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Punjab National Bank.

BSE: 532461 Sector: Financials
NSE: PNB ISIN Code: INE160A01022
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OPEN 141.95
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VOLUME 563818
52-Week high 185.65
52-Week low 112.00
P/E 22.48
Mkt Cap.(Rs cr) 30,611
Buy Price 143.75
Buy Qty 514.00
Sell Price 143.85
Sell Qty 384.00
OPEN 141.95
CLOSE 142.40
VOLUME 563818
52-Week high 185.65
52-Week low 112.00
P/E 22.48
Mkt Cap.(Rs cr) 30,611
Buy Price 143.75
Buy Qty 514.00
Sell Price 143.85
Sell Qty 384.00

Punjab National Bank. (PNB) - Director Report

Company director report

2015-16

During FY'16 the Bank has crossed several landmarks i.e. Rs.. 9.65 lakhcrore Global Business Rs.. 8.50 lakh crore Domestic Business Rs.. 5.50lakh crore Global Deposits Rs.. 4.00 lakh crore Net Advances Rs.. 2.00lakh crore CASA Deposits and Rs.. 12000 crore Operating Profit.

The Bank's Global Business reached Rs..9.65 lakh crore as at end of March'16 reflectinga growth of 9.5% on yearly basis. The Bank's International Business stood at the level ofRs..112123 crore recording a YoY growth of 11.2%. While the Global Deposits of the Bankat Rs..5.53 lakh crore grew by 10.3% Net Advances recorded growth of 8.4% to reachRs..4.12 lakh crore as on 31st March 2016.

In terms of Bottom-line parameters the Bank's Operating Profit increased from Rs..11955 crore as at 31st March'15 to Rs.. 12216 crore as at 31st March'16. In terms of keyratios Domestic Net Interest Margin at 2.95% for the year ended March'16 remained one ofthe highest amongst nationalized banks during the period under consideration. Further theCRAR of the Bank at 11.28% stood above the prescribed regulatory requirement.

In this backdrop your Directors take pleasure in placing the Bank's Annual Report for2015-16 along with its audited annual financial statements.

OUR PERFORMANCE

A. FINANCIAL HIGHLIGHTS

A.1. BALANCE SHEET

(Rs. crore)
31st Mar'15 31st Mar'16 Growth (%)
Total Business 881913 965377 9.5
Total Deposits 501379 553051 10.3
Net Advances 380534 412326 8.4

A.2. PROFIT

(Rs. crore)
Parameters Mar'15 Mar'16 (%)
Operating Profit 11955 12216 2.2
Provisions 8893 16192 82.1
Net Profit/Loss 3062 -3974 -

A.3. KEY RATIOS

(%)
Particulars FY'15 FY'16
Cost of Funds 5.14 4.93
Yield on Funds 8.00 7.28
Global Net Interest Margin 3.15 2.60
Domestic Net Interest Margin 3.55 2.95
Return on Assets 0.53 Negative
Cost to Income Ratio 46.74 44.94

B. OPERATIONAL HIGHLIGHTS

• The Bank implemented a new strategic approach named ‘Indradhanush' whichcharts the seven key reform areas for the Bank so as to adapt evolve and thrive in theface of increased competition in the Indian banking space. These seven areas are PeopleDevelopment Increase CASA & Retail Business Improve CD Ratio through Credit GrowthNPA Management Improve customer service Digital PNB and Increase Income & ControlExpenditure. The Bank made a significant progress in these areas.

• Towards People Development the Bank has launched new Mobile App basede-Learning Platform named ‘PNB Univ'. It is available on all major MobilePlatforms besides web based access through Desktop or Laptop to provide a quick access toquality curriculum and high quality training 24x7 right on the palm top.

• To unleash the full potential of the newly recruited young energetic andtech-savvy employees the Bank has initiated an On-boarding & Mentoring Program titled"PNB Navodaya". This program will help to channelize employees' energiestowards the Bank's development and transform them into brand ambassadors for the businessgrowth and organizational goal.

• To ensure a consistently superior customer experience and to better align withchanging customers' expectations the Bank launched slew of innovative digital productsand solutions which are as follows:

'PNB ATM Assist': Unique App enabling the customer not only to locatePNB's ATM but also to lodge complaints related to ATMs.

'PNB MobiEase': Mobile app to provide single touch banking.

‘PNB Sleep Easy': To disable and re-enable Internet Banking andMobile Banking password.

‘Green PIN': To enable customers obtain duplicate PIN for debit cardinstantly through SMS request.

Online PPF and RD account opening facility.

Online booking of locker facility anywhere in India through the corporatewebsite.

• The Bank has also introduced the facility to register for Mobile Bankingthrough vast network of over 9000 ATMs.

• The Bank registered its presence on the social networking sites i.e. Twitterand LinkedIn with an aim of strengthening "Brand PNB" on social mediaand to engage with customers in a cost efficient manner.

• To improve operational processes the Bank has successfully migrated the CBSData Base from M9000 servers to new Sparc Super Cluster (M6-32) servers. Owing to thisthe Bank has become the first bank in India to implement 4 node active RAC (RealApplication Cluster) setup.

• The Bank is in process of introducing ‘PNB Unified Payments Interface(UPI)' which will allow fund transfer via. Mobile App link all accounts includingthose opened with other banks for making transactions and facilitate merchants to pull thetransactions through Mobile App as an alternate POS & cash transfer

• To improve the recovery the Bank has created a ‘War Room' at HeadOffice wherein round the clock NPA monitoring is undertaken in a systematic manner.

• To provide card based transactions services Micro ATMs have been introduced atBusiness Correspondent locations. The Bank has become the first bank in the bankingindustry to start cash deposit through Micro ATMs.

• To spread financial awareness across the length and breadth of the country theBank flagged off ‘Vitiya Jan Chetna Abhiyan'. This program will also emphasizeon creating awareness about the Pradhan Mantri Jan Dhan Yojana Atal Pension Yojana MudraLoans Pradhan Mantri Jeewan Jyoti Yojana and Pradhan Mantri Jan Suraksha Yojana.

• For women development the Bank has formulated new schemes i.e. PNB Vanitafinancing scheme PNB PoWer Savings and Mahila Kaushal Vikas Yojna.

• During FY'16 the Bank has inaugurated 32 ‘Akshaya' branchesmanaged exclusively by women for the women customers only.

• The Ministry of Finance Government of India has declared PNB as the firstamong all banks in deposit mobilized through Pradhan Mantri Jan Dhan Yojana (PMJDY)accounts.

C. ASSET QUALITY

The Bank's Gross NPA stood at Rs..55818 crore in FY'16 (FY'15 = Rs..25695 crore) andthe Net NPA stood at Rs..35423 crore in FY'16 (FY'15= Rs..15396 crore). In terms ofratios Gross NPA ratio stood at 12.90% in FY'16 (FY'15= 6.55%) and Net NPA ratio stood at8.61% in FY'16 (FY'15=4.06%).

The accumulation of stressed assets remained a concern for the Bank. The Bank initiatedvarious measures to arrest the incremental delinquencies and fresh slippages to improvethe quality of assets. In all NPAs account-specific resolution strategies wereimplemented and progress was monitored regularly. Daily progress of recovery in NPAs(outstanding Rs..10 lakh and above) was monitored and placed before Top Management.Further compromise/negotiated settlements through one-to-one meeting with borrowers wasadopted as another vital strategy to tackle NPAs. The Bank also had 17 Asset RecoveryManagement Branches (ARMBs) which function exclusively for resolving NPAs.

Initiatives taken during FY'16:

• During FY'16 two mega sale campaigns were organized in which residentialindustrial and other miscellaneous categories of properties were put to sale with widepublicity. This increased the number of sales and led to substantial recovery during theyear.

• The Bank has taken initiative to streamline the entire process of SARFAESIaction. During FY'16 rigorous follow up was done by ensuring timely action and mainstress was given in taking physical possession of the Immovable Properties (IPs) eitherwith the help of supporting agency or by moving application before the DMM/CMM. This hasresulted into increase in the percentage of properties under physical possession of theBank thereby leading to more auctions under Mega Sale Campaigns.

• During FY'16 another option available to tackle the rising level of NPAs wasutilized by putting some difficult accounts for sale to ARCs. As a result 15 accountswith outstanding of Rs..1835 crore was sold to ARCs.

• Concerted follow up was also made with the Circle Office/FGMOs for havingdialogue with the borrower and guarantors which has resulted into higher number ofsettlement during FY'16 vis-a-vis FY'15.

• The Bank also took initiative for identifying Wilful Defaulters and according toReserve Bank of India guideline notices were issued to various borrowers who were foundto have committed an act of Wilful Default. As a result during FY'16 904 borrowers werefinally declared as Wilful Defaulters.

• During FY'16 in 6898 Rin Mukti Shivirs cash recovery of Rs.. 742.98 crore wasobtained from 116825 accounts and upgradation of 49702 accounts with balanceoutstanding of Rs..1224.50 crore. Thus NPAs of Rs..1967.48 crore were resolved in theseshivirs.

• OTS was marketed as a product for faster resolution of NPAs and OTS in 84104accounts was approved. Through well defined recovery policy Rs..854.93 crore wererecovered in approved OTS cases through negotiated settlements.

• Due to the above highlighted initiatives and concerted follow-up for recoveryand upgradation the Bank recovered Rs.. 4724.58 crore in accounts slipped during FY'16.

• NPA accounts as on 31.03.15 with aggregate outstanding of Rs..1381.66 crore wereupgraded to Standard category. Total cash recoveries in NPA accounts amounted toRs..4261.88 crore. During FY'16 the Bank recovered Rs..2296.95 crore out of the accountsearlier written off (Including Technical Write off).

D. INDUSTRIAL RESTRUCTURING

The Standard Restructured Advances of the Bank has come down from Rs..38315 crore forFY'15 to Rs..20144 crore for FY'16

a) Industrial Rehabilitation

The Bank continued its efforts towards rehabilitation of potentially viable sick unitsto provide the much needed relief to industrial sector by debt restructuring. The Bank hasbeen assigned the role of ‘Operating Agency' of Board for Industrial and FinancialReconstruction (BIFR) in number of accounts. During FY'16 Draft Rehabilitation Scheme(DRS) were formulated by the Bank as ‘Operating Agency' of BIFR in four accounts andthe Bank has also implemented rehabilitation package in one case sanctioned by BIFR duringFY'16.

b) Corporate Debt Restructuring (CDR)

To ensure timely restructuring of the debt of viable corporates availing creditfacilities under consortium / multiple banking a transparent mechanism is formed underCDR system. During FY'16 one account with outstanding of Rs.. 38.38 crore wasrestructured under CDR. Out of 84 restructured accounts PNB has been assigned the role ofMonitoring Institution in 18 accounts.

c) Debt Restructuring Mechanism for Small & Medium Enterprises

The Bank has already adopted Debt Restructuring Mechanism for Small & MediumEnterprises (DRM for SMEs) on the lines of CDR since FY'06. During FY'16 the Bankrestructured 17 accounts with aggregate outstanding of Rs.. 247.10 crore.

d) Restructuring-Others

The Bank has also put in place a transparent mechanism for restructuring of debts ofpotentially viable units which are facing temporary problems due to factors beyond theircontrol even for cases which cannot be covered under BIFR/ CDR/DRM for SMEs. During FY'1619 accounts involving Rs..1002.56 crore were restructured/ rescheduled under thiscategory.

E. DIGITALIZATION: TOWARDS ‘DIGITAL PNB'

The Bank undertook several initiatives in its continued efforts to provide betterprompt and efficient services to the customers. These initiatives were a step towards cashless society and paperless banking.

E.1 Alternative Delivery Channels a) Internet Banking: The Bank has been providingInternet Banking Services with following variants viz. Retail Internet Banking andCorporate Internet Banking. The Internet Banking Customers of the Bank reached 47 lakh ason 31st March 2016. The Bank also updated its Internet Banking Services during FY'16 whichare given as under:

• Revamped Corporate Internet Banking Module making it more simple and easy touse.

• Launched ‘PNB Sleep-easy' to block/unblock transaction password ofIBS and Mobile Banking when not required.

• Hot listing and personalization of Debit Card.

• Online resetting of Pin number of Debit Card.

• Online application for OD under PMJDY Accounts through IBS.

• For strengthening security in Internet Banking services operations the Bank hasimplemented Digital Signature as a second factor of authentication for doing transactionsin Retail and Corporate Internet Banking.

b) Mobile Banking: The Bank is also providing Mobile Banking services to around 24lakh customers as on 31.03.2016. The Bank has provided Mobile Banking Services withfollowing variants:

i. SMS Banking: User has to create SMS in the predefined format(s).

ii. Browser Based Mobile Banking: This requires Mobile phone enabled with GPRS orWi-Fi.

iii. Application Based Mobile Banking: The user can download app from respectiveapp store. Currently the Bank is providing Mobile Banking App for Android iOS Blackberryand J2ME platforms.

iv. National Unified USSD Platform (NUUP): This is offered on a short code *99#which is a common platform for all banks managed by National Payment Corporation of India(NPCI).

During FY'16 the Bank added the following features which are as follows:

PNB MobiEase: Using this mobile app there is no need to remember syntaxfor sending SMS for different enquiries (i.e. Balance Enquiry Mini Statement Cheque Bookrequest etc.)

Value Added Services: Facility of Mobile and DTH recharge is availablethrough Mobile Banking.

PNB ATM Assist : A Mobile App to locate ATMs of the Bank using GPS andalso lodge complaints regarding the functionality of ATMs.

Online User Registration and Password Reset for Mobile Banking withoutany intervention of branch.

• Online application for OD under PMJDY Accounts through Mobile Banking.

• PNB introduced hindi version of Mobile Banking.

c) SMS Alert Services: As on 31st March'16 around 3.95 crore customers havesubscribed for SMS Alerts Services. On an average per day around 29.92 lakh SMS Alerts aregenerated and delivered to these customers.

• SMS Alerts are generated for identified transactions (credit/debit) done atbranches ATM IBS Mobile Banking and POS terminals.

• In addition SMS alerts are also sent for non-financial activities likeBirthdays Mobile no. registration/modification address/name change change of internetbanking transaction password loan installment becoming due loan installment overdue FDaccount maturing FD account Matured NEFT (N10) confirmation RTGS transactions with UTRNo Balance on missed call etc.

• The channel is also leveraged for providing promotional messages such asinformation on Bank's products and other services to the Bank's esteemed clients.

The Bank has been continuously adding new features such as:

• SMS alerts implemented in 5 Regional Rural Banks.

• Mandatory/Non-Mandatory Feature Introduced: Customer is provided with option toselect from Mandatory and Non-mandatory alerts so that in case customer requires onlymandatory alerts he / she may not be charged.

• Call center is provided with facility to access SMS alerts history sent tocustomer in order to speed up complaint resolution process related to SMS alerts and OTP.

CIBIL Watch Alert: Alerts are sent to branch heads through informationprovided by CIBIL regarding PNB loan customers approaching some other Bank for loan.

Housing/Car Loan Alert: Alert is sent to customer acknowledging his/herrequest whenever he/she visits PNB housing/car loan site and submits a request for callback from PNB.

Cheque Presentment Alert: Alert is sent to customer whenever a cheque ispresented in his/ her account providing ample time to respond before the same is cleared.

15G/15HAlert: Alert is sent to customers requesting submission of 15G/Hto avoid deduction of Tax.

d) ATMs: The Bank has vast network of 9463 ATMs spread across length and breadth ofthe country as on 31.03.2016.

increase the usage of ATMs are as follows:

E- Surveillance systems have been installed at ATM sites to restrict theincidences of vandalism and burglaries. Till 31.03.2016 6136 sites are connected andmonitored by E- Surveillance.

• To decrease the downtime of ATMs on account of electricity failure Solar UPSare being installed. Till 31.03.2016 450 Solar UPS were installed at potential sites.

• For online ATM monitoring and to take prompt corrective/preventive actions incase of ATMs getting down ESQ ATM Monitoring System has been installed.

e) Self Service kiosk: The Bank has installed 1721 Cash Deposit /MultifunctionKiosk (including PNB Cash Acceptor cum ATM) 383 Electronic Cheque Deposit Machines and3214 Pass Book Updating Machines across the country. The machines installed in e-lobby aremade available to customers 24*7. Customers may access the same as per their convenience.

In order to improve the availability of Self Service Area Machines a real timemonitoring tool for remote monitoring of SSA Machines has been implemented for effectivemonitoring and to reduce down time.

E.2 Cheque Truncation System (CTS): Primary site of CTS Western Grid has beenshifted from LCC-Mumbai to Belapur. Now all the branches under Western Grid areparticipating in CTS clearing through the Belapur Site.

Complete infrastructure of LCC Mumbai has been shifted to Data Centre-Delhi and DR siteof Western Grid is established at Data Centre-Delhi.

E.3 IT Security: The Bank has Information Security Policy which is approved byBoard and reviewed each year to keep it updated as per latest trend and best practices.

• Information System Security Architecture Implementation Committee (ISSAIC)meetings are held on monthly basis to review and recommend implementation of Informationsecurity posture.

• Website has been made WCAG (Web Compatibility Access Guideline) Version 2.0.

• Corporate website has been made IPV6 Compliant.

• Security Operations centre has been upgraded from RSA Envision to RSA SecurityAnalytics.

• Information Security Audit and Process audit is got conducted from externalqualified Information Security auditors on periodical basis. The scope includes externalattack and penetration testing Vulnerability Assessment and Penetration Testing (VAPT)WAN Audit and process audit.

• ISO Certification was got upgraded from ISO 27001:2005 to ISO 27001:2013 fordata centre NOC and DR Site.

Business Continuity Plan & Disaster Recovery (BCP & DR)

• The Bank has well defined Business Continuity Plan (BCP) to provideun-interrupted Customer Services in case of any exigency.

• The Bank has fully operational Disaster Recovery Site (DRS) of its Data Centreand other critical applications with well defined Recovery Time Objective (RTO) andRecovery Point Objective (RPO).

• DR drill is conducted regularly to keep testing its functional preparedness. Ason 31st March'16 DR site is available for 65 applications including critical ones.

E.4 Other Initiatives

a) Micro ATMs: Under the PMJDY account opening drive large numbers ofsaving accounts have been opened and RuPay debit cards have been issued. To provide cardbased transactions services to such customers concept of Micro ATMs has been introducedat Business Correspondent locations. Micro ATMs are basically PoS/ Handheld Terminalmachines with Magnetic-stripe Card Reader and Encrypted pin-pad. Currently customer hasthe facility of cash withdrawal and balance inquiry transaction through Micro ATMs.Transaction happens in online real-time mode and receipt is immediately generated by theMicro ATM. The facility was made live in 4410 Micro ATMs and the Bank is under the processof implementing the same at remaining BC locations.

b) Branch-Wise Vacant Locker Status: For getting a locker on rent customers haveto sometimes make number of visits to particular branch to ascertain the position ofvacant lockers available. Also some branches in the same city may have vacant lockers& others may be having waiting list of customers for issue of locker. To address theissue w.e.f. 24.09.2015 existing & prospective customers have been provided anopportunity to locate branch-wise vacant locker status on the Corporate Website(www.pnbindia.in). Also a mechanism was put in place to update this vacant locker statuson the Bank's website on daily basis.

c) Payment System for PAO/CDDO Files from PFMS: Ministry of Finance Government ofIndia has taken a decision to process all payments like non plan payment (includingPAO/CDDO payments) of various Ministries through PFMS (under Ministry of Finance) and tointegrate various standalone systems. These payments are to be digitally signed and sentthrough PFMS central server. The payment files from PFMS are being processed through PFMSPAO portal. Generation of e-Payment scrolls Cheque Scrolls Receipt Scrolls has beenintegrated in this system from 01.11.15.

d) Outward Mandate Management System: To help the branches in garnering business ofcorporate customers wishing to collect funds from their customers on a regular frequencyon the basis of their mandate an in-house developed Outward Mandate Management System hasbeen put in live w.e.f. 03.02.16. For collecting EMI as per mandate from PNB borrowersDebit Transaction File (Outward ACH-Debit) can also be generated by service branch throughthis system.

e) Implementation of new Sparc Super Cluster (M6-32) servers: On 18.10.2015 theBank has successfully migrated the CBS Data Base from M9000 servers to new Sparc SuperCluster (M6-32) servers on 4-Node RAC (Real Application Cluster) Architecture from earlier2-Node RAC. PNB is the first Bank in India to implement 4 node active RAC (RealApplication Cluster) setup. This implementation will help the Bank in future cost savingsand provide various operational benefits.

f) Zero Data Loss Centre (ZDLC): ZDLC of the Bank started functioning from29.02.2016. ZDLC will function as Bank's third line of data defense. The Bank'stransaction data would be simultaneously captured at DC and ZDLC and then subsequentlyreplicated in DR site thereby guaranteeing 100% synchronization or availability of thetransactional data. This will ensure zero data loss for critical transactions therebyhelping the organisation to quell operation risk reputation risk and enhance stakeholderconfidence.

F. Management Information System

To achieve the objective with which Management Information System Division (MISD) wasset up Enterprise-wide Data Warehouse (EDW) was implemented in 2008. EDW set up hasfacilitated ready access to data required for Regulatory/Statutory reporting andadditionally for analytical purposes. This has reduced workload of field functionaries toa considerable extent and is assisting Top Management in taking timely decisions.

Standardized approach for credit risk under Basel – III has been implementedthrough LADDER (Loans and Advances Data Desk for Evaluation & Reports) system enablingcalculation of Risk Weighted Assets (RWAs) in respect of Loans & Advances as perguidelines of RBI. Data of all loan accounts is being transmitted to four CreditInformation Companies (CICs) i.e. CIBIL Equifax Experian & High Mark on monthlybasis from Ladder System. Bureau One solution has been put in place since 2012 enablingthe branches to draw Credit Information Reports (CIRs) using Bank's intranet (CBS network)for taking credit related decisions. CIRs of 1462493 prospective borrowers underConsumer category and 26861 CIRs under Commercial category were drawn from CIBILExperian High Mark & Equifax databases during FY'16

The Bank is required to register the particulars of equitable mortgages with CentralRegistry. About 4.19 lakh Immovable Properties (IPs) have been registered with CERSAI bythe Bank till March 2016. The object is to avoid multiple financing on same IP therebypreventing perpetration of frauds by mortgaging the same property to more than onefinancial institution.

Anti Money Laundering solution has been implemented to scan the customers at the timeof customer acquisition and fund transfer by verifying various Watch Lists. The systemalso helps in submitting different reports to FIU and other regulatory bodies.

G. Branch and Office Network Domestic Presence

The Bank has one of the largest Branch Network of 6759 as on 31.03.2016. Around 63% ofthe Bank's branches are located in Rural and Semi-Urban areas. To fulfill the bankingneeds of unbanked areas 202 new branches were added to the vast network of branchesduring FY'16. Besides 32 ‘Women only' branches named "Akshaya" wereopened during FY'16. These branches are managed exclusively by women for the womencustomers only.

International Presence

The Bank has its overseas presence in 9 countries by way of 4 branches (2 Hong Kongone Dubai & one OBU-Mumbai) 2 Subsidiaries (London & Bhutan) one Associate (atKazakhstan) one Joint Venture (at Nepal) and 4 Representative Offices(Sydney-AustraliaShanghai-China Dhaka-Bangladesh and Dubai-UAE).

The Bank is also exploring possibilities of overseas expansion in Sri Lanka CanadaBrazil Australia and China.

H. International Banking

The Bank had registered a foreign exchange turnover of Rs.. 133881 crore for FY'16showing a decline of 2.08% on YoY basis mainly due to slowdown in global economies andcontinuous decline in the country exports. At present the Bank has more than 200 branchesauthorised to handle foreign exchange business and a Centralized Back Office for TradeFinance at New Delhi specialized for centralized handling of trade transactions. The Bankhas specialized International Banking Branches at major export centres for extendingservices to the importer/ exporter customers. Besides these Authorised Dealers (AD)branches the Bank has 22 Exchange Bureaus at important tourist centres to facilitateencashment of foreign exchange currency notes/travellers cheque by foreign tourist/NRIs.

The Bank is also having International Service Branch at New Delhi for handling inwardremittances for the Bank as a whole. During FY'16 the Bank handled remittance business ofabout Rs..57886 crore showing growth of about 4% on YoY basis.

The Bank has Rupee Drawing Arrangements (RDA) with 38 exchange Houses (32 in the Gulf2 in Singapore 2 in the USA 1 in Australia and 1 in Canada) to facilitate remittancefrom NRIs.

The Bank also has web based remittance arrangements under Money Transfer Service Scheme(MTSS) and has arrangements with 6 Money Transfer Organizations Worldwide. The Bank hasactively implemented Gold monetization Scheme (GMS) launched by Government of India inFY'16 and systems and procedures have been put in place.

I. Operations Division

Organizational Restructuring: Organizational structure plays a vital role inperformance of any organization. To improve the productivity and hence delivery number ofCircle Offices has been increased from 69 to 76. Existing 3 tier structure with CircleOffices linking head office to the branches is being changed to 4 tier structure whereZonal Offices will monitor the performance of Circle Offices and report to the HeadOffice.

Business Processes: Business processes are being continuously reworked at the microlevels to provide seamless banking experience to customers e.g. request for issue ofpersonalized cheque books through ATMs relaxation in inter-sol (branch) cash withdrawalsand transfer transactions introduction of payee's name in SMS sent on presentation ofcheque for clearing etc.

Employee Suggestion Scheme: To encourage innovative and progressive ideas throughemployees Employee Suggestion Scheme is in vogue for existing as well as retiredemployees. Customers can also send suggestions through feedback or email to customer carecentre at care@pnb.co.in.

J. New Initiative Division

To improve the customer service and increasing business prospects the Bank took upmany initiatives which are as under:

• Towards brand positioning and connecting with the customers/visitors on socialmedia the Bank has made its presence on Twitter & LinkedIn. On social media the Banklaunched various facilities for customers/visitors viz. regular updates on offerscustomer care services including grievances redressal etc.

• The concept of Digital village was evolved under which the village will bewi-fienabled along with OffSite e-lobby having ATM Cash Deposit Machine ElectronicCheque Deposits Machine Passbook Updation Machine PC with internet connection and TVdisplay unit.

• 121 new Offsite e-lobbies started at institutional and cantonment areas toacquire business and improve service delivery.

• Skill development programmes like computer literacy carpentry advanced farmingtechniques etc. are being conducted with focus on creating job opportunities and promoteinclusive growth.

• For bringing more efficiency in the ATM functioning and profitability "ATMProfitability Model" was designed. This is in-house designed software to monitorthe functioning of ATMs Pan India with an aim to minimize/eliminate the pay out.

• In order to communicate effectively with its customers and staff continuouslythe Bank is coming out with concept of ‘Reach in Reach out' which will be akinto TV Channel.

• The Bank is also planning to launch Tab Banking for acquisition of newcustomers using the newly set up marketing vertical and "PNB YUVA" foryouth with an objective to bring them in the Bank's fold through Mobile app.

K. Business Diversification

Mutual Fund: The Bank is distributing and marketing Mutual Fund productsof Principal PNB AMC & UTI AMC. During FY'16 the Bank mobilized total amount ofRs..3457 crore and Asset under Management stood at Rs..580 crore which earned brokerage ofRs..3.38 crore. Total amount mobilized during FY'16 was Rs..2653 crore and Asset underManagement Rs..515 crore.

Insurance Business

1. Life Insurance Business: As a corporate agent of PNB MetLife IndiaInsurance Co. Ltd. the Bank mobilized premium of Rs..964 crore (Fresh Business PremiumofRs..411 crore & Renewal Business Premium of Rs..553 crore) during FY'16 from112200 policies as against total premium of Rs..677 crore mobilized during FY'15 thusshowing a growth of 42%. The Bank's earnings from Life-Insurance business during FY'16amounted to Rs..85 crore as against Rs..60 crore during FY'15 showing growth of 42%.

Total business mobilized under Life Insurance business since inception is Rs..2840crore from 445048 policies and total earning amounted to Rs..248 crore.

2. Non-Life Insurance Business: Under Insurance tie-up with OrientalInsurance Co. Ltd. for Non-Life Insurance business the premium collection amounted toRs..208 crore from 5.15 lakh policies mobilized by the Bank which earned revenue ofRs..24.51crore as against Rs..21.87 crore during FY'15 showing a growth of 12%. Premiumcollected during FY'15 was Rs..193 crore from 4.40 lakh policies thus showing a growth of8%. The Bank registered a growth of 31% in selling of customized health insurance policy‘PNB-Oriental Royal Mediclaim' and 158175 policies were sold during FY'16 asagainst 120797 policies sold during FY'15.

Depository Services: Depository Services as Depository Participants ofNSDL & CDSL is being provided through all branches covering more than 3500 centresacross India. The Bank earned an income of Rs..79.60 lakh during FY'16 for providingDepository Services.

Online Trading Services: Online trading facility is also being providedthrough the Bank's associates viz. M/s. SMC Global Securities Ltd. M/s. IDBI CapitalServices Ltd. and M/s. Networth Stock Broking Ltd. An income of Rs..19.81 lakh wasreceived from these associates on account of online trading activities during FY'16.

Merchant Banking: As Category-I Merchant Banker the Bank handled 42assignments of Dividend Payment/

Interest Payments during the FY'16 and earned a float income of Rs..2.95 crore.

Being Self Certified Syndicate Bank (SCSB) Applications Supported by Blocked Amount(ASBA) facility for submitting of application in public issues (IPO/FPO/ Right Issue) hasnow been made available from all the branches of the Bank. This facility is also availableonline to Bank's CASA account holders (both retail and corporate IBS users). ASBA facilityis also available for Syndicate/Sub syndicate Members of SEBI. During FY'16 the Bankcollected applications for Rs..812 crore for 93 assignments handled by the branches.

Credit Card: Credit Cards of the Bank have consolidated its market shareduring the year. The Bank achieved a growth rate of 35.32% in issuance of cards duringFY'16 The Bank also introduced Chip cards with PIN and One Time Password (OTP) tofacilitate e-commerce transactions. To enhance customer awareness about security aspectsvarious steps are being regularly taken including sending text messages to cardholders ofthe Bank. Issuance activity has become an independent profit centre. Profit from theactivity increased to Rs..524 lakh during the year and contributed to fee based income.

Merchant Acquiring Business: Merchant Acquiring Business throughinstallation of Point of Sale (PoS)/ GPRS Terminals and Integration of Internet PaymentGateway (Debit/Credit Cards) launched in February 2010 has completed 6 years. The Bankinstalled 13699 PoS terminals and integrated 176 Internet Payment Gateways.

RuPay Card: The Bank has taken membership of National Payment Corporationof India (NPCI) for acceptance of RuPay Debit card on PNB Point of Sale terminals. Now inaddition to acceptance of cards having logo VISA or MasterCard / Maestro PNB POSterminals accept RuPay Debit card for all face to face transactions.

KAIRON Project of Punjab Govt. for Grain Procurement: PUNGRAIN a foodgrains procurement agency of Punjab Government has launched Kisan Arhtia Information andRemittance Online Network (KAIRON) project whereby they are making payments to the farmersthrough Arhtiyas using RuPay Debit cards with the help of National Payment Corporation ofIndia (NPCI).

The Bank actively participated in the project and has done a business of Rs..4150 croreas Acquiring Bank and Rs..2111 crore as Issuing Bank during FY'16.

Bhamashah (e-Mitra) Project: The Bank successfully participated ine-Mitra Project of Rajasthan Government and succeeded in obtaining the Project wherebythe

Bank is going to install 10000 PoS terminals. Service Level Agreement (SLA) was signedand process of implementation has since started.

Multi level EMI facility in PoS terminals: At present

PoS terminals of the Bank are not customized with Multi Level EMI facility. In thepresent scenario many customers prefer to avail EMI facility. The Bank is going to startthe Multi Level EMI facility on the PoS terminals. Draft Agreement relating to it has beensent to M/s Worldline for the purpose of execution.

Launch of NFC Contactless Dual Interface debit card: The Bank is going tointroduce NFC (Near Field Communication) technology in PNB PoS terminals. In NFC enabledPoS terminals the card holders can make payments by just waving his card near the PoSterminal instead of dipping or swiping the card

L. Government Business

To bring in efficiency in pension disbursement we have provided the followingfacilities:-

• Introduced Digital Life Certificate (DLC) and e-PPO which is a step towardsdigitization and error-free pension delivery system.

Approved CPPC at Allahabad for entire army pensioners

Set up service centres for pensioners e.g. for armed forces at Allahabad for navalpersonnel at Mumbai and air-force personnel at Delhi

• Created exclusive e-mail IDs armypension@pnb.co.in; airforcepension@pnb.co.inand navypension@pnb.co.in so that pensioners of these wings of armed forces can post theirgrievances/ references.

• Sending reminders through SMS to pensioners to submit life certificate

• Organized Aadhaar seeding Camps across India for convenience of pensioners andupdated Aadhaar & Mobile numbers in their pensioner data.

The Bank introduced Sukanya Samriddhi Yojana Kisan Vikas Patra Scheme and on-lineopening of PPF accounts. These products are made available through 5990 SOLS of our Bank.

The Bank started 20 new projects for receipt and payment of Govt. dues. The Bankestablished relationship with State Governments for VAT collections in all States exceptin NorthEastern J&K and Goa.

For increasing efficiency in cash management the Bank has made action plan to set upMega Currency Chest / Cash Processing Centre and reducing the number of Currency chestsfrom 195 to 109 in phased manner. Govt. Business Income for FY'16 stood at Rs..102.99crore as compared to Rs..84.92 crore in FY'15. Claims lodged in Jan'16 for Rs..11.67 crorewith SBI/EPFO/RBI which pertains to FY'16.

M. Treasury Operations

During the period under review Gross Investment as on 31st March 2016 stood atRs..154727 crore as against Rs..149266 crore as on 31st March 2015 and registered aYoY growth of 3.66%. The average investments as on31stMarch2016wasRs..162855croreasagainst Rs..141340crore in corresponding period lastyear. The Interest income from investment portfolio increased from Rs..10563 crore forFY'15 to Rs..11935 crore for FY'16. The Bank actively traded in sovereign bonds Non-SLRbonds and equity throughout the financial year. The liquidity position of the Bank wascomfortable throughout FY'16 and the funds were managed through CBLO Repo and Forexmarket swaps. The Bank complied with all the requirements of CRR/SLR stipulated by theRegulator.

Fixed Income (SLR/NSLR): FY'16 started on a bearish note on the back ofunfavourable global factors like Grexit (Greece exit from Euro) China's devaluation ofits currency and fear of US FED hike. In September Monetary policy the regulatorannounced a rate cut of 50 bps following which yields softened by around 25 bps along withSLR and HTM cut. However market could not sustain at these levels and yields hardened onaccount of excess supply in the market mainly in State Development Bonds and expectedsupply of DISCOM bonds under scheme Ujwal DISCOM Assurance Yojana (UDAY). This huge demandsupply mismatch along with fear of Government not sticking to its fiscal consolidationpath and expectations of higher Government borrowing numbers further put pressure on theyields. However Budget announcement gave a big respite to the market as Government stuckto its fiscal deficit target and borrowing numbers came much below the marketexpectations. After the Union Budget 2016-17 10 year benchmark yields softened by around40 bps. During FY'16 the Bank booked trading profit of Rs..418.63 crore profits from saleof investments in Fixed Income.

Equity: During FY'16 Markets declined around 9% and Nifty corrected from its highof 9116 (Mar'15) to low of 6825 (Feb'16) due to Global events like Fed rate hike Chinamarket sell-off Yuan devaluation falling crude prices and weak Corporate earnings.However Markets have shown some recovery after Budget as Government stuck to its FiscalDeficit roadmap. On Global front dovish stance of Fed and renewed FIIs buying supportedthe market sentiments. Indian Equity Market has been relatively resilient during thisperiod compared to other Major Emerging Market Economies because of its strongfundamentals and domestic consumption story. The Bank booked Rs..204 crore Trading Profitin Equity segment and Dividend income increased to Rs..115.50 crore in FY'16 fromRs..95.70 crore in FY'15.

Forex: There has been an increase in Forex Income Expenditure due to changingaccounting policy. Now the income/ expenditure on swaps is being reposted on gross basisinstead of net as was being done previously. Net Forex income has increased fromRs..681.50 crore as on March 2015 to Rs..1319.60 crore as on 31st March 2016 showing anincrease of 93.63% mainly on account of deployment of surplus of liquid fund by way ofshort term loans in Dollar Market. However Exchange Profit decreased from Rs..397.72crore in March 2015 to Rs..385.98 crore in March 2016.

N. Customer Care

The Bank continued to accord top priority to providing prompt and efficient service toits customers for FY'16 also. The Bank formulated a Grievance Redressal Policy. Effortswere made to redress the grievances of the customers within the framework laid down in theGrievance Redressal Policy.

Systems and procedures for the grievances redressal mechanism are reviewed at regularintervals to remove systemic deficiency if any which help in further improving thecustomer service.

Initiatives undertaken during FY'16 for improvement in customer service

• The Bank introduced an On-line Grievance Redressal Management Program calledCentralized Grievance Redressal Management System (CGRMS). Customers can lodge theirrequests/complaints in the CGRMS through the Bank's website Internet Banking Service andMobile Banking Service. Complaints received at Head Office all the Circle Offices andover 1862 SAP enabled branches are entered in CGRMS. Through this system the customergets an immediate automatic acknowledgement and can keep a track of his complaint also.

• The position of complaints received by the Bank is reviewed by a Sub-Committeeof the Board on quarterly basis. The meetings of the Sub-Committee are presided over byManaging Director and CEO. All the Executive Directors Directors representing Officers'Association Ministry of Finance and the shareholders' Directors are members of theSub-Committee and General Managers of selected business and control Divisions arepermanent invitees to the above committee. The above committee held four meetings duringFY'16 and reviewed the position of complaints received by the Bank and also complaintsreceived by Chief Customer Service Officer (Internal Ombudsman) on quarterly basis.

• The Bank also constituted "The Standing Committee on CustomerService" which is chaired by the Executive Director with General Managers of severalbusiness and control Divisions of the Bank. The committee also has three eminentnon-executives (one senior citizen/ one pensioner/one woman representative) drawn from thepublic as members. The committee meets every quarter to evaluate feed-back on quality ofcustomer service received from various quarters. The committee also reviewscomments/feed-back on customer service and implementation of Code of Bank's Commitments toCustomers received from BCSBI. The Standing Committee on Customer Service held fourmeetings during FY'16.

• Customer Service Committees have been set up in all the branches and CircleOffices to look into the quality of customer service rendered and to critically examinethe feedback/suggestions for improvement in customer service. These committees meet oncein a month where staff and the invited customers interact freely on service relatedissues. Two nominated non-official members representing customers are invited in theCircle Level Customer Service Committee Meeting on quarterly basis.

• The Bank has established state-of-the-art Contact Centres at Gurgaon and NOIDAto provide tele-banking services to its customers on 24 x 7 x 365 basis through tworenowned Service Providers. In addition to these two Primary Sites the Bank alsoestablished two Secondary Contact Centres at Mangalore and Bhopal to provide tele-bankingservices to its customers in 5 regional languages besides Hindi and English.

• The Bank constituted teams of officials at Customer Care Centre at Head OfficeCircle Offices and Zonal Offices to pay incognito visit to branches to assess theirstandard of service. During FY'16 officials of the Bank made 4205 incognito visits tobranches Pan India. Deficiencies pointed out by the visiting officials are being sharedwith the concerned branch and the Circle Office for taking corrective steps for removal ofthe same. This helps in further improvement in customer service.

• Theme Based Meetings are conducted at monthly intervals in all branches on acommon date on a pre-decided Themes details of which are provided by Customer CareCentre HO to improve awareness of field staff about the Bank's products and services andto sensitize the staff about the issues of utmost importance as well as the changes takingplace in the industry and the Bank.

• The Bank is publishing a monthly magazine titled "Customer Speak"in which selected complaints filed by customers and the action taken and resolutionprovided to the complainants are also mentioned. Letters issued by customers appreciatingthe service of officials of the Bank are also published in this magazine. Besides theBank's guidelines on important issues pertaining to customer service products andservices are highlighted in this magazine for the benefit of field staff.

Due to various initiatives taken by the Bank to improve the customer service thenumber of complaints received during FY'16 came down to 29654 as compared to 29759complaints received during FY'15. Out of total number of 29827 complaints (i.e. 173complaints outstanding as on 1st April 2015 and 29654 complaints received during FY'16)29610 complaints were resolved as at 31st March 2016. The number of complaints pending ason 31.03.2016 was 217 which have since been resolved.

No award has been passed by any Office of the Banking Ombudsman during FY'16.

O. Implementation of Official Language Policy

The Bank has been leading in the area of implementation of Official Language andachieved almost all the targets in all parameters fixed by the Government of IndiaMinistry of Home Affairs Department of Official Language for FY'16. All the bilingual CBSand HRMS computers are under Hindi Interface. By adopting this bilingual systemimplementation of Rajbhasha is increasing. In addition the Bank is using Unicode fontsfor Hindi correspondence at all levels.

During FY'16 the Bank has been awarded with more than 50 awards for its excellentperformance in the use of Hindi which includes some of very significant awards namelyRajbhasha Kirti Puraskar (First in ‘A' region) – a top most award scheme ofGovt. of India RBI Rajbhasha Shield Competition (First in ‘A' region and Second in‘B' region) and other Regional level awards of Ministry of Home Affairs. In additionTown Official Language Implementation Committees situated in different locations of thecountry and other Non-Govt. Organizations have also awarded the Bank offices. The Bank issuccessfully convening the Town Official Language Implementation Committees constituted byGovt. of India in Delhi Bharatpur Kanpur Chandigarh Dharamshala SriganganagarBulandshahar Dehradun Gorakhpur Kurukshetra Rohtak Muzaffarnagar HoshiarpurHamirpur and Bathinda.

The Draft and Evidence Committee of Parliament on Official Language inspected ErnakulamCircle on 9th January 2016 and the third sub-committee of Committee of Parliament onOfficial Language visited Bharatpur circle on 15th February 2016. The Committee not onlyexpressed satisfaction but also appreciated the efforts made by the Bank for progressiveuse of Hindi.

The Bank celebrates 'Hindi Maah' in the month of September every year. Variouscompetitions are organised at all India local and Circle levels in which staff members ofall cadres participate enthusiastically. The winners are awarded with prizes in theRajbhasha function. The Bank has its own Lala Lajpat Rai Rajbhasha Shield Yojana for itsvarious HO Divisions Circle Offices Training Centres Zonal Audit Offices etc. Underthe scheme every year offices are awarded with prizes for doing excellent work in thearea of Rajbhasha implementation. This year also the Bank organised Hindi Maah and otherprogrammes/competitions and awards and prizes were given. Sixth collections of articlesreceived in the competitions on creative writing namely PNB Pravah: Ek Aur Kadam has beenpublished. Under Moulik Hindi Pustak Lekhan Yojana of the Bank cash incentives wereawarded to staff members for writing original books in Hindi on Banking and Non-bankingsubjects. All the staff members working in the Bank or retired from bank services canparticipate under this scheme.

P. PNB's Subsidiaries and Regional Rural Banks

a. PNB Housing Finance Limited (PNBHFL)

The housing finance industry continues to be very competitive and has given excellentgrowth over last few decades. Inspite of a very challenging year the Company has achievedits highest ever loans disbursements and profitability. On the basis of total loan assetsCompany is now ranked 5th largest Housing Finance Company (HFC). The Company is alsoranked the 2nd largest deposit taking housing finance company. The Company has earned thisdistinction in a short span of five years since starting Business Process Re-engineeringproject through a PPP model.

To keep pace with its rapid expansion in business which require huge Tier I capitalthe Company has started the process of getting itself listed towards the end of 2ndquarter of FY'17. The Company will shortly come out with its initial public offer whichwill be in the vicinity of Rs.. 2500 crore.

The Company sanctioned 43040 loan applications worth Rs..23011 crore (Annual growthin sanction number 59% and sanction amount 53%). Loans worth Rs..14456 crore weredisbursed (Annual growth of 53%). The loan book of the Company reached Rs..27177 crore(Annual growth of 62%) and Assets Under Management reached at Rs..27555 crore (Annualgrowth of 59%). The Deposits of the Company reached Rs..7115 crore (Annual growth of45%).

The Company earned Total income of Rs..2697 crore which grew by 52% on YoY basis.Operating Profit for the year increased by 76% to reach Rs..588.20 crore. Further Profitbefore tax for the year was at Rs..503.09 crore (Annual growth of 70%) and Profit aftertax was Rs..326.47 crore (Annual growth of 66%).

Total loan delinquencies were 1.48% of End Period Net Receivables (ENR) which is thebest in the industry; Gross NPAs were Rs..59.81 crore i.e. 0.22% of ENR and Net NPAs wereRs..38.06 crore i.e. 0.14% of ENR during FY'16.

The Company has achieved Net Interest Margin (NIM) of 3.08% Return on Total Assets(RoA) of 1.45% and Return on Equity (ROE) of 17.08%. The Company had faced toughcompetition on interest rates from peer HFCs and commercial banks. The Company has managedgood NIM through efficient funds management and resource planning. During FY'16 theCompany has achieved the distinction of raising Rs..500 crore of Green Bonds through IFCWashington for promoting green housing projects in India.

The Company was felicitated for ‘Outstanding Contribution to CSR' at the CREDAIConclave 2015 by Hon'ble Union Minister Shri Rajiv Pratap Rudy. The Company was alsoawarded the ‘Housing Finance Company of the Year' at the 8th Annual Real EstateSummit and Awards hosted by Franchise India and ET Now. The Company was honoured for itsIT transformation journey by EMC Corporation in an event held in partnership with CiscoVM Ware etc.

b. PNB Gilts Limited

During FY'16 the yields on Government securities trended down with the ten-yearbenchmark yield moving down to 7.46% as on 31st March 2016 as against previous year closeof 7.74%. Though the yields on point to point basis declined the market remained highlyvolatile with the yields moving up for major part of the year. This was despite anaccommodative stance by RBI with a cut in repo rate of 75 basis points. Inflation was wellcontained and Current Account Deficit was comfortable with a slump in global prices of oiland gold. Internationally too the major economies like Euro zone China Japan were on aneasing path whilst USA raised the rates.

The main reason for this directional mismatch was the demand supply gap in thegovernment securities and enhanced supply of normal State Developmental Loans. Theuncertainty hanging over the issuance of UDAY bonds also weighed heavily on market.Further despite accommodative Monetary Policy stance RBI kept the system liquidity indeficit mode with average liquidity deficit of more than rupees one lakh crore. It wasonly from February end onwards with the completion of Government borrowings andaggressive OMO purchases by RBI that this demand-supply mismatch was reversed. This wasfurther aided by the fiscal deficit pegged at 3.5% for FY'17 reduction in small savingsrate lower retail inflation and a positive early expectation of a normal monsoon.Accordingly the yield on 10-year benchmark Government security which opened the year at7.74% touched a high of 7.99% and closed the year at 7.46%.

Against the backdrop of extreme volatile market conditions the Company managed to posta Profit Before Tax of Rs..51.47 crore as on 31st March 2016. The Company fulfilled allits obligations as a Primary Dealer in both primary and secondary markets. The totaloutright turnover stood at Rs..3.76 lakh crore whereas the total Networth of the Companyrose to Rs..731.22 crore as on 31st March 2016 from Rs..718.06 crore as on 31st March2015.

c) Punjab National Bank International Limited (PNBIL)

Financial Year 2015-16 was a year of consolidation for the PNBIL. During the yearPNBIL adopted holding business strategy with increased focus on strengthening theCorporate and Risk Governance frameworks. PNBIL also endeavoured for revision in variousCredit Risk Capital and Liquidity Management policies.

In order to demonstrate effective 3 Lines of Defence PNBIL has revised its CorporateGovernance structure appointed Chief Risk Officer (CRO) Chief Finance Officer (CFO) andCompany Secretary. PNBIL created/revised structure of the various committees includingNomination and Remuneration Committee Credit Approval Committee Risk and ComplianceCommittee Credit Risk Oversight Committee. PNBIL has also created a separate CreditMonitoring and Recovery Department for the effective management of stressed assets.

This is the ninth year of operations for PNBIL and it achieved a total business figureof $2834 million. Operating Profit for FY'16 amounted to $38.26 million as against $41.49million in FY'15. Decrease in operating profit was mainly on account of reduced treasuryincome by $4.35 million.

During FY'16 total lending stood at $1476 million as compared to $1555 million in2015. Net Interest Income has shown improvement which increased by $2.90 millionsignifying better margins. Net trading income decreased by $4.19 million due to marketrate movements.

Expenditure increases were due to the PNBIL upgrading its governance and controlenvironment and investing in systems to enable it to meet the increasing regulatorychallenges faced by all banks.

Many of the PNBIL's customers have been adversely affected this year by the sloweconomic growth in India the delay in flow of funds to the much awaited infrastructureprojects and the global slowdown. This has resulted in increased gross impaired advancesto $144.99 million ($82.53 million in 2015) necessitating the need for the PNBIL to take ahigher level of impairment provisions.

In addition to this PNBIL took the opportunity to further fine-tune its impairmentrecognition and provision methodology resulting in an additional impairment provisioningof $71.85 million. The net impaired advances have accordingly reduced from $47.03 millionin 2015 to $36.37 million in 2016.

PNBIL is the first among Indian Bank subsidiaries/branches that launched tax saver CashISA product and Contactless Master Debit card which are one of the most popular productsof the PNBIL. Strategic integration parental support continuous innovation customercentric approach niche positioning and competitive advantage in its targeted customerbase are the key strengths PNBIL is enjoying in UK. PNBIL has its own dedicated treasuryat London and a back office in India. PNBIL is complying with all regulatory and capitaladequacy guidelines of Prudential Regulation Authority of UK. Offering basic bankingproducts and relationship banking continues to be the strong selling point for the Bank.PNBIL has built a strong brand image in the UK market.

d. Punjab National Bank Investment Services Limited (PNBISL)

PNB Investment Services Ltd (PNBISL) is a wholly owned subsidiary of Punjab NationalBank. The Company commenced its operation on 8.6.2009. The Company has its offices atMumbai Delhi Chennai Ahmedabad and Hyderabad.

The Company is engaged in providing Merchant Banking and Corporate Advisory serviceslike Financial Appraisal Techno-Economic viability Study Debt Syndication and CorporateDebt Restructuring besides providing Trusteeship services.

During FY'16 the Company earned fee based income of Rs..7.51 crore with a total incomeof Rs..10.93 crore as against a fee of Rs..11.13 crore and Rs..14.53 crore respectivelyfor FY'15. Profit Before Tax during FY'16 stood at Rs..6.11 crore as against Rs..10.70crore for FY'15.

There has been an improvement in the revenue generated from the Merchant Banking andTrusteeship segments during FY'16. However due to the withdrawal of the regulatoryforbearance by RBI for restructured loans with effect from 1st April 2015 and generaleconomic downturn and no major CAPEX projects coming up there was a drop in business inCDR and syndication business. Hence the overall revenue of the Company declined in theFY'16.

With the introduction of alternate debt resolution mechanism through flexiblerestructuring and strategy debt restructuring scheme the Company has taken initiativesand started working in the segment to enhance its revenue.

Primary Capital Markets segment is witnessing a revival and the Company keeping pacewith the development in this segment has bagged a couple of IPO assignments and is hopefulof creating its visibility and increase its revenues in Merchant Banking segment.

The Company hopes for a better and improved industrial environment in the country tobag more business in Merchant Banking Credit Appraisal and Debt syndication segmentsthereby significantly enhancing its revenues.

e. DRUK PNB Bank Ltd. Bhutan

The Subsidiary completed 6 years of successful operations in 2016 registering a growthin total business from Rs..967.55 crore as at 31.3.15 to Rs.. 2344.81 crore as at31.03.2016. In terms of customer base also the Subsidiary achieved encouraging resultswith number of accounts surpassing 90000 mark as on 31st March'16 an increase of over17% over last year. Net Profit increased to Rs..21.76 crore during FY'16 from Rs..10.71crore during FY'15.

The Subsidiary not only registered satisfactory business growth but also maintainedthe quality of assets and liabilities much better than the Industry average (Gross NPLestimated at over 10%). The retail deposit base of the Subsidiary which is considered tobe stable deposit is above 81% of the total deposits while the performing advances are96% of total advances.

f. Regional Rural Banks (RRBs)

At present five RRBs are sponsored by the Bank. These RRBs are operating in fiveStates namely Bihar Haryana Himachal Pradesh Punjab and Uttar Pradesh covering 74districts with a network of 2301 branches.

The aggregate paid-up capital of these Regional Rural Banks stood at Rs..199.30 crore.Central Government State Governments and PNB contributed in paid-up capital of these RRBsin the ratio of 50: 15: 35 respectively. The Bank's contribution towards capital of theseRRBs was Rs..69.76 crore. The combined networth of RRBs as on 31st March 2016 was Rs..2929 crore.

During the year the aggregate business of all RRBs increased from Rs..45630 crore inFY'15 to Rs..52133 crore in FY'16 showing an increase of Rs..6503 crore (YoY growth:14.25%). The aggregate deposits and aggregate advances as on 31.03.2016 stood atRs..33492 crore (YoY growth: 14.72 %) and Rs..18641 crore (YoY growth: 13.42 %).

The aggregate Net Profit of the RRBs as on 31.03.2016 stood at Rs..320 crore. All PNBsponsored RRBs were in Profit. The Gross NPAs of the RRBs increased from Rs..692 crore toRs.. 764 crore (4.10% of Total Advances) during FY'16. During FY'16157 new branches wereopened by RRBs taking the total network of Branches to 2301 with all being on CBS andtotal numbers of employees were 8714. The figures pertaining to FY'16 are un-audited.

Progress in opening of accounts under PMJDY as on 31.03.16 stood at 3299189 accountsout of which RuPay debit cards were issued in 2286660 accounts. Balance outstanding inthese accounts was Rs..653.70 crore. Total number of accounts having zero balance as on31.03.2016 stood at 163750.

The RRBs sponsored by the Bank are actively participating in economic development ofthe areas of their presence. With the implementation of Core Banking Solution (CBS) ruralcustomers are also getting benefit of latest technology thus providing services to therural poor under Financial Inclusion Plan at their doorsteps.

RRBs are also opening NRE/NRO accounts. The facility of Micro ATMs RTGS NEFT RuPayATM cards/ KCC cards KIOSK Banking Solution (KBS) under FIP Aadhaar Payment BridgeSystem (ABPS) under DBT etc. is also being provided to customers in all the RRBs.

Q. Awards and Accolades

During FY'16 in recognition of its performance and initiatives PNB received variousawards some of which are:

• Golden Peacock National Training Award 2016 by Institute of Directors.

• Social Banking Excellence Awards 2015 under Rural Banking Category (Large Bank)by ASSOCHAM.

• Best Bank Award for PMJDY (Large Bank)-Winner of Banking Excellence Awards 2015by CIMSME.

• ABP News Brand Excellence Awards 2015 under Banking Financial Services andInsurance Category by CMO Asia with World Marketing Congress

• Inspiring Work Place Awards 2015 under the category Best HR and TalentManagement Practices by The Banking Frontiers.

• Agriculture Leadership Award 2015 by Agriculture Today Group.

• FICCI CSR Awards 2014 by Federation of Indian Chambers of Commerce and Industry(FICCI).

• Skoch of Merit Award for the project- Transaction Monitoring System for internetbanking with OTP and adaptive authentication.

R. Future Business Plan of the Bank

The Bank has been realigning its business strategies to the changing macroeconomicscenario. Despite unfavourable macroeconomic condition the Bank was able to maintain goodoperating profit and efforts for healthy Capital to Risk Weighted Asset Ratio (CRAR) inFY'16. Speeding up the recovery of bad loans increasing qualitative credit and garneringcapital are going to be the focus areas for the Bank in the coming financial year 2016-17.

Apart from that the Bank would focus on augmenting fee based income and mobilizingCASA (current account savings account) Deposits on sustainable basis. With increasedcompetition it is important to guard market share in low cost CASA deposits and retailcredit. The Bank will work towards anticipating growth opportunities first and move fastto tap the opportunities. Hence bettering customer service and marketing of products& services will be the key growth enablers for the Bank.

Digitalization is an area where the Bank will lay sharp focus on an ongoing basis. Itwill not only reduce operating cost but also improve customer service. Hence the Bankwill take measures to move towards a Super Smart Bank and the Bank for the Gen Next.

The Bank will continue to lay emphasis on lending to Priority sector MSME andpromoting Financial Inclusion as it traditionally does. Digitalization of BusinessCorrespondent (BC) network improving automation of MSME loan processing will also befocused upon in FY'17.

It is expected that the business environment in the economy will improve and demand forcredit from the Bank will increase in H2 FY'17. The reform measures adopted by theGovernment to transform India boost infrastructure create self-employment promote MicroIndustries and Housing will prove beneficial for the Bank. The development of industrialcorridors manufacturing zones and ‘smart cities' will further boost investmentclimate of the country. Along with these Make in India Startup India Housing for all by2022 will create financing opportunities for banks. With improvement in the credit demandthe bank will also take measures to meet the Capital requirement under the Basel III.Hopefully FY'17 will turn out to be the year of ‘Growth & Strength' forthe Bank.

S. Board Of Directors

As on 31.03.2016 there were 11 Directors on the Board of the Bank including 4 wholetime Directors i.e. One Managing Director & CEO and three Executive Directors. DuringFY'16 the following changes took place in the composition of Board of Directors:

• Mrs. Usha Ananthasubramanian was appointed as Managing Director & CEO of theBank w.e.f. 14.08.2015.

• Shri Gauri Shankar completed his tenure as Executive Director due to attainingthe age of superannuation as on 31.03.2016.

• Shri Prem Narain and Ms. Hiroo Mirchandani were appointed as Shareholders'Directors on the Board of the Bank for a period of three years w.e.f. 02.05.2016. HoweverShri Prem Narain ceased to be Director on the Bank's Board w.e.f. 29.08.2015 due toresignation.

• Shri Rajinder Mohan Singh was elected as Shareholders' Director on the Board ofthe Bank for a period of three years w.e.f. 01.07.2015.

• Shri Sudhir Nayar was elected as Shareholder Director on the Board of the Bankw.e.f. 19.12.2015.

• Shri Tara Chand Jhalani Workmen Employee Director completed his tenure on07.03.2016 on the Board of the Bank.

The Board wishes to place on record its appreciation for the valuable contribution madeby Shri Gauri Shankar Executive Director Shri Prem Narain and Shri Tara Chand JhalaniDirectors.

T. Directors' Responsibility Statement:

• The Directors confirm that in the preparation of the annual accounts for theyear ended March 31 2016:

• The applicable Accounting Standards have been followed along with properexplanation relating to material departures if any;

• The accounting policies framed in accordance with the guidelines of the ReserveBank of India were consistently applied;

• Reasonable and prudent judgment and estimates were made so as to give a true andfair view of the state of affairs of the Bank at the end of the financial year and of theprofit of the Bank for the year ended March 31 2016;

• Proper and sufficient care was taken for the maintenance of adequate accountingrecords in accordance with the provisions of applicable laws governing banks in India and

• The accounts have been prepared on the principle of "going concern"basis.

U. ACKNOWLEDGEMENT

The Board expressed thanks to the Government of India Reserve Bank of IndiaSecurities and Exchange Board of India Stock Exchanges Bank's customers public and theshareholders for valuable support continued patronage and confidence reposed in the Bank.

The Board wishes to place on record its appreciation for the valuable contribution madeby the members of the Bank's staff at all levels and look forward to their continuedinvolvement in achieving the future goals.

For and on behalf of Board of Directors

Usha Ananthasubramanian

Managing Director & CEO