Punjab National Bank

The year 2024 is a momentous year for Punjab National Bank as it enters its 130^th year of operations from its commencement on 12th April, 1895, from Lahore. The bank has travelled a long way, gaining strength and braving strong winds of change, indicating its tenacity over the past so many years. Built on the principles of prudence, caution, and a forward-looking approach, PNB has come out stronger, weathering many crises, and has grown to be the repository of trust among its stakeholders and customers.

Punjab National Bank, in its journey over the last 13 decades, has played a highly instrumental role in shaping the banking landscape of pre and post-independence India, and continues to play a significant role in the country's economic growth.

It gives me great pleasure to share with you the progress your Bank has made and the general operating environment in FY2023-24.

Macro-Economic Scenario

The global economy in FY2023-24 fared better than expected, marked by fading fears of recession and a resurgence in growth in major economies. Despite economic growth in manufacturing and services, global headwinds due to wars persisted. The Russia-Ukraine conflict extended and a new Israel-Palestine war partially disrupted trade routes.

Amidst these global trends, the Indian economy remained resilient and was the fastest-growing major economy in the world. As per the BCG report¹, the Indian Economy is at an inflection point today and will become a developed nation by 2047. "Today, India is becoming the engine of global growth with 15 percent share in global GDP growth"². The economic growth of India exceeded expectations and surprised the upside with growth greater than 8.0 per cent in three- quarters of FY2023-24. It is at a strong 8.2 per cent for the whole year. The year ended on a positive note, with high-frequency indicators like GST collections, car sales, and UPI transactions hitting high spots. India's Manufacturing PMI climbed to a 16-year high of 59.1 in March'2024.

As per the BCG report, the key drivers that are propelling India's growth story are large domestic consumption demand on the back of rising disposable income, global realignment of supply chains; government launched Production Linked Incentive (PLI) Scheme to boost manufacturing, high export potential turning India into a factory of the world, supportive financial ecosystem with rising public capex and demographic dividend.

India's digital landscape presents exciting prospects. The burgeoning e-commerce, fintech, and Artificial Intelligence sectors offer a multitude of avenues for qualified professionals. Government programs like Digital India are fostering digital inclusion, expanding internet access and propelling the digital economy forward. However, there is a need for robust cybersecurity measures which ensure the integrity of digital processes and provide a shield against evolving threats, making it a cornerstone of successful digital transformation.

Climate change poses significant risks to both the global and Indian economies. Globally, rising temperatures could reduce GDP by up to 18% by 2050, according to a report by Swiss Re Institute³. Economies around the world will need to take collective action to mitigate climate risk. India is at the forefront of mitigating climate change. India has shown active participation in global climate change initiatives and commitment to renewable energy. India has initiated forums for climate action, such as the International Solar Alliance, LeadIT, Climate and Disaster Resilience Initiative, Infrastructure for Resilient Island States, Green Credit Initiative and International Big Cat Alliance. The Reserve bank of India on its part has also framed the Green Deposit framework for banks and issued guidelines for disclosure of climate related risks by its regulated entities. SEBI has similarly issued disclosure guidelines called the Business Responsibility and Sustainability Reporting (BRSR) which mandate listed companies to make disclosures related to sustainability parameters. India has also achieved in 2020-21 the renewable energy target it had set for 2030. India aims to achieve net zero emissions by 2070 and fulfil 50 per cent of its energy requirements through renewable energy by 2030.

Banking Scenario

The last financial year marked a significant milestone for Indian banks, representing the best performance in a decade. Across all fundamental pillars—business growth, asset quality, profitability and capital adequacy —positive growth was evident. Bank credit surged to decadal-high levels, reaching 16 per cent (and 20 per cent considering the merger impact of HDFC Bank with HDFC Ltd.), primarily driven by robust demand for retail loans, as per RBI's fortnightly data⁴. Notably, gross NPAs decreased from 11.25 per cent in 2018 to below 3 per cent by September 2023.

Public Sector Banks played a pivotal role, with cumulative profits exceeding Rs. 1.4 Lakh Crore—a remarkable 35 per cent growth over the previous year. This transformation owes much to government initiatives and reforms. However, decline in market share of business remained a challenge for all the Public Sector Banks.

Simultaneously, the Indian banking landscape underwent a structural shift. Banks embraced innovation and digitalization, introducing various digital products and services. UPI transactions crossed the 100 billion mark in FY' 2023-24, registering a remarkable 56 per cent yearly growth. India now leads globally, accounting for 46 per cent of all digital payments. Lending to value chains, too, has made significant progress in digitization. This transition towards digital banking reflects India's journey towards a less cash economy.

The adoption of digital banking capabilities, along with Government initiatives like the Pradhan Mantri Jan Dhan Yojana (PMJDY), Unified Payment Interface (UPI) and Goods and Service Tax (GST), has brought over 50 crore individuals and numerous small businesses into the formal banking system. Further initiatives by the Government and the regulator like harnessing Goods and Services Tax (GST) invoices on IndiaStack, the 59-minute Micro, Small and Medium Enterprise (MSME) loan portal, introduction of more players in the financial ecosystem such as Account Aggregator and Payment Aggregators, digitalization of KCC loans, expanding the scope and coverage of UPI and greater interoperability of UPI with other IT applications. Central Bank Digital Currency (CBDC), Open Network for Digital Commerce (ONDC) etc. will further mature the financial ecosystem.

Banks will continue to deploy emerging technologies like artificial intelligence, machine learning, and the Internet of Things (IoT) to improve operational efficiency, mitigate risks, enhance customer experience, and develop innovative services. Banks are also experimenting with supply chain financing that will enable smoother transactions, reduce risks and enhance overall efficiency.

Apart from extending credit to traditional sectors of the economy like MSME and Agriculture, banks are also expected to venture into new emerging sectors like Space, Electric Vehicles and Renewable Energy, etc.

Banks in India are gearing up for the next wave of technology- fuelled innovations in services with the imminent growth of 5G internet usage, deeper smartphone penetration, expansion of digital payments, frictionless data-led digital lending, risk-mitigated secure data protection and collaboration between banks and FinTechs. The banking sector will aid the consumption and investment growth in the economy by providing credit for the needy sectors of the economy. The above steps will pave the way for India to become the third-largest economy with a GDP of $5 trillion by 2027.

Developments at your Bank

Beginning its journey from a pure Swadeshi capital of Rs.20,000 on 12^th April 1895, the Bank achieved the landmark of Rs.23 lakh crore in Gross Business as of 31^st March 2024. In FY'2023-24, your Bank registered the highest net profit year-on-year growth at 228 per cent to Rs.8,245 crores among all the Public Sector Banks. The Bank has made significant progress in asset quality in the last two years, and now its Net NPA and Provisioning Coverage Ratio are in line with the industry. The Bank is also well capitalized with a capital adequacy ratio of 15.97 per cent as of March'2024 as against the regulatory requirement of 11.5 per cent.

On the back of strong financial performance and gaining investors' trust, the PNB's market capitalization crossed Rs.1 lakh crore mark on 15th December 2023. Our Bank is the third PSB to achieve this feat, and it has also joined the top 50 most valuable listed stocks in terms of market capitalization.

Your Bank has always been striving to offer the best. Customer delight at all levels and in all transactions is our goal. To achieve this, PNB embarked on a Digital Transformation Journey and in the last 2 years has launched more than 100 digital products, processes and portals. The three pillars on which this digital transformation journey was based are -revamping of channels to make them more efficient, reduce human intervention and building the best capabilities.

Keeping customer centricity in mind, Bank offers a range of Current Account and Savings Account products to cater to varied financial needs of different customer segments. Your Bank has introduced various new features and services in its mobile and internet banking application to facilitate ease of banking services and also strengthened its customer grievance redress mechanism. We are constantly collaborating with the Fintech ecosystem to pave the way for a more inclusive financial service landscape, with the primary goal of enhancing customer service.

Your Bank is also incorporating Artificial Intelligence, Machine Learning in various processes like risk mitigation, model development, optimizing cash retention in ATM & BNA⁵ machines, transaction based nudges for boosting retail products, lead generation, customer retention, etc.

Your Bank undertook various measures last year to reinforce sharper risk management at the bank like setting up of a climate risk management cell, dedicated Market Intelligence Unit, introducing new Early Warning System SAJAG 2.0 for effective credit monitoring, risk dashboard, strengthening of product approval process etc.

Your Bank also undertook various steps to strengthen its compliance culture like Compliance Monitoring Tool to track and monitor individual level compliance, Penalty Reporting and Monitoring System to track regulatory penalties and monitoring Compliance Risk at Bank level using in-house developed Compliance Risk Assessment Model.

India strives to achieve net zero emissions by 2070, and your Bank will play a pivotal role in this transition. PNB has launched various schemes for green financing like financing of Electric Vehicles, rooftop solar panels and extending credit to various renewable energy projects.

The Bank last year also launched PNB Palaash, an eight-month period campaign to embrace sustainability in bank's operations through measures such as energy and resource conservation, paper reduction, waste management and streamlined digital processes.

Going Forward

For accelerating business growth, Your Bank will continue to focus on all the segments like Retail, Agriculture, MSME and Corporates. For Retail Credit, Bank has multiple products for meeting the credit needs of the customers at competitive rates and it is leveraging its specialized loan processing points and marketing verticals. Bank will undertake tie-ups with Builders, Home Loan Counsellors, Car Dealers and NBFCs for driving retail credit growth on continued basis.

Your Bank will continue its focus on agriculture portfolio to help farmers meet their credit requirements. Apart from leveraging its dense network of rural branches, Your Bank will continue to market its digital products for agriculture i.e. Agri Gold Loan, Krishi Tatkal Rin etc. Bank also plans to tie up with State Rural Livelihood Mission for financing of Self Help Groups and for financing food and agriculture based ancillary activities.

Improved credit culture due to focused processing centres made the Bank well positioned to capitalize an increase in MSME loans with the upswing in GDP. 13.5 Lakh vendors are registered on Government e-Marketplace (GeM) providing a large opportunity to increase MSME portfolio. In India, the number of MSMEs are expected to grow from 6.3 Crore to 7.2 Crore in the coming years. Only 15% of MSMEs are under the purview of formal credit, providing vast untapped potential, that could be exploited by your bank through vast network of branches, specialized centres for MSME loans, array of schemes and products for MSME segment and digital channels. Apart from the existing 58 MSME clusters, the Bank aims to identify additional clusters. For each cluster, we plan to introduce customized financial products and an awareness program, all facilitated through cluster-based financing at competitive interest rates.

For Corporate Credit, Bank has dedicated Extra Large Corporate Branches/ Large Corporate Branches and Centralized Industry Oriented Credit Desk at Head Office for quick disposal of credit proposals. Your Bank will continue to extend credit in Core Industries like Infrastructure sectors, Real Estate, Engineering Procurement and Construction, Food Processing along with 14 sectors for which government has launched the Production Linked Incentive (PLI) scheme.

All these measures are expected to help the Bank regain its market share in overall business.

Bank is ensuring to align its business growth strategy with its risk appetite. Your Bank has devised various policies and frameworks for management of risk emanating from various sources like economic uncertainties, climate risks, regulatory risks, cyber risks etc.

Your Bank strongly believes in giving back to the society which are evident from its various initiatives, CSR activities and training programs. Bank has 12 Farmer Training Centres (FTCs) across the country that are aiding farmers by providing them training on agriculture & allied activities, maintenance of tractor and other farm machineries, processing and preservation of fruits and vegetables, computer courses, running of beauty parlour, tailoring & embroidery, etc. Since inception, FTCs has provided training to more than 18 lakh farmers, youth including young girls and women from rural areas. Your Bank also provided free financial literacy and credit counselling in FY'2023-24 to around 3 lakh people, including different groups like Farmers, Self Help Groups, Micro and Small Entrepreneurs, Senior Citizens etc. through its 175 Financial Literacy Centres (FLCs). These programs aided these groups to have better financial planning that helps them inculcate the habit of financial prudence. Bank is also providing training to the rural population for skill up-gradation to undertake self-employment ventures and jobs and has helped around 6 lakh persons to settle through its 76 Rural Self Employment Training Institutes (RSETIs) and 2 Rural Development Centres (RDCs) since inception. Our RSETIs focus on settlement of participants by also ensuring adequate credit for inclusive growth.

Your Bank continues to discharge its social obligations with enthusiasm, which includes free medical camps, blood donation camps, besides frequent donations and infrastructure support to Hospitals, Schools, Defence Stations etc. The Bank also supports various societies, charitable institutions and NGOs working for the benefit of weaker sections of society.

Going forward, PNB will play an active role in the vision of Viksit Bharat by extending credit support to all sectors of the economy with special focus on MSME, Agriculture, Women and Youth.

Your Bank will continue to deploy generative Artificial Intelligence and predictive analytics in its operations for cross-selling and upselling opportunities. Your Bank will continue to facilitate ease of banking through Mobile First experience, Anywhere Banking, Whatsapp Banking, Chatbots, and intuitive mobile apps that will help in broadening the financial reach and enhancing the customer experience and trust. It is also committed to make the digital experience as safe as possible for its various stakeholders by investing in appropriate technology to make its systems robust and reliable.

PNB will continue to reassess its processes, user interface and banking experience to optimize efficiencies, minimize expenses, strengthen customer relationships and enhance regulatory compliance and governance to eventually become one of the most competitive Banks in the industry.

The Bank believes that human resources are its strongest asset and thus continues to focus on upskilling and grooming of its employees through its ambitious project UDAAN. Bank in the last financial year introduced various tools and initiatives to enhance productivity of its employees and effectively utilize its human resources.

The Bank will continue to serve the nation with the same zeal and vigour as it has done for the past 13 decades. It will continue to make the social fabric of India strong and play a pivotal part in the vision of Viksit Bharat making India the third-largest economy by providing credit to essential sectors of the economy. The Bank will also continue to extend financial services across the length and breadth of the country and take steps to ensure financial reach to each and every citizen of India.

I would like to congratulate and extend my gratitude to each and every member of the PNB Parivar who has worked relentlessly and untiringly for the sustained and steady growth of the Bank. I sincerely thank all the stakeholders including esteemed shareholders, customers for their continued support and trust in our Bank. I also express my sincere thanks to the Government of India, the Reserve Bank of India and other regulators for their support and guidance. Last but not the least, I thank and appreciate all the Board members for their valuable inputs and guidance.

(K.G. Anantha Krishnan)

Non-executive Chairman