It gives me great pleasure to place before you the highlights of your Bank'sperformance during the financial year 2017-18. Details of the achievements and initiativestaken by your Bank are provided in the enclosed Annual Report.
The Global Economy
After a prolonged slowdown the global economic growth accelerated to 3.3% in 2017. Itwas the best year for the global economy since the global financial crisis of 2008 withlow inflation underpinning rapid growth. Growth in 2018 is also expected to remain robustat 3.7% which may possibly represent a peak as global growth encounters new bumps.Emerging markets have also performed better with projected growth at 4.5% in 2018 andmoving towards 4.7% in 2019.
Despite indications of strong growth in 2018 and 2019 the prospects of disorderlyfinancial markets and volatility increased on account of multiple global developments. Weexpect to encounter unpredictable risks from increasing trade tensions protectionisttariff policies unstable oil prices strained geo-politics looming threat of tradesanctions amongst other issues resulting in excessive market volatility. Rising globalinterest rates particularly by the US FED and European Central Bank has changed directionof capital flows possibly impacting emerging markets.
The Indian Economy
Despite shifting sands in the global economic situation India continues to maintain apositive growth trajectory of 7.5% in FY 2019 from 6.7% in FY 2018. The Indian economy isat a transformative stage and growth momentum on most counts is expected to accelerate.The structural changes unleashed in the last couple of years from the implementation ofGST RERA and Benami Transactions (Prohibition) Amendment Act amongst others will resultin a cleaner and a more robust GDP growth in due course. Continuation of structuralreforms fiscal discipline policy clarity in some infrastructure sectors and higherpublic investments amongst others will provide further economic stability and growthimpetus. These are critical for attracting global capital flows which are universallytentative seeking predictability and optimal risk returns.
Inflation both CPI and WPI remained under control during FY 2018. Assuming a normalmonsoon and no major exogenous factors economists believe that CPI will remain between4-5% in FY 2019. However global factors including rising oil prices are potential riskareas leading to inflationary pressures and rising interest rates. Term structure ofdomestic interest rates continues to be a challenge and needs to be addressed.
Banking Sector Outlook
Competition and capital requirements for banks globally has intensified. Management ofrisks to ensure most efficient use of capital is increasingly becoming more critical.Technology analytics data management and mining have become key enablers for diversifiedgrowth risk mitigation new product development and direct delivery platforms tocustomers. Banks face serious risks on account of data protection and cyber security.Robust cyber security and data integrity firewalls are key challenges facing bank boardsand leadership in addition to continual reengineering of sales and risk processes.
Banks in India have also taken the lead in the transformation process. Some banks areahead of others in embracing these changes. Risk based pricing of products and optimumRiskAdjusted Return on Capital (RAROC) are fast gaining ground as key determinants forquality growth. Improved corporate governance compliance and more stringent credit/riskprocesses are imperatives for robust growth and stability of the banking sector.
The Indian banking sector has witnessed a tumultuous period over last few years withgrowing level of stressed assets. Strong regulatory action recognition of the issue andconsequent corrective measures taken by banks are likely to stabilize further slippages.Deleveraging and restructuring of the corporate sector as currently in progress willprovide further stability. The Insolvency and Bankruptcy Code (IBC) has initiated a robustprocess for resolution of stressed assets. It is imperative for the banking sector toexpeditiously deal with resolution of stressed assets and prevent fu rther accumulation.
The Government's recapitalization plan for the Public Sector Banks will furtherstrengthen their balance sheets in addition to expected stronger performance in FY2018-19. However the biggest challenge for most public sector banks is to measure up tothe "new realities" of increased competitiveness the need to differentiatemaintain and even increase the market share. The banks have multiple priorities -improving asset quality rebalancing regaining financial strength technology upgradationand rapid digitalizing of products & services.
The banks which adopt contemporary governance structures expeditiously re-engineerrisk processes preserve capital through enhanced risk adjusted returns reskillemployees adopt technological innovations develop new products and become nimble footedwill be in a position to differentiate grow exponentially and gain market share. The restwill be compelled to redefine their market repositioning goals.
World-class organizations cultivate habit of excellence and enjoy enduring success asthey have the core values that remain fixed while strategies and practices relentlesslyadapt to a changing environment- balancing continuity and change. Against the backdrop ofa competitive scenario and thriving domestic economy Bank plans to transform into astronger more efficient and profitable 'Future Ready Bank' through innovation and apassion for serving customers. In this direction your Bank has upgraded to the new CoreBanking Solution software Finacle 10 to provide a superior banking experience to all itscustomers. I am pleased to advise that your Bank has also taken various other innovativenew initiatives as enumerated ahead. Developments at your bank
Your Bank has also embarked on an ongoing process for continuous self- improvement. Thetransformational exercise "Mission PARIVARTAN" launched in June 2017highlights ten key focus areas for enhanced efficiency profitability and productivitythat preserve the core strengths and stimulate progress. "Mission PARIVARTAN"serves as a guidepost for the Bank to remain focused on the critical aspects that wouldfuel growth and help drive more profitable businesses through wider reach and sharperexecution. The Bank has been taking up various initiatives under Mission PARIVARTAN torevisit redefine and improve the 3 Ps i.e. People Processes and Products. The strategicplan is aligned with the reforms agenda of the Government "Enhanced Access andService Excellence (EASE) based on the twin touchstones of Customer Responsiveness andResponsible Banking. The Board and the Management has taken all appropriate steps toaddress the issue.
The business of banking is getting complex and skill intensive with the continuouslyrising customers' expectations with complex and growing risks. Therefore "PeopleDevelopment" acquires a critical dimension for driving profitability through growth.Under such a scenario the key to success of any transformation lies in keeping theemployees engaged fully transformed and appropriately skilled. The Bank took variousinitiatives in human resources development by keeping employee morale high through variousup-skilling and capacity building programmes inclusion of employees' voice in variousforums for decision making. Reverse Mentoring concept for select senior executives isbeing implemented as a tool of Decision Support System and knowledge sharing. ProficiencyDatabase was introduced to capture functional expertise of senior executives in variousroles and functional profiles.
The recent financial and reputational stress to your Bank on account of theunprecedented large fraud committed at one of the Bank Branches posed a big challengebefore the Bank. We are all dismayed at the enormity and the manner in which the fraud wascommitted by the fraudsters. The Board and the Management have taken a very serious viewand undertaken prompt corrective measures to address the issue and rectify identified gapsin people and processes. Your Bank and it's employees demonstrated their commitmentability and resilience by emerging out of the trying situation with self-effacementlearning from mistakes and taking strong effective and prompt course correction as thesituation demanded. The Bank has zero tolerance towards unethical practices. It has takenall appropriate internal action against erring bank employees initiated legal proceedingsagainst the fraudsters and is working closely with the regulators and various lawenforcement agencies.
Audit control and compliance processes are being further strengthened. Your Bank istaking necessary steps to implement appropriate technological solutions and integratingany disparate system or process.
Despite being a challenging year your Bank crossed the milestone of Rs. 10 lakh croresin Domestic Business as on 31" March 2018. CASA deposits increased to Rs. 263247crores and CASA share stood at 43.85% of domestic deposits. Total deposits of the Bankrecorded growth of 3.3% to reach Rs. 642226 crores as on March 31 2018. The Bankmaintained its stronghold in CASA deposits which has helped bank contain the cost offunds. Your Bank also continued its relentless drive against Non-Performing Assets (NPAs)and made successful recovery efforts. One crore new customers got associated with the Bankduring the year consolidating PNB's leadership position in the Industry.
Operating Profit for FY 2018 stood at Rs. 10294 crores. The cost of deposit declined to4.96% in FY 2018 from 5.33% in FY 2017. Cost of funds also declined from 4.60% in FY 2017to 4.31 % in FY 2018. Provision Coverage Ratio of your Bank was 58.42% as of March 2018which is amongst the highest in the industry.
Looking ahead the Banking Sector's key concern over high level of stressed assets islikely to be addressed under the new overarching framework of Insolvency and Bankruptcycode (IBC) that provides for time bound resolution. The recent recapitalization packagefor Public Sector Banks announced by the Government of India is expected to helpstrengthen banking sector balance sheets. Besides improved domestic conditions revivalin rural sector and increase in infrastructure projects will spur credit growth liftinvestment and drive India's growth in coming quarters.
Despite the challenge faced in the 4th quarter of FY 2018 your Bank iswell- positioned to capitalize on new opportunities for profitable growth and valuecreation for all its stakeholders. The audit/compliance infrastructure is beingstrengthened and risk processes have been reengineered. The Bank is leveraging technologydata analytics and Artificial Intelligence tools to reinforce its existingsystems/processes for stronger controls and efficient customer delivery andresponsiveness.
Historically Bank's success is grounded in the collective commitment to its corevalues highest ethical standards customer service teamwork accountability innovationintegrity and self-belief. All these have stood your Bank in good stead for over 123 yearsdriving superior performance and repeated impressive growth over the years. In line withthe market your Bank is also undergoing a transformational change to become morecontemporary and responsive to fast evolving customer expectations and needs across ruraland urban markets. There is a paradigm shift underway in banking and financial services todeliver efficiently to the new empowered customers who have multiple choices. Your Bank isalso transforming to deliver to a new India!
I am sure with your continued support and confidence commitment of the 70000 terrificemployees very able leadership and guidance of my remarkable Board colleagues your Bankwill continue its march towards achieving many new milestones going ahead as it has in itsglorious past. ThankYou.