II is my pleasure to write to you as the Chairman of PNB and share the Annual Report ofthe Bank's performance and initiatives forthe financial year 2018-19 At the outset myspecial greetings to all our stakeholders as your Bank continues to make admirableprogress in its 125th year of a very momentous journey. During this125 years excitingvoyage your Bank has transformed into one of the largest and most prominent bank's of thecountry from its humble origin in Lahore during 1894. In this eventful period the Bankhad many successes and faced multiple challenges which covered the great depression of1930's and partition upheaval in 1947 amongst others.
Your Bank came out unscathed from many tumultuous events and truly earned thedistinction of a bank with "resilience". We owe our gratitude in large measureto past and present employees for their remarkable vision unstinted commitment andunwavering enthusiasm towards building this very fine institution They were"realheroes" who left indelible footprints. We salute the legendary leadership of the Bankthat built our robust foundations and applaud present custodians who continue toresponsibly augment the edifice left by theirworthy predecessors.
We take pride in our rich heritage which reflects our belief that Punjab National Bankis built on the strength of "valuable customer relationships'. The Bank has upheldits "Core Values" and its spirit of "Pursuing Excellence" throughoutthis historic journey. With devotion to the nation in its soul integrity as its backbonecustomer delight as its purpose and continued innovation as its promise your Bank hasbuilt a unique brand that is widely recognized and consistently espouses trust amongst itscustomers. This journey of 125 years has enabled your Bank to evolve into a large androbust institution with over 6980 branches diligently servingl 10 million valuedcustomers.
The Global economy
Global growth slowed down during second half of Calendar Year 2018 due to deceleratedeconomic activity in almost all developed economies. The confluence of factors such asUS-China trade tension weakening business confidence in Eurozone reining in shadowbanking in China rising borrowing cost due to the normalization of monetary policyamongst others have contributed to softening global growth. Inflation continues to remainsubdued in major developed and emerging economies despite volatility in crude oil priceswhich rose on production cuts by major producers and supply disruptions among someexporters.
Global growth which softened in 2018 is projected to decline further to 3.2% in 2019 asper the Organization for Economic Co-operation and Development (OECD). The China-US tradewar threatens to further crimp global growth. United Nations has also lowered itsforecasts for global economic growth in 2019 to 2.7% with marginal projected increase in2020 to 2.9% as a consequence of high trade tensions uncertainty over economic policiesand softening business confidence.
Growth outlook in all major developed economies and most developing regions hasweakened due to both domestic and external factors necessitating more comprehensive andwell-targeted policy response.
The Indian Economy
In the GDP data number released for fourth quarter of F Y 2018-19 the growth hasslowed down to a five year low of 5.8% in 4th quarter bringing down full year growth to6.8% from earlier projected 7.2%.This has necessitated striding up efforts on policychanges and major reforms to maintain India's position of the fastest growing significanteconomy in the world. The reasons for slower growth are weaker domestic consumptionslower global growth and trade tensions with higher government spending driving theeconomy. On government finances fiscal deficit for 2018-19 has remained within therevised budget target of 3.4% of the GDP. The Government will be hard pressed to preservefiscal discipline and spur growth. Government's continued commitment to maintain course onfiscal discipline instills strong confidence amongst global investors. There is scope forimprovement of credit flows to micro small and medium industries which will revive broadbased growth. It is incumbent on the domestic banking sector to support good qualitycredit growth across sectors to ensure strong and sustainable growth.
In FY 2019-20 the moderation of global growth and the weakening of investment incapital goods is expected to be countered by higherfinanciai flow to commercial sector andrising private consumption especially in the rural sector thereby accelerating economicmomentum. RBI in its monetary policy statement of 6th June 2019 has projected a GDP growthof 7.0% with risks evenly balanced. Going forward in context of the Indian Economy therewill be a judicious mix of fiscal prudence and monetary stimulus to resurrect the growthmomentum.
I strongly believe that increasing the pace of policy reforms address pending bankingand financial sector issues removing structural rigidities and easing of supply-sidebottlenecks through stepping up private investment would pave the way for the Indianeconomy to achieve its true potential. With the new government in place with a clearmajority and strong mandate there are high expectations of a significant momentum inreforms that will develop a strong banking and financial sector providing necessary boostlo economic growth. Banking Sector in India
Although FY 2018-19 continued to remain a challenging year for the banking sector itprovided renewed optimism. The year marked a steady beginning towards faster resolution ofcorporate stressed asset on account of landmark regulatory reforms like implementation ofInsolvency and Bankruptcy code (IBC) Sashakt Committee recommendations and major bankssigning the Inter Creditor Agreement for bank led resolution of stressed assts. Althoughthe challenges on asset quality front remain but the positive developments includingcapital support by Government has generated an air of positivity and a strong belief thatthe worst is over for PSBs. Strong regulatory action recognition of the issues andconsequent corrective measures taken by banks have stabilized further slippages includingat your Bank. Deleveraging and restructuring of the corporate sector as currently inprogress will provide further stability. It is imperative for the banking sector toexpeditiously deal with the legacy issues and resolution of remaining stressed assets andmore importantly prevent further accumulation.
Going ahead re-capitalisation of Public Sector Banks resolution of stressed assetsunder the IBC and consequent improvement in financials are expected to further improvecapacity of the banks to support investment and aggregate demand of the economy. Greateradoption of technology in the banking sector is likely to see fall in intermediation costsand increased competition will impinge on margins. Business growth and profitability areincreasingly going to be driven by restructuring of operating costs wider outreach andgreater brand positioning by going deeper into customer life cycle needs. Therefore toremain competitive and stimulate business growth it would be important to continue focuson change and progress through product development and continuous innovation. The futuredepends on successful management of transitions building greater operational efficienciesand remaining updated with the latest trends in technology and future demand.
Today we are witnessing a period of intense change economic cycles are shorter andmarkets more volatile with growing intensity of risks leading to more rigorous governancestandards. Impact of evolving technology data analytics and artificial intelligence onfinancial markets will be enormous. These developments present new and excitingopportunities for your Bank to serve its fast growing rural and urban customers anddeliver to a "new India". Banks in India have also taken the lead in thetransformation process. Some banks are ahead of others in embracing these changes.Risk-based pricing of products and optimum Risk Adjusted Return on Capital (RAROC) arefast gaining ground as key determinants for quality credit growth Improved corporategovernance compliance and more stringent credit / risk processes are imperatives forhealthy growth and stability of the banking sector.
It is the best time for transformation in the Banking industry as the economicfundamentals are strong regulatory climate is favorable and transformation technologiesare more readily accessible powerful and economical than ever before. The banks whichadopt contemporary governance structures become regulatory compliant continuallyre-engineer risk processes preserve capital through risk adjusted returns reskillemployees adopt technological innovation consistently develop new products and becomenimble- footed will be in a position to differentiate grow exponentially and gain marketshare
Developments and Progress of the Bank
The beginning of FY 2018-19 saw Bank addressing multifarious challenges including theonetime financial setback high NPAand weak capital position. However in to its spirit ofresilience your Bank employees rose to the occasion and undertook a series of strategicmeasures to ensure early rebound with least disruption to business and growth. I commendtheir commitment and tireless efforts during this very difficult and challenging period.
Strengthening of systems and control were undertaken with measures like integration ofthe SWIFT system with the Bank's CBS strengthening of monitoring mechanism including offsite audit system and strict compliance of bank's rotational policy.
Stressed Asset Monitoring Vertical with three verticals namely Monitoring. Resolutionand Recovery was set up for focused recovery efforts through a dedicated specialized andmotivated team of around 2700 officials spread across the country.
"Mission Parivartan" the ongoing process aimed at implementing structuralchanges in the Bank through the three Ps i.e People Processes and Products (PPP) isproviding the directional inputs to transform the Bank into a "Future Ready Bank'. Inorder to strengthen the credit processes. Centralized Loan Processing Centers (CLPC) havebeen opened to ensure Improved Turn Around Time Segregation of Pre & Post SanctionResponsibilities Qualitative Credit Assessment and Efficient Monitoring. SimilarlyMarketing Structure has been revamped moving from Product Centric to Customer CentricMarketing. End to End Digitalization of Trade Finance Operations has also been undertakenwith centralized risk controls.
In order to ensure business growth under capital constraints churning of the portfoliowas undertaken towards better rated borrowers and low risk profile. The strategic approachensured a strengthened balance sheet with capital conservation. It resulted in significantreduction in Risk Weighted Assets (RWAs).
The Bank also continued to adopt the Customer-Centric approach by way of enhancing thedigital platforms to serve the customers more conveniently and the bank's digitalfootprint expanded significantly. The Bank initiated process for setting up an in-houseBig Data Analytics Centre based on its Enterprisewide Data Warehouse to focus on usingdata for business development and sustainability. The Bank came out with all in one appfor Digital Banking i.e. PNBONE which is a Unified Mobile application with advancedfeatures.
The Bank's performance and improvement on several fronts has earned PNB the prestigiousEASE Excellency Award from Shri Arun Jaitley Former Hon'ble Finance Minister as the BestPublic Sector Bank. This well-deserved recognition was received on 28th February 2019 themilestone year as we celebrated our 125th foundation day on 12th April 2019.
The Bank's Financial Year 2018-19 started off on a tepid note. With the biggestfinancial incident in terms of severity and enormity the Bank had a huge task before itto overcome the crisis and turnaround. The strength of performance was possible due toBank's strategic rationalization of the product portfolio mix to conserve capital focuson improving the asset quality credit growth with rationalization of risk weighted assetsand increased operational efficiency.
I am happy to share that in spite of the challenges the Bank crossed variousmilestones and registered improvement in key parameters. Gross Domestic Business reachedthe level of Rs. 11.45 lakh crore as at 31st March 2019 and CASA Deposits reached thelevel of Rs. 2.85 crore. Domestic CASA share stood at 43.51% of total deposits. More than3.2 million new accounts were added in Saving Deposits during the financial year endingMarch 2019 which is a reinforcement of continued customer confidence in your Bank InFY'19 the Bank was able to narrow down its Net Loss to Rs. 9975 crore against the Loss ofRs. 12283 crore during FY'18. Total provisions stood at Rs 22971 crore in FY'19 includinga provision of Rs. 7167 crore for the one off incident.
High level of Net NPAs which had been a major concern saw a sequential reduction fromquarter to quarter and Net NPA reduced from Rs. 48684 crore in Mar'ISto Rs. 30038 crore inMarHO. The Recovery momentum has continued with a Gross Recovery of more than Rs. 20000crore upto Mar' 19 as compared to Recovery of Rs. 9666 crore during Mar'18. GNPAandNNPAhave reduced to 15.50% and 6.56% in Mar'19 from a level of 18.38 & 11.24%respectively in Mar'18 Provision Coverage Ratio improved from 58.42% in Mar'18 to 74.50 %as on March'19.
On capital adequacy front the position of the Bank improved from 9.20% in FY'18 to9.73% in FY'19 which constituted Tier I ratio of 7.49 % and Tier II ratio of 2.24%. I amdelighted to report that the Bank's Employee Share Purchase Scheme (ESPS) which wasimplemented to shore up the capital achieved 90% subscription by your Bank employees.
The Bank monetized non-core assets of more than Rs. 300 crore during the year and hasalso identified other non core assets which will be sold at an opportune time.
Apart from this the Bank has also been able to bring about changes in risk managementand compliance processes. Your Bank overhauled its Reputational Risk Management byintroducing trigger events in Reputational Risk management Policy and is also updating itsreputational Risk Assessment framework for more robust risk capturing.
The Bank faced an extraordinary condition during FY'18 and was able to come out withsheer grit and determination of your Bank employees. The Bank made various structuralchanges to regain the lost growth momentum as evident in the FY'19 results.
The environment in which we operate has become increasingly dynamic and lesspredictable because of macro-economic uncertainties overall operating conditions andregulatory & technological changes. Global growth is expected to remain subdued.Escalation of trade disputes among the world's largest economies poses a significant riskfor both short and medium-term global growth prospects.
On domestic front policy reforms and execution will not only set the pace of GDPgrowth but also affect the scale and contours of private investments and FDI.
Banking landscape has undergone paradigm shift over the years in terms of new entrantstechnology consumer expectations and competition and this trend is likely to continue.The key to success would be to align strategies for business growth with fast emergingopportunities meet customers evolving expectations proactively anticipate newtechnological trends with ability to quickly imbibe new technologies ramp up outreach andinstitutionalize operational efficiency.
Despite your Bank's success in navigating challenges a lot remains to be done and itis important for the Bank to broad-base performance on multiple fronts. A robust balancesheet strong capital base and growth in quality revenues is critical for your Bank toachieve its rightful position in the Indian banking sector. The Board and Bank'sleadership are engaged in developing the Bank's strategy that ensures quality creditgrowth rationalize high risk exposure and right-sizing the Bank's Balance Sheet to ensurestrong capital formation for sustainable growth. Your Bank sees its vast geographicalpresence as an advantage to harness business opportunities in its Financial Inclusiondrive. Your Bank will continue to employ cutting edge digital know-how enhance ITcapabilities to meet customer expectations across customer segments sustain its marketleadership and significantly strengthen internal systems and processes.
People development and skill enhancement will remain a focus area for the Bank.Empowering our dedicated employees will be a critical enabler of our business strategy andfundamental in delivering better results. The Bank will further strengthen its complianceculture and risk management processes. There is a special emphasis on dealing withcyber-security risks and developing awareness amongst all employees. Your Bank will ensureadoption of best-in-class technology ensure rapid digitalization and embrace innovation.It is imperative for your Bank to change with changing times!
Amidst the back drop of fast paced changes and very severe challenges it is gratifyingthat the performance of your Bank in the last financial year has moved in the rightdirection. On behalf of the Board I take this opportunity to thank all employees fortheir outstanding efforts. The Bank will continue in its journey to drive for businessexcellence overcome all challenges maximize potential to capitalize on growingopportunities to achieve its true potential.
To conclude I would like to thank you for your unwavering confidence in the Bank. Ithank the Regulators for their continued guidance and the Government of India for theirunstinted support and capital in a difficult period. I also extend my gratitude andappreciation to my esteemed Board colleagues the Bank leadership and our employees fortheir support and commitment The continued passion of our 70000 employees will enable yourBank to continue its march towards achieving many new milestones as it has in itsglorious past. I strongly believe that your Bank's future is very bright and with yourcontinued support the best is yet to come.
|Thank you. || |
| ||Your sincerely. |
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| ||(SUNIL MEHTA) |