Punjab National Bank

The Bank completed eventful 113 years and has crossed several
 milestones in its quest to satisfy the diverse requirements of its
 customers. In the process, the Bank has gained the goodwill of its
 around 3.7 crore customers, earned a strong brand image as one of
 India’s most trusted brands, received recognitions and won various
 awards. The Bank features at 11 66th position among Forbe’s Global 2000
 list of world’s biggest companies. The Bank was bestowed ‘Corporate
 Excellence Award’ by Amity International Business School, Amity
 University, Noida.
 
 The year 2007-08 reflects the Bank’s efforts to re-furbish its
 overriding principle that the customer should benefit from his
 relationship with the Bank. The Bank sees ‘Financial Inclusion’ as a
 distinct opportunity and a business proposition, especially in the Indo
 Gangetic area, where the Bank has inherent strength. For fully
 exploiting the business potential with cost effectiveness, the Bank has
 re-aligned its business processes with technology; pruned its
 organisational structure to 3 tier from 4 tier making it more
 horizontal; re-invented its human capital and formulated various
 schemes. The Bank has also fully complied with revised AS-15 (relating
 to accounting for retirement benefits) of Institute of Chartered
 Accountants of India. In compliance with revised AS- 15, the
 transitional liability has been adjusted out of Opening Reserves (net
 of taxes) and the current year liability charged to Profit & Loss
 Account.
 
 Your Directors take pleasure in placing the Bank’s Annual Report for
 2007-08 along with its audited annual financial statements.
 
 Key Financial Highlights
 
 Key highlights of the Bank’s performance in the year 2007-08
 
 include the following :
 
 1.  Positive Earnings Momentum
 
 Net Profit of Rs 2,048.76 crore; a rise of 33.0 per cent.
 
 Operating Profit crossed the landmark level of Rs 4000 crore to reach
 Rs 4,006.24 crore as compared to Rs 3617.40 crore in the previous year.
 
 Cost to income ratio of 46.8 per cent; an improvement of 109 basis
 points (bps).
 
 Net Interest margin stood at 3.58 percent.
 
 Return on Assets rose by 12 bps to 1.15 percent.
 
 CRAR improved to 12.96 percent as at the end of March 2008, compared to
 12.29 percent last year. This CRAR was achieved even after providing
 for additional capital towards (i) compliance with revised AS-15 (
 relating to accounting for retirement benefits) ; (ii) compliance with
 Basel II- the capital has also been provided for operational risk,
 besides credit & market risks and (iii) starting the Bank’s subsidiary
 at London, called PNBIL.
 
 The Bank has successfully migrated to Basel II accord as at March 31,
 2008. The CRAR, as per Basel II works out to 13.46 percent.
 
 To shore up the capital base, the Bank raised Hybrid Perpetual Tier-I
 bonds (Rs 1,100 crore) and Upper Tier II bonds (Rs 1,610 crore) during
 the year 2007-08.
 
 Ratio of Gross NPAs to Gross advances was 2.74 per cent; showing an
 improvement of 71 bps over the previous year.
 
 Ratio of net NPAs to net advances stood at 0.64 per cent; an
 improvement of 12 bps over the previous year.
 
 NPA Coverage ratio stood at 77.3 percent as at the end of March 2008.
 
 Return on Equity of 19 percent; an improvement of 381 bps over the
 previous year.
 
 2.  Significant Balance Sheet Strength
 
 Capital and Reserves increased to Rs 12,318 crore; an increase of 18.0
 per cent.
 
 Total business stood at Rs 2,85,959 crore; registering an increase of
 20.9 per cent.
 
 Deposits amounted to Rs 1,66,457 crore; showing a growth of 19.0 per
 cent.
 
 Low cost deposits comprising savings and current deposits formed 42.99
 per cent of total deposits.
 
 Advances grew by 23.7 per cent to Rs 1,19,502 crore.
 
 Retail Advances (excluding traders) rose by 18.5 percent to Rs 18,834
 crore.
 
 Priority Sector Credit at Rs 43,412 crore was 44.11 percentage of
 Adjusted Net Bank Credit (ANBC) and continues to be above the national
 goal of 40 per cent.
 
 Agricultural credit at Rs 19,947 crore was 18.94 percent of ANBC and
 continues to be higher than the national goal of 18 percent.
 
 3.  Income & Expenditure Analysis
 
 Total income of the Bank increased by 25.4 percent to reach a level of
 Rs 16,262 crore.
 
 Interest Income rose by 27.0 percent to Rs 14,265 crore.
 
 Net Interest Income increased by 6.2 per cent to Rs 5,534 crore.
 
 Non-Interest income grew by 15.4 percent to Rs 1,997 crore, accounting
 for 12.3 percent of total income of the Bank. Commission, Exchange and
 Brokerage (CEB) increased to Rs 1,106 crore, registering a growth of 14
 percent.
 
 Operating expenses stood at Rs 3,525 crore during 2007- 08, showing an
 increase of 6 percent.
 
 Interest Spread stood at 3.11 percent during 2007-08.
 Income Expenditure Details
 
                                                        (Rs crore)
 Particulars                                       2006-07     2007-08
 
 Interest income                                    11236        14265
 Interest/discount on advances/bills                 7644        10439
 Income on investments                               3288         3611
 Non-interest income                                 1730         1997 
 Total Income                                       12966        16262
 Interest expended                                   6023         8731
 Interest paid on deposits                           5617         8265
 Other interest expenses                              406          466 
 Total Operating expenses                            3326         3525
 Establishment expenses                              2352         2462
 Total Expenses                                      9349        12256
 Operating profit                                    3617         4006
 Provisions and contingencies                        2077         1957
 Net profit                                          1540         2049
 
 4.  Profit Analysis
 
 * Operating profit of the Bank crossed the landmark level of Rs 4000
 crore to reach Rs 4,006 crore.
 
 * Provisions were made at Rs 1,957 crore, as compared to Rs 2,077 crore
 made during the last year.
 
 * Net profit grew by 33 percent to Rs 2,049 crore.
 
 5.  Key Ratios                                 (per cent)
 
 Particulars                                  2006-07     2007-08
 
 Average cost of funds                           4.01        4.90
 Average yield on funds                          7.48        8.01
 Return on net worth                            15.19       19.00
 Net Interest Margin                             3.85        3.58
 Return on assets                                1.03        1.15
 Staff expenses to average Working Funds         1.57        1.38
 Operating profit to Working Funds               2.41        2.25
 Earning per share (Rs)                         48.84       64.98
 
 6.  Dividend
 
 The Board of Directors has recommended a dividend of 130 percent for
 2007-08.
 
 7.  Changes in Board of Directors
 
 During the year 2007-08, the following changes took place in the
 composition of Board of Directors.
 
 Dr. K.C. Chakrabarty took over as Chairman & Managing Director on
 4.6.2007.
 
 Shri J.M. Garg was appointed Executive Director of the Bank on
 6.6.2007, thereby increasing the strength of Executive Directors to
 two.
 
 Shri Mushtaq A. Antulay and Shri Gautam P. Khandelwal were nominated as
 Directors on the Board of the Bank on 27.2.2008 under Section 9(3)(h)
 of the Banking Companies (Acquisition and Transfer of Undertaking) Act,
 1970.
 
 Shri S.C. Gupta ceased to be Chairman & Managing Director w.e.f.
 1.6.2007 on attaining the age of superannuation.
 
 Shri Mohanjit Singh, Director representing shareholders expired on
 21.2.2008.
 
 The Board welcomes all the new Directors and wishes to place on record
 the valuable services rendered by Shri S.C. Gupta and Shri Mohanjit
 Singh.
 
 8.  Corporate Governance
 
 The Bank gives high priority to good Corporate Governance.  The Bank
 was assigned the CGR-2 Rating by ICRA Ltd implying adoption of such
 practices, conventions and codes as would provide its financial
 stakeholders a high level of Corporate Governance.
 
 In compliance of RBI directive regarding “fit & proper criteria” to be
 fulfilled by the person being elected as Directors on the Boards of the
 Nationalised Bank, the Board of the Bank constituted a “Nomination
 Committee”.
 
 The Bank has complied with the guidelines of RBI and SEBI on the
 matters relating to Corporate Governance which has been examined by the
 Statutory Central Auditors.
 
 In recognition of its efforts, the Bank was bestowed Golden Peacock
 Award for Excellence in Corporate Governance by the Institute of
 Directors, on September 20, 2007.
 
 9.  Organisational Restructuring
 
 While the Bank gained in terms of improved business processes, asset
 liability management and risk management, the rapid changes in the
 competitive environment and higher use of technology warranted the need
 for a more horizontal organizational structure for speedier decision
 making. Keeping this in view, the Bank removed one tier and adopted 3
 tier structure in place of existing 4 tier one. The new 3 tier
 structure will allow for a leaner, efficient and cost effective system.
 
 10.  Acknowledgments
 
 The Board of Directors thank the Government of India, Reserve Bank of
 India, Securities and Exchange Board of India (SEBI), Stock Exchanges,
 the Bank’s customers, public in general and the shareholders for
 valuable support, continued patronage and confidence reposed in the
 Bank. The Board also wishes to place on record its appreciation to all
 our people whose talent and commitment are central to the Bank’s
 success and look forward to their continued co-operation in meeting the
 future challenges.
 
                          For and on behalf of the Board of Director
 
                                      Chairman and Managing Director
 
 New Delhi
 May 29, 2008