world who are linked to Visa Payment system.

For faster processing of retail loans, separate Retail Processing Hubs have been set-up at centralized locations. Facility of submission of online application for Car, Education, Personal & Pension Loans is provided.

Towards the objective of having a larger international presence, a subsidiary at UK has been made operational. A new branch of PNB – IL has been made functional in Leicester, besides the existing two branches. The Bank also has a branch at Kabul; an Off-Shore Banking Unit at Mumbai; a new branch at Hongkong and Representative Offices at Dubai, Kazakhstan, Shanghai & Norway. The Bank has joint venture in Nepal with Everest Bank Limited. We are having arrangements with various exchange houses abroad. The technology solutions for all the overseas operations of the bank are provided from India, thereby ensuring cost effective services to the overseas clients.

The Bank has launched two variants of Consumer credit card i.e. Gold and Classic. For customer convenience, host of features like photo card, SMS alerts and interface with PNB’s Internet Banking are being offered. The credit card will be globally accepted. This card will be accepted at over 3.5 Lac merchant establishments and 30,000 ATMs in India as well as at over 29 million merchants establishments and over 1 million ATMs throughout the world who are linked to Visa Payment system.

SWOT ANALYSIS OF THE BANK Strength

• Fundamentally sound bank

Weaknesses

� P redominant presence in less developed areas leading to high operating cost

• 3.7 crore strong customer base �Complacency (Structural & • Well-entrenched Brand Image

Environmental)

• Dominant position in Indo-Gangetic Plain –No

�Weak & Inconsistent MIS

competition

rendering decision making difficult

• A leader amongst Public Sector Banks

�Limited International presence. Low NRI business

• High proportion of customer base in deposits �More dependence on conventional low margin business • Strong Risk Management Practices �No Income from Financial • Redefined processes through technology initiatives like

Products such as Insurance, Mutual

CBS, ATM, Internet Banking

Fund, Credit Card etc.

• 100% CBS branches

�“State” Ownership has affected level playing field and competitive ability

• High tech platform incorporating EDW, CRM etc. �Less flexibility in dealing with • Large network of branches with 66% in Rural & Semi-

strategic HR & operational issues

urban areas �Imbalance in distribution/ deployment of staff

�Inadequate skills for modern banking

�Changing environment, adoption of technological advancement, marketing of products requires change in the mind-set of employees �Low per employee productivity

Threats

�Aggressive marketing by competitor banks

Opportunities

�Rural India is the next growth horizon with an opportunity 3 times the size of Urban India

�Expansion of peer Banks/Private Sector Banks in IndoGangetic belt eroding our dominance �Financial Inclusion is a clear-cut opportunity with overall exposure to �Loss of savings business to Mutual Fund/ Insurance

formal services of finance being about

Products which are aggressively marketed as being more

20%

remunerative �Great opportunity for expanding �Technological parity of competitor banks

business with over 60% population outside the banking service net

�Aggressive strategy and innovative products, larger risk appetite of other banks

�IT Initiative creating a back bone for increasing reach. It provides an

Threats have since been converted into Opportunities.

opportunity to go beyond the Brick & Mortar �Bank has a visionary leadership which can transform the bank �Large workforce of 55398 number of employees. Each and every employee has to believe we can do it, usher in change in our attitudes/conventional wisdom, be a learner willing to adapt to the changing

PNB VISION 2013

a) QUANTITATIVE DIMENSIONS

• Deposits to increase from Rs.166457 Crore in March 2008 to Rs.582000 Crore in

March 2013, at an average growth of 32%.

• Advances to increase from Rs.119502 Crore in March 2008 to Rs.418000 Crore in March 2013, at an average growth of 28%.

• Total business to increase from Rs.285959 Crore in March 2008 to Rs.1000000 Crore in March 2013, at an average growth of 28%.

• Operating Profit to increase from Rs.4006 Crore in March 2008 to Rs.15000 Crore in March 2013 with a CAGR of 30.2%.

• Net Profit to increase from Rs.2049 Crore in March 2008 to Rs.7500 Crore in March 2013, at an average growth of 30%.

• The Return on Assets [RoA] to increase from 1.15% in March 2008 to 1.30% in March 2013 [This ratio is comparable to the RoA of the Peer Banks and is also better than all bank’s ratio of 1% as on March 08].

• The Return on Equity [RoE] to increase from 19% in March 2008 to 21% in March 2013.

• Customer base to increase from 3.7 Crore in March 2008 to 15 Crore in March 2013.

• Number of touch points to be 100000 by March 2013.

• To have a rural coverage of 100000 villages in the Indo-Gangetic Plains by March 2013.

ASPIRATIONS - QUANTITATIVE DIMENSIONS [Amt in Crore] Particulars

Mar 08

Mar 09

Mar 10

Mar 11

Mar 12

Mar 13

Total Business

285959

360000

458500

604100

782500

1,000,000

Deposits Advances Operating Profit

166457 119502 4006

210000 150000 5650

262000 196500 6750

351500 252600 8700

457000 325500 10900

582000 418000 15000

Net Profit RoA RoE Number of

2049 1.15 19.00 3.7

2650 1.18 19.17 5

3450 1.23 19.91 6

4500 1.25 20.16 9

5800 1.27 20.62 11

7500 1.30 21.00 15

] Rural Coverage

-

55000

70000

75000

85000

100000

Touch Points

-

12000

22000

40000

75000

100000

Customers [ In Crore

QUALITATIVE DIMENSIONS

� A leader and front runner amongst nationalized banks

�In Financial Inclusion �In all domestic operations �In adopting best risk management practices �In adopting global best practices in Corporate Governance & Corporate Social Responsibility �In HR policies to raise skills, morale and productivity

�To be Global Bank

�Among the top 3 Indian banks with global presence in Middle East, South East Asia, China, UK, Australia, Canada, etc. �Bring best global practices to effectively compete with global players in India.

�Become a Universal Bank �To be the most profitable bank amongst nationalized banks by focusing on:

�Fee based income/off-balance sheet exposures �Mid Cap segment, Retail lending, SME Advances & Agriculture �Reduction in Gross NPAs �Expenditure Control �Low cost deposits �Ensuring higher spreads (return on advances minus cost of deposits/funds)

�Capitalize on IT initiatives

�Provide more value added services �Expand reach of ATMs �Back Office Centralization of all CBS branches �Promote internet banking �Provide IT advisory services to other banks

�Explore options of in-organic growth

�Merger of Private/Public Sector Banks �Enlargement

of

customer

base

and

retention

of

existing

customers.

�Ensure smooth transition to adopting Basel II norms ahead of schedule.

�Develop

robust

Management

Information

decision making & policy prescription.

�Further entrench brand image of the Bank.

System

for

better

Chapter-4

RATIO ANALYSIS IN P.N.B

Financial analysis enables us to understand and assess the financial position of a business organization. Ratio analysis is one of the most important techniques used for effective financial analysis. A Ratio is used as a yard stick for evaluating the financial performance.

According to Webster “a ratio shows the relationship between two or more things.”

The

relationship

between

two

accounting

figures,

expressed

mathematically is known as “financial ratio.” A ratio is used as an index or yardstick for evaluating financial position and performance of an enterprise.

The following types of ratios are used

Liquidity Ratios Leverage Ratios Activity Ratios Profitability Ratios

I. LIQUIDITY RATIOS

A class of financial metrics that is used to determine a company’s ability to pay off its shirt-terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that he company possesses to cover shortterm debts.

Common liquidity ratios include the current ratio, the quick ratio and operating cash flow ratio. Different analysts will calculate only the sum of the cash and equivalents divided by current liabilities because they feel that they are the most liquid assets, and would be the most likely to be used to cover shortterm debts is of utmost

importance when creditors are seeking payment.

Bankruptcy analysts and mortgage originators frequently use the liquidity ratios to determine whether the company will be able to continue as going concern.

(a) CURRENT RATIO

A liquidity ratio that measures a company’s ability to pay short-term obligations.

The current ratio formula is:

1.Current Ratio=current assets /current liabilities

The ratio is mainly used to give an idea of the company’s ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations if they came due at that point. While

this shows the company is not in good financial health, it does not necessarily mean that it will go bankrupt as there are many ways to access financing – but it is definitely not a good sign. The current ratio can give a sense of the efficiency of a company’s operating cycle or its ability to turn its product into cash. Companies that have trouble getting paid on their receivables or have long inventory turnover can run into liquidity problems because they are unable to alleviate their obligations.

Year

Current Assets

Current Liabilities

Ratios

(Rs. In crores)

(Rs. In croress)

2006

135891.03

122060.77

1.11

2007

151987.04

138038.43

1.0

2008

186702.02

166162.1

1.12

2009

232265.99

213077.8

1.09

2010

278909.9

249610.6

1.117

Interpretation: The current ratio for the last five years is almost exceeds 1.1 except 2009. That means the company is in a better position to pay its current liabilities which are going to mature with in one year.

(b) QUICK RATIO It is a measure of judging ability of the company to payoff its current obligations. It is obtained by dividing quick liabilities. Quick ratio is 1:1 is usually considered adequate, but again while using this ratio as a means of immediate ability to pay off its short-term obligations, liquidity of receivable which are not collectable, are not adequate to support the liquidity of the concern.

2.Quick Ratio=Quick assets/ Current liabilities

Year

Quick Assets

Current Liabilities

(Rs. In cr)

(Rs. In cr)

2006

135891.03

122060.77

1.11

2007

151987.04

138038.43

1.0

2008

186702.02

166162.1

1.12

2009

232265.99

213077.8

1.09

2010

278909.9

249610.6

1.117

Interpretation:

Ratios

Generally for Quick Ratio 1:1 is taken to be ideal.

In the above calculations for the years 2004-05 and 2005-06 the quick ratio is less than 1. That is the current liabilities exceed the quick assets.

And for the last three years the quick ratio exceeds 1. That means the company is concentrating in increasing its quick assets.

3.Solvency ratio

Solvency ratio=Total liabilities Total assets year

Total liabilities

Total assets

Ratios

2006

145267.39

145267.40

0.9

2007

162267.50

162428.49

1.006

2008

199020.37

199020.36

1

2009

246918.62

246918.62

1

2010

296632.78

296632.79

1

Interpretation: Generally the best solvency ratio to any firm is 1:1 .in the year 2006 the ratio is less than 1, after that the bank’s solvency ratio is exceeds & equal to 1 by this we can say that the bank is having a good solvency ratio and performing well.

4.Gross profit ratio Gross profit ratio=gross profit/net sales year

Gross profit (cr)

Net sales(cr)

ratio

2006 2007 2008 2009 2010

7173.46 5744.35 4006.24 3230.64 2874.77

21466.91 19326.16 14265.02 11537.48 9584.15

0.33 0.29 0.28 0.28 0.29

Interpretation:

This gross profit reveals the operating efficiency of

the company. Gross profit ratio may be indicated to what extent the selling prices of goods per unit may be reduced without incurring losses on operations. It reflects efficiency with which a firm produces its products. As the gross profit is found by deducting cost of goods sold from net sales, higher the gross profit better it is. There is no standard GP ratio for evaluation. It may vary from business to business The gross profit ratio for the year 2006 is 0.33 and for 2007 is 0.29 This reveals thattheoperatingefficiency in this year is decreased than the previous year. From this year it was decreased until the year 2010. That means the bank is in a better position.

5.Return on share holder’s investment: Return on share holder’s investment=net profit/shareholder’s funds year 2006 2007 2008 2009 2010

Net profit(cr)

Share holders

Ratio

1439.3 1540.08 2048.76 3090.88 3095.35

funds(cr) 9389.28 10456.91 11097.95 13455.19 16546.23

0.15 0.14 0.18 0.22 0.18

Interpretation: The bank’s performance in share market is very good and year by year the investors are getting a appreciable returns on their investment except the year 2007. This means the bank is in a very good position.

6.Ratio of reserves to equity capital:

Ratio of reserves to equity capital=reserves/equity share capital

Year

Reserves (cr)

Equity share

Ratio

2006 2007 2008 2009 2010

8758.68 9826.31 10467.35 12824.519 15915.63

capital (cr) 315.30 315.30 315.30 315.30 315.30

27.77 31.16 33.19 40.07 50.47

Interpretation: The ratio of reserves to equity capital is increasing in a constant growth rate by the growth from the reserves to equity capital we can say that the bank is performing very well.

7.Total debts to assets ratio Total debts to assets ratio=total liabilities/ total assets year 2006 2007 2008 2009 2010

Total liabilities 145267.39 162422.50 199020.37 246918.62 296632.78

Total assets 145267.40 1624222.50 199020.36 246918.62 296632.79

ratio 0.99 1 1.005 1 1

Interpretation

Provides information about the company's ability to absorb asset reductions arising from losses without jeopardizing the interest of creditors. In the year 2006 the ratio is just below 1. In the next years it is 1 and just exceeding 1.

8.Net profit ratio Net profit ratio= net profit/net sales *100 Year 2006 2007 2008 2009 2010

Net profit(cr) 1439.31 1540.08 2048.76 3613.23 3095.88

Net sales (cr) 21466.91 19326.16 14265.02 11537.48 9584.15

Ratios 6.7 7.9 14.3 31.3 32.3

Interpretation: NP ratio is used to measure the overall profitability and hence it is very useful to proprietors. The ratio is very useful as if the net profit is not sufficient, the firm shall not be able to achieve a satisfactory return on its investment. This ratio also indicates the firm's capacity to face adverse economic conditions such as price competition, low demand, etc. Obviously, higher the ratio the better is the profitability. But while interpreting the ratio it should be kept in mind that the performance of profits also be seen in relation to investments or capital of the firm and not only in relation to sales

9.Epense Ratio Expense ratio=expense/net sales *100 year

Total expense

Net sales

ratio

2006

9623.07

21466.91

44.82

2007

11341.04

19326.16

58.68

2008

14213.80

14265.02

62.33

2009

19154.96

11537.48

78.98

2010

21126.81

9584.15

84.76

INTERPRETATION The ratio can be calculated for individual items of expense or a group of items of a particular type of expense like cost of sales ratio, administrative expense ratio, selling expense ratio, materials consumed ratio, etc. The lower the operating ratio, the larger is the profitability and higher the operating ratio, lower is the profitability. While interpreting expense ratio, it must be remembered that for a fixed expense like rent, the ratio will fall if the sales increase and for a variable expense, the ratio in proportion to sales shall remain nearly the same

10. OPERATING PROFIT TO SALES RATIO

This ratio indicates the relationship between operating profit and sales. It is worked out by dividing the operating profit by net sales. This enables to judge the material efficiency which may not be declared in net profit ratio.

Year

Operating Net profit

Net Sales

2006

1980.91

2007

1575.08

19326.16

24.41

2008

857.50

14265.02

16.50

21466.91

Ratios

10.84

2009

559.79

1153.48

9.42

2010

464.54

9584.15

7.60

INTERPRETATION The operating profit to sales ratio of P.N.B for the year 2006 is 10.84. It was increased to 24.41 for the next year 2007. This means the company possessed high operating efficiency in this year. After that it was decreased until the year 2010. That is the company is concentrating on minimizing its costs.

11. WORKING CAPITAL TURNOVER RATIO

This ratio shows the number of timers capital is turned over in a stated period. It is calculated as follows. The higher is the ratio is lower is the investment in working capital and greater are the profits.

Working capital turnover ratio=sales/net working capital Year

Sales

Net working capital

Ratios

2006

5752.69

313.80

18.33

2007

6453.21

1494.74

4.32

2008

5196.79

1835.80

2.83

2009

5935.72

2060.79

2.88

2010

6110.11

2400.98

2.54

Interpretation: In the year 2006, the working capital results 18.33 times in the sales. After that it was decreased for the next two years continuously. Then after that it was increased to 2.88 times in the sales for that year. Again it was increased in the year 2010. That means the company is concentrating on decreasing cost of production

FIXED ASSETS TURNOVER RATIO This ratio expresses the number of times fixed assets are being over in a given period and how well the fixed assets are being used in the business.

Fixed assets turnover ratio= sales/ Net fixed assets Year

Sales

Net Fixed Assets

Ratios

2006

5752.69

263.64

21.82

2007

6453.21

262.04

24.62

2008

5196.79

264.19

19.67

2009

5935.72

288.24

20.59

2010

6110.11

324.63

18.82

Interpretation:

The fixed assets turnover ratio of P.N.B for the year 2006 was 21.82 and it was for 2007was 18.82. There is highest fixed asset turnover ratio for the year 2007. For this year the cost of production is higher than the remaining years because fixed assets. And for the last year the

company utilized high amount of fixed assets. That is the company is maintaining high rate of production with lower rate of cost of production at presently.

Chapter-5

SUMMARY AND SUGGESTIONS

INTRODUCTION:

The road map to success has changed the environment in which many organization operate “quality” is the priority, which guides the organization cut throat competition has initiated efforts to satisfy customers both internal and external at PUNJAB NATIONAL BANK an attempt was made to integrate this thoughts in performance in finance.

 A ratio must measure a material factor of the business. The costs of

obtaining information should be born in mind. It is observed that process

of

producing

ratio

is

primarily

concerned

with

the

identification of significant accounting data relationships which gives the decision maker into the bank that is assessed.

Basing on the conclusion upon a through understanding of the importance of each ratio, the analyst can recommend and indicate positive action.

The primary data:

Primary data collection with the help of the, employees, managers of Punjab national bank, information with personal interviews with managers and leaders give me needful information, they gave the information in personal way.

Secondary data: Secondary data collected both from the published and unpolished records for the bank. In addition to these standard books a management of industrial relations and journals were used to prepare the data, and some of the important data has collected by browsing the internet and the web sites Google,accountingformanagement.com, etc.

Findings

 The Bank in the recent past has moved away from a hybrid 4 tier to a 3 tier structure

with a nomenclature of Circle Offices for the intermediate tier. The objective was to have a cost effective delayer structure to expedite decision making at all levels.  Having taken aggressive IT initiatives, 100% CBS enabled Bank to centralize many activities thereby increasing the efficiency and productivity across the Bank. The activities are being centralized to transform the branches as points of sales for customer acquisitions, customer retention and better customer service

 Bank proposes to set up one lac touch point to realize the target of 15 crore customers and 10 lac crore business figures by extensive deployment of technology. We expect to increase our branch network to 5000, Number of ATMs to 8000. The bank will engage 12,000 Business correspondents for existing branches; four such BCs will be attached to one branch (25000 touch points). Bank will set up 15,000 kiosks in branchless location with CBS and internet facility each kiosk will have four business correspondent attached to it (75,000 touch points).  To further improve the customer service alternate delivery channels like ATMs and Internet banking are promoted and are enabled for Transfer of funds, bill payments, ticket booking, tax payment and donations to charitable organizations. E-bays have been set up for faster customer service.

 The Bank has been giving greater thrust towards Financial Inclusion, SME Business and Agriculture lending. The Bank has achieved 100% Financial Inclusion in 11,043 villages. The Bank is gearing up for Metro/Urban Financial Inclusion in a big way and is committed to cover unbanked rural & urban areas under its commitment to Financial Inclusion, both at geographical and functional levels. Rajasthan Govt. Financial Inclusion project has brought in more than 25 lakhs customers in our fold. Several other Special Schemes have been launched for BPL Customers including a Micro Finance Branch in Mukundpur, Delhi; 9 Financial Literacy & Education Counselling Centres in Punjab & Haryana; Scheme for Rickshaw Pullers launched at Varanasi, Allahabad, Lucknow & Patna; Common Service Centre at Village Panapur

Bihar. For Agriculture Sector we have introduced PNB Krishak Saathi Scheme, increased limit of loans without collateral to 1 lakh and introduced several other facilities to promote rural development.  Towards the objective of having a larger international presence, a subsidiary at UK has been made operational. A new branch of PNB – IL has been made functional in Leicester, besides the existing two branches. The Bank also has a branch at Kabul; an Off-Shore Banking Unit at Mumbai; a new branch at Hongkong and Representative Offices at Dubai, Kazakhstan, Shanghai & Norway. The Bank has joint venture in Nepal with Everest Bank Limited. We are having arrangements with various exchange houses abroad. The technology solutions for all the overseas operations of the bank are provided from India, thereby ensuring cost effective services to the overseas clients.

 The Bank has launched two variants of Consumer credit card i.e. Gold and Classic. For customer convenience, host of features like photo card, SMS alerts and interface with PNB’s Internet Banking are being offered. The credit card will be globally accepted. This card will be accepted at over 3.5 Lac merchant establishments and 30,000 ATMs in India as well as at over 29 million merchants establishments and over 1 million ATMs throughout the world who are linked to Visa Payment system  CASA Deposits as percentage to the Total Deposits of the Bank is higher at 40.85%

 (YoY growth of 25.0%)  Net Interest Income grew by 24.8%, while NIM improved to 3.57%

 •Capital Adequacy Ratio (Basel II) is comfortable at 14.16%

 • Earnings per Share increased to Rs. 123.86

 • Backed by the profit of the Bank, the Board of Directors proposed a final Dividend of 120%, in addition to 100% interim dividend already paid  Total Business of the Bank crossed the landmark of Rs 4 lakh crore to reachRs

435,931 crore as against Rs. 3,64,463 crore in March 2009, showing a y‐o‐y growth of 19.6%.  Deposits of the Bank rose to Rs. 2,49,330croreason31.03.2010fromRs2,09,760

crore as on 31.03.2009, exhibiting a y‐o‐y growth of 18.9%. o CASA share improved to 40.85% in FY 10 from 38.83% a year ago. • Advances of the Bank at Rs. 1,86,601 crore as on 31.03.2010 grew by 20.6% (YoY) as against Rs.1,54,703 crore as on 31.03.2009.  Credit Deposit Ratio improved to 74.84% as at March’10 from 73.75% in March’09.  Gross NPA to Gross Advances ratio stood at 1.71% as at March’10.

 Bank has recognized Rs 338 crore as NPAs on account of Agricultural Advances eligible for debt relief due to non‐payment of their share amount by the farmers by 31.03.2010, though the Govt has extended the scheme till June 2010. Excluding this amount, gross NPA ratio improves to 1.53%.  Net NPA to Net Advances ratio stood at 0.53 % as at March’10.  Excluding agricultural advances eligible for debt relief, net NPA ratio

improves to 0.35%.  Provision Coverage Ratio is at 81.17% compared to RBI’s stipulation of 70%.

 Excluding amount provided for debt waiver, the ratio is higher at 86.80%.



Net Interest Margin (NIM) has improved to 3.99% for the quarter 31.03.2010 from 3.33% in corresponding quarter of last year.

 NIM rose to 3.57% for FY ended March 2010 from 3.52% in FY ended March’09.



Return on Assets improved to 1.58% in the quarter ended March 2010 as against1.44% last year (FY 10 : 1.44% against 1.39% last year).

 Low interest/operating expenses and a satisfactory non‐interest income growth

ledto substantial reduction in Cost to Income Ratio of 32.05% for the quarter ended.  March 2010 as against 43.29% last year (FY 10 : 39.39% against 42.50% last

year).

BIBLIOGRAPHY

Financial management

-I.M Pandy -Prasanna Chandra

Management Accounting

-Sharma & Sai K. Gupta

Financial management

-P.N Reddy -Rastthogo

Daily’s & Weekly’s

-Deccan Chronicle, The Hindu, Indian Express, Readers Digest India Today, Business Line & Google Search