Another simple measure to watch is net interest margin, which looks at net interest income as a percentage of average earning assets. Track margins over time to get a feel for the trend. PNB’s Net Interest margins have been generally stable in the 3.5 to 4 percent range. FY08 Net Interest Margin stands at 3.58 percent which is again one of the best records among all banks, next only to HDFC Bank.
Punjab National Bank is India’s second-largest public sector lender, with 4668 branches and 2455 ATMs across the country. During the year 2008-09 the number of branches increased by 163 branches. The net profit of the bank was Rs.927 crore for the quarter ended Sept’09 as against Rs.707 crore in the corresponding period last year recording a growth of 31.1%. The bank has the lowest prime lending rate (PLR) of 11% among all banks in the country. The Prime lending rate is the rate of interest at which the bank lends to its best customers.
Overseas Presence
Branches at Kabul and Hong Kong and Representative offices at Almaty, Dubai, Shanghai and Oslo. With the opening of the Representative Office at Oslo, PNB becomes the First Indian bank to have presence in whole Scandinavian belt. In addition the Bank has a subsidiary (PNBIL) in UK.
- Strong Capital Base
A strong capital base is the number one issue to consider before investing in a lender. Punjab National Bank also excels on Capital Adequacy Ratio (CAR) – perhaps the only parameter where many Indian banks fall short, much like their global counterparts. While many Indian Banks are struggling to keep their heads above the floor-levels of 9-12%, PNB’s CAR is at a very comfortable 14%. Thus there is no need for PNB to seek recapitalization by the government, something that is plaguing many other peers.
Net Interest Income (NII):
All firms can divide the balance sheet into assets and liabilities. For banks the assets are commercial and personal loans, mortgages, construction loans and securities. The liabilities are deposits from customers. The net interest income is then the difference between the revenues on the assets and the cost of servicing the liabilities. The performance on the net interest income front is especially good, taking into account their low PLR. It also enabled PNB to manage margin pressures better. Interest income during quarter ended Sept’09 at Rs. 5,407 crore show a growth of 16.3%. Interest income stood at Rs.10,615 crore in the half year ended Sept’09 showing year over year growth of 20.8%.
- Net Interest Margins (NIM)
Another simple measure to watch is net interest margin, which looks at net interest income as a percentage of average earning assets. Track margins over time to get a feel for the trend. PNB’s Net Interest margins have been generally stable in the 3.5 to 4 percent range. FY08 Net Interest Margin stands at 3.58 percent which is again one of the best records among all banks, next only to HDFC Bank.
- Return on Equity (RoE) and Return on Assets (RoA)
These metrics are the standards for gauging bank profitability. Punjab National Bank’s profitability record is commendable. Net Margins have been stable around the 12-13 percent mark. Return on Assets, the indicator of how profitable a company is relative to its total assets is good at around the 1.2 percent mark, probably the best record after HDFC Bank. Return on Equity is at about 19 percent, again comparable to the best in the Industry. And this has been achieved without very high financial leverage (about 15x), which is commendable.
- Strong Revenues
Historically many of the best-performing bank investments have been those that have proven capable of above-average revenue growth. Punjab National Bank’s FY08 growth has been good. Interest income and total income growth stand at about 26 percent. The balance sheet has also grown strongly with advances growing at about 24% and deposits registering a growth of about 20 percent. This again shows that Punjab National Bank had been aggressive on the loans disbursal front.
CASA ratio:
CASA ratio is the ratio of the deposits in the form of Current Account & Savings Account to the total deposits. The bank has a good source of low-cost funds in its CASA deposits that amount to nearly 40% of its total portfolio.
New Initiative Loans
PNB is an outperformer in socially inclusive banking, and has kick-started several initiatives in sectors like microfinance, self-employment loans, kisan credit cards, rural smart cards, enabling technologies for the handicapped, support for the economically challenged, etc.
Summing Up
On the technology front, PNB has not only completed implementation of Core Banking Solutions (CBS) throughout its vast network, but has also completed CBS in all its affiliated Regional Rural Banks (RRBs) – a sector that is normally shy of technology. With 100% CBS, the largest ATM network among all PSBs, and Internet Banking, Punjab National Bank has implemented truly ‘Anytime Anywhere’ banking. In fact, it goes even beyond to facets of e-commerce like booking of tickets, payment of bills etc. With all the above said facts, 2009-10 will be a momentous one for PNB, as it battles some of its core challenges and handles some divestments.
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