RISK ANALYSIS

PNB has elaborate risk management structure, processes and procedures in place. For the
appraisal of the loan proposals, RMD provides the risk ratings for the client and project based in
the patented internal models of the PNB that have been developed based on statistical analysis of
data. These models are placed on central server based system PNB TRAC, which provides
facility to assess credit risk rating of a client.
This credit risk rating captures risk factors under four areas:
1. Financial evaluation (40%)
2. Business or industry evaluation (30%)
3. Management evaluation (20%)
4. Conduct of account (10%)

Various External Credit Agencies in India:

1. CIBIL
2. CARE
3. FITCH
4. ICRA

Factors determining credit risk:

State of economy

Wide swing in commodity prices

Fluctuations in foreign exchange rates and interest rates

Trade restrictions

Economic sanctions

Government policies

Cumulative weighted score is calculated and rating of the project/company is ascertained

as per the chart below:

CREDIT FACILITIES
PNB provides different types of credit facilities according to the banking norms and convenience
of the clients. Different types of facilities provided are classified below:

1. FUND BASED FACILITIES

Fund based facilities are those that require immediate outlay of funds towards the
borrowing party.

a) Overdraft
Overdraft account is treated as current accounts. Normally overdrafts are allowed
against the Banks own deposit, government securities approved shares and/or
debentures of companies, life insurance policies, government supply bills, cash
incentive and duty drawbacks, personal security etc.
b) Demand loans
Demand loan would be a loan, which is payable on demand in one shot i.e. bullet
repayment. Normally, demand loans are allowed against the banks own deposits,
government securities, approved shares and/or debentures of companies, life
insurance policies, pledge of gold/silver ornaments, mortgage of immovable property.
c) Cash credit advances
Cash credit account is a drawing account against the credit granted by the bank and is
operated in exactly the same way as a current account on which an overdraft has been
sanctioned. In cash credit accounts the borrower is allowed to draw on account within
the prescribed limit as and when required.
d) Bill finance
Bill finance are the advances against the inland bills are sanctioned in the form of
limits for purchase of bills or discount of bills or bills sent for collection. Bills are
either payable on demand of after usage period.
2. NON FUND BASED FACILITIES
While fund based credit facilities require immediate outlay of funds from the bank, nonfund based facilities basically include the promises made by banks in favor of third party
to provide monetary compensation on behalf of their client if certain situations emerge or
certain conditions are fulfilled. The non-fund based business is one of the main sources of
bank income. Income is in the form of fees and commissions as compared to interest
income in case of fund based lending.

Non fund based credit plays an important role in trade and commerce. The borrowing
clients of banks prefer to avail of the non-fund based facilities mainly because:
a) The facility does not require immediate outlay of funds and therefore the cost of such
funds tend to be lower than the cost of fund based credit facilities.
b) A bank guarantee(BG) or letter of credit(LOC) issued by a bank on behalf of its client
is an off-balance sheet item in the books of clients, hence do not show up as debt or
liability.

For the lending banks, cost of providing non-fund based facilities is significantly lower than
the cost of providing fund-based facilities.
(i) Bank Guarantees
BG may be financial of performance in nature. In a financial guarantee, the issuing bank
assumes an usual credit risk which is the domain of the banks. However, issue of a
performance guarantee involved technical competency and managerial ability of a
customer to ensure the performance of the contract for which guarantee has been drawn.
Issuing banks responsibility against the BG is absolute. So proper appraisal needs to be
done before issuing BG as it is the responsibility of the issuing bank to honor its
guarantee when invoked.
(ii) Letter of credit
A document issued by a bank that guarantees the payment of a customers draft;
substitutes the banks credit. It is an undertaking issued by bank on behalf of the buyer to
the seller, to pay for the goods and services. All letters of credit are irrevocable, i.e.
cannot be amended or canceled without prior agreement of the beneficiary, the issuing
bank and the confirming bank, if any. It is different from BG in the sense that in case of
LOC, the issuing bank does not wait for the buyer to default, and for the seller to invoke
the undertaking. While in BG, comes into play only when the principal party (the buyer)
has failed to pay its supplier.

Competition Information
1. Indian bank
2. Andhra Bank
3. Canara bank
4. ICICI Bank
5. HDFC Bank
6. SBI

SWOT Analysis of PNB

Strengths

1. Diversified operations with 5100 branches.

2. Strong I. T support with best fit approach.
3. Schemes for small and medium scale businesses.
4. It is the second largest state-owned commercial bank in India
with about 5000 branches across 764 cities.

Weakness

5. Its 56,000+ workforce serves over 37 million customers.

1. Less penetration in the urban areas.
2. Inadequate advertising and branding as compared to other banks.

Opportunities

3. Legal issues regarding employees caused a bad name of PNB.

1. Small scale business banking across India.
2. Expansion in other countries for international banking.

Threats

3. Installation of more ATMs and better customers services.

1. Economic crisis and economic fluctuations.
2. Highly competitive environment.
3. Stringent Banking Norms by the RBI and the Governments.