A PROJECT REPORT

ON
“OVERALL WORKING OF
PUNJAB NATIONAL BANK”
For
PUNJAB NATIONAL BANK

SUBMITTED IN PARTIAL FULLFILLMENT OF

THE REQUIREMENTS FOR AWARD OF
MASTERS OF BUSINESS ADMINISTRATION OF
TILAK MAHARASTRA UNIVERSITY, PUNE

SUBMITTED BY
SHWETA SRIVASTAVA
PRN:07208014820
INSTITUTE OF BUSINESS STUDIES AND
RESEARCH, NAVI MUMBAI

1
 DECLARATION

I, Shweta Srivastava, Student of III-semester (Finance) Institute of Business

Studies and Research declare that the project on “Overall Working of

Punjab National Bank” is the result of my own efforts and it is based on

data collected and guidance given to me.

I have prepared it during my Summer Internship period June-

August 2009 and the Project was completed on 31 august 2009 .This report

is correct to best of my knowledge and so far has not been published

anywhere else.

SHWETA SRIVASTAVA

2
 ACKNOWLEDGEMENT

It is said “No learning is possible without proper guidance and

encouragement”. Endeavor a solo exercise and some contribution is
performed by various individuals. Concentration, dedication and
application are necessary but not sufficient to achieve any goal. These
must be awarded by guidance, assistance and cooperation of many people
to make it enable. My sincere gratitude goes to Mr. Bharadwaj, Area
General Manager (AGM) for providing us an opportunity to join internship
at their esteemed organization. I am highly indebted to the Senior Manager
Mr. P.C Upadhyay (HRD) for his inevitable help and proficient guidance.

I am extremely thankful to Mr. Ginilal burhil whose efforts made a place for
us at a reputed organisation for internship. I also take this opportunity to
thank all the teachers for the knowledge they imparted. I am especially
thankful to Dean of IBSAR and my faculty guide “Prof.Shukla” for his
valuable guidance, and timely help and support. He has given me his
constant support and guidance during the course of project work and I feel
extremely fortunate to work under him.

I would like to express my gratitude to all the employees of the bank Mr.
Arun Rai, Mr. Pankaj, Mr. Wallia and Mr. Charu Bhattacharya. They had
been a great help and support at every step. They guided me and were
quite patient to teach me all the routine tasks during banking transactions.
Therefore I would like to thank every employee of the bank for their co-
operation.

With pleasure I acknowledge the help, support and prayers offered to me

by my families and friends.

Last but not the least i would love to thank almighty God for being with
me.

3
 CONTENTS

• CHAPTER 1 : RATIONALE OF THE STUDY………………………………

5-6

• CHAPTER 2 : OBJECTIVE OF THE STUDY……………………………… 7-8

-TITLE OF THE PROJECT
-OBJECTIVE OF THE STUDY
-SCOPEOF THE STUDY

• CHAPTER 3 : PROFILE OF THE COMPANY…………………………….9-23

• CHAPTER 4 : REVIEW OF LITERATURE………………………………. 24-45

• CHAPTER 5 : RESEARCH METHODOLOGY………………………….. 46-49

-RESEARCH DESIGN
-DATA COLLECTION METHODS AND SOURCES
-SAMPLING PLAN

• CHAPTER 6 : DATA ANALYSIS AND ITERPRETATION……………. 50-67

• CHAPTER 7 : FINDINGS…………………………………………………. 68-70

• CHAPTER 8 : RECOMMENDATION AND SUGGESTION………….. 71-73

• CHAPTER 9 : LIMITATION…………………………………………….. 74-75

COPY OF QUESTIONNAIRE………………………………………………..76-79

BIBLIOGRAPHY……………………………………………………………… 80

4
 CHAPTER 1

Rationale Of

The Study

5
 RATIONALE OF THE STUDY

Summer training is one of the most important segment of any MBA

program. It helps to enhance the knowledge of the student and also
provide a platform where an individual tastes the real happening of the
corporate world and market.

Intending to specialize in marketing I took up this project which is titled as

‘OVERALL WORKING OF PUNJAB NATIONAL BANK’.
The reason behind picking up this topic was to get into a scene of banking
sector in India. How the bank works what are its significance and role
,various services provided by the bank to their customers and its day to
day business. Banking sector is a sector which is full of new opportunities
in terms of career prospects and economic knowledge.

This project would not only be beneficial for my career but it would also be
of great help for the organization as well. Working in banking sector in
present economic meltdown helped me to understand the present
economic situation as well as how this industry is still keeping up with it.
With the help of this project company would be able to make out the
strategies and its scope of improvement in regard of services provided to
its customers.

6
 CHAPTER 2

OBJECTIVE OF
THE STUDY

7
 OBJECTIVES OF THE RESEARCH

The primary objective of this research project is to understand, analyze and

interpret the banking sector dynamics, its working in the trade, its
customer services and various case studies.
My job was to identify the key factors which a customer see in their bank or
expect to have from their bank.

Secondary objective of the research is:

 To understand the day to day working of the bank.
 To understand the formalities and other things to be executed before
issue of any kind of loan or any other grant.

Scope of study

• The study pertains to the customer of PNB as well as the internal

working of the same.
• The study shows the customer expectation from PNB and scope of
improvement.
• The brief study about risk management, assets liability management.
• The study also shows various things that affect customer-banker
relationship.

8
 CHAPTER3

PROFILE OF

THE COMPANY

9
 INDUSTRY PROFILE

The banking section will navigate through all the aspects of the Banking
System in India. It will discuss upon the matters with the birth of the
banking concept in the country to new players adding their names in the
industry in coming few years.

The banker of all banks, Reserve Bank of India (RBI), the Indian Banks
Association (IBA) and top 20 banks like IDBI, HSBC, ICICI, ABN AMRO, etc.
has been well defined under three separate heads with one page dedicated
to each bank.

However, in the introduction part of the entire banking cosmos, the past
has been well explained under three different heads namely:

· History of Banking in India

· Nationalization of Banks in India

· Scheduled Commercial Banks in India

The first deals with the history part since the dawn of banking system in
India. Government took major step in the 1969 to put the banking sector
into systems and it nationalized 14 private banks in the mentioned year.
This has been elaborated in Nationalization Banks in India. The last but not
the least explains about the scheduled and unscheduled banks in India.
Section 42 (6) (a) of RBI Act 1934 lays down the condition of scheduled
commercial banks. The description along with a list of scheduled
commercial banks are given on this page.
With years, banks are also adding services to their customers. The Indian
banking industry is passing through a phase of customers market. The
customers have more choices in choosing their banks. A competition has

10
been established within the banks operating in India.

With stiff competition and advancement of technology, the services

provided by banks has become more easy and convenient. The past days
are witness to an hour wait before withdrawing cash from accounts or a
cheque from north of the country being cleared in one month in the south.

This section of banking deals with the latest discovery in the banking
instruments along with the polished version of their old systems.

Major Key players

Public Sector Private Sector Foreign Banks in Internet

Banks Banks India Banking

Allahabad Bank Centurian Bank Standard Chartered ICICI Bank

Andhra Bank City Union Bank Bank Federal Bank
Bank of Baroda Federal Bank American Express State Bank of India
Bank of India Catholic Syrian Bank IDBI Bank
Bank of Maharastra Bank Banque Nationale Bank of Baroda Bank
Canara Bank Saraswat Bank De Paris of Baroda
Central Bank of DhanLakshmi Bank Citi Bank HDFC Bank
India Kotak Bank ABN Amro Bank State Bank of
Corporation Bank Cosmos Bank Asian Developmant Travancore
Dena Bank Lakshmi Vilas Bank HSBC
Indian Bank Bank Abu Dhabi C.Bank Punjab National Bank
Indian Overseas Bank of Rajasthan ANG Bank IndusInd Bank
Bank Bank of Punjab HSBC UTI Bank
Oriental Bank of ING-Vysya Bank Bank of Punjab
Commerce Kalyan Bank Canara Bank
Punjab & Sind Bank Karur Vysya Bank Corporation Bank
Punjab National United Western ING-Vysya
Bank Bank
State Bank of India South Indian Bank
Syndicate Bank IndusInd Bank
UCO Bank HDFC Bank
Union Bank of India Jammu & Kashmir
United Bank of India Bank
Vijaya Bank

11
 Table 1

Total Income Wise Listing

Total
Number of No.of Net Profit
Bank Name Income(Rs
Branches Employees (Rs Mn)
Mn)
State Bank of India 9143 198774 431836 44067
ICICI Bank Limited 557 25479 187676 25401
Punjab National Bank 4066 58047 108153 14393
Canara Bank 2532 46893 100890 13432
Bank of Baroda 2687 38737 82917 8270
Bank of India 2563 41808 82131 7014
Industrial Development
173 4548 66612 5609
Bank of India Limited
Union Bank of India 2095 25421 64888 6752
Central Bank of India 3143 37241 59164 2574
HDFC Bank Limited 515 14878 55993 8708
Indian Overseas Bank 1523 24178 51345 7834
UCO Bank 1749 24510 48183 1966
Oriental Bank of Commerce 1161 14962 46717 5572
Syndicate Bank 1897 24624 46420 5365
Allahabad Bank 1932 18742 43739 7061
Table 2

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 3.1 COMPANY PROFILE

Banking in India originated in the first decade of 18th century. The General
Bank of India came into existence in 1786. Punjab National Bank (PNB),
was registered on May 19, 1894 under the Indian Companies Act with its
office in Anarkali Bazaar, Lahore. The Bank is the second largest
government-owned commercial bank in India with about 4,500 branches
across 764 cities. It serves over 37 million customers.
The bank has been ranked 248th biggest bank in the world by Bankers
Almanac, London. The bank's total assets for financial year 2007 were
about US$60 billion. PNB has a banking subsidiary in the UK, as well as
branches in Hong Kong and Kabul, and representative offices in Almaty,
Shanghai, and Dubai. A professionally managed bank with a successful
track record of over 110 years.
PNB also has the Largest branch network in India - 4525 Offices including
432 Extension Counters spread throughout the country.
In 2001-2002, PNB embarked upon a transformation journey unparalleled in
the country in terms of scale and technology. The bank became the first
public sector bank in India to opt for a new generation core banking
platform – Finacle from Infosys. Since then, Finacle has enabled the bank
to consolidate and centralize its operations,improving branch efficiency
and productivity per employee. Consolidation has also resulted in
reduction of revenue leakage and cost, while increasing ease of technical

13
support and maintenance at branches.
With over 38 million satisfied customers and 4668 offices, PNB has
continued to retain its leadership position among the nationalized banks.
The bank enjoys strong fundamentals, large franchise value and good
brand image. Besides being ranked as one of India's top service brands,
PNB has remained fully committed to its guiding principles of sound and
prudent banking. Apart from offering banking products, the bank has also
entered the credit card & debit card business; bullion business; life and
non-life insurance business; Gold coins & asset management business,
etc.

PNB has always looked at technology as a key facilitator to provide better

customer service and ensured that its ‘IT strategy’ follows the ‘Business
strategy’ so as to arrive at “Best Fit”. The bank has made rapid strides in
this direction.
PNB has achieved significant growth in business which at the end of March
2009 amounted to Rs 3,64,463 crore. Today, with assets of more than Rs
2,46,900 crore, PNB is ranked as the 3rd largest bank in the country (after
SBI and ICICI Bank) and has the 2nd largest network of branches (4668
including 238 extension counters and 3 overseas offices).During the FY
2008-09, with 39% share of low cost deposits, the bank achieved a net
profit of Rs 3,091 crore, maintaining its number ONE position amongst
nationalized banks. Bank has a strong capital base with capital adequacy
ratio as per Basel II at 14.03% with Tier I and Tier II capital ratio at 8.98%
and 5.05% respectively as on March’09. As on March’09, the Bank has the
Gross and Net NPA ratio of only 1.77% and 0.17% respectively. During the
FY 2008-09, its’ ratio of priority sector credit to adjusted net bank credit at
41.53% & agriculture credit to adjusted net bank credit at 19.72% was also
higher than the respective national goals of 40% & 18%.

Amongst Top 1000 Banks in the World, ‘The Banker’ listed PNB at 250th
place. Further, PNB is at the 1166th position among 48 Indian firms making
it to a list of the world’s biggest companies compiled by the US magazine

14
 ‘Forbes’.

3.2 VISION AND MISSION OF THE BANK

VISION

“To be a Leading Global Bank with Pan India footprints and

become a household brand in the Indo-Gangetic Plains,
providing entire range of financial products and services under
one roof.”

MISSION

“Banking for the unbanked”

3.3 Financial Performance:

Punjab National Bank continues to maintain its frontline position in the

Indian banking industry. In particular, the bank has retained its NUMBER
ONE position among the nationalized banks in terms of number of
branches, Deposit, Advances, total Business, operating and net profit in
the year 2008-09. The impressive operational and financial performance
has been brought about by Bank’s focus on customer based business with
thrust on SME, Agriculture, more inclusive approach to banking; better
asset liability management; improved margin management, thrust on
recovery and increased efficiency in core operations of the Bank. The
performance highlights of the bank in terms of business and profit are
shown below: (Rs. In Crore)

Parameters Mar'07 Mar'08 Mar'09 CRAR

Operating Profit* 3617 4006 5744 26.02
Net Profit* 1540 2049 3091 41.67
Deposit 139860 166457 209760 22.47
Advance 96597 119502 154703 26.55

15
Total Business 236456 285959 364463 24.15

3.4 ORGANISATIONAL STRUCTURE:

Head Office

Circle Offices (58)

Branches (4267)

Executive cards of the organization. They are Executive Director, General

Manager (GM), Deputy General Managers (DGM), assistant General
Managers (AGM), Chief Managers (CM), Managers and other officers are in
the hierarchy at the head office level functioning in various Departments.
The Zonal Manager and regional Managers head the Zonal Offices and
Regional Officers respectively who are assisted by other down in the
hierarchy. The Branch is headed by AGM\CM\ Senior Managers\Managers
depending upon the size of the Branch activities and rendering of
satisfactory customer service.
The bank has a very good system of delegating power to the different
functionaries in the hierarchy to facilitate speedy decision- making process
even up to the branch Level.

16
 3.5 HIERACHY

Chairman

Executive director (ED)

General Manager (GM)

Deputy GM

Assistant GM

Chief Manager

Senior manager

Manager

Officers

Subordinate/ Clerical staff

17
 3.6 Present heads

Chairmen and Managing Director

Dr. K.C Chakrabarty

Executive Directors:

Sh. M.V.Tanksale
Sh. Nagesh Pydah

Chief General Manager:

R. I. S. Sidhu
L. P. Agarwal
Ranjan Dhawan
I. D. Singh

General Manager:

P. K. Mitra
B. P. Chopra
V.K Sood
S. Ranganathan

18
3.7 HIGHLIGHTS OF THE BANK FOR THE YEAR 2008-09;

1) Delhi Circle has unique distinction in many parameters. Total

business of Delhi Circle is to the tune of Rs. 55000 Crores (Rs. 30000
crore as Deposits and Rs. 25000 crore as advances).

2) PNB has very strong foothold with customer base of 35 lacs i.e.
every 4th citizen of Delhi is connected to PNB. He also mentioned
that, Delhi Circle is having 279 ATMs covering almost all Metro
stations, Railway. Stations, domestic & international airport. All
major PSUs are associated with PNB.

3) BSNL-PNB joined hands & launched “BSNL Bill payment through

PNB ATMS.

4) Delhi Circle has recently opened over 67000 No Frill accounts under
financial inclusion at various locations in Delhi.

5) Bank has achieved ALL prescribed national goals under Priority

sector lending :-
6) Priority sector (PS) advances crossed the landmark of Rs.50,000
crore, accounting for 41.53% of the Adjusted Net Bank Credit (ANBC)
as against the national goal of 40%;
7) Despite the implementation of Debt Wavier, credit to direct
agriculture increased by a robust 33.3 %. Total agriculture credit as
percent to ANBC was 19.72 % as against the national goal of 18%.

8) Credit to weaker section was 11.19% of ANBC as against the national

goal of 10%.

19
9) SME which is the thrust area of the bank registered a growth of
30.2% bank has adopted a number of measures to facilitate credit
delivery to the SME sector, as recommended by the RBI appointed Dr
K.C Chakrabarty Working Group on Rehabilitation of sick SME;
10)Education loan, a thrust area of the bank increased by 50.6%;

11)Despite the aggressive rate cuts, Net Interest Margin expanded to

3.62% from 3.58% last year;

12)Return on equity improved to 23.5% from 19.0% last year

13)Return on assets improved to 1.39% from 1.15% last year

14)Earning Per Share (EPS) improved to Rs.98.03 from Rs.64.98 last

year

15)Staff productivity measure in terms of business per employee

increased to Rs. 6.55 crore from Rs. 5.05 crore last year;

16)Introduction of door-step banking in New Delhi

17)Launching of e-governance in Bihar for common service center for

village level entrepreneurs(VLE)

18)Six pilot projects for financial inclusion of rickshaw pullers in

Varanasi, Allahabad, Lucknow, Patna, Meerut, Surat and Bangalore.

20
3.8 MILESTONES:-

During the year bank has also crossed several other milestones of
great significance including:
1 PNB is the first Bank in India to introduce Core Banking
Solution (CBS) on Finacle. During 2008-09, Bank achieved the
landmark of becoming the first Nationalized Bank to bring ALL
branches / extension counters into CBS.
2 Recording the highest total business of Rs. 1,54,703 crore as
at March 31, 2009 amongst the Nationalized Banks.

During the year 2008-09, bank remained focused and delivered a sterling
performance despite the turbulent financial environment. The year 2008-09
proved beyond doubt that the fate of nations is intrinsically interlinked with
that of their financial systems. Bank is fundamentally sound and strong.
Bank earned an Operating Profit of Rs.5744 crore and Net Profit of Rs.
3091. PNB registered this impressive performance, after making an
additional tax provision of Rs. 85.27 crore relating to Income Tax of
previous years and Rs.500 crore towards wage revision [cumulative Rs.600
crore]. PNB is the first Nationalised Bank to book Rs. 1000 crore as net
profit in a single quarter (Oct-Dec 2008).

21
3.9 AWARDS AND ACHEIVEMENT BY PNB:
Best IT Team of the Year Award
SKOTCH Challenger Award
Best IT User in Banking & Financial
Services Industry - 2004
Golden Peacock Award
FICCI's Rural Development Award
Skotch Challenger Award for
Exemplary use of Technology
Golden Peacock National Training -
2004 & 2005
National Award for Excellence in SSI
Lending
Banking Technology Awards 2004
Runner up in 'Best IT Team of the
Year Award 2005'
Money Outlook Award – 2004
Niryat Bandhu Gold Trophy
21st Amongst Top 500 Companies
9th amongst India's Top 50 Most
Trusted Service Brands
3rd Rank amongst Banking Sector in The Bankers' Almanac, January 2006
India
323rd Rank in the World
368 amongst Top 100
at the IDRBT Banking Technology
awards for the year 2005-06.
for Change Management for the year
2005-06
by NASSCOM in partnership with
Economic Times
for Excellence in Corporate
Governance - 2005 by Institute of
Directors
for Excellence in Rural Development
– 2005
for becoming a pioneer in Public
Banks – 2005
by Institute of Directors
Ranked 2nd for 4 consecutive years
- 2002, 2003, 2004 & 2005
Jointly Adjudged by IBA, Finacle &
TFCI
Runner up in 'Best Bank (public
Sector) of the year Award' -2005
for excellence in export perforamnce
for 3 consecutive years 2001, 2002 &
2003
by Federation of Indian Exporters
Organization (FIEO)
by the leading Financial Daily The
Economic Times, June 2005
A.C Nielson Survey, The Economic
Times Dec 2004
The Banker, London July 2005
22
Global Banks

3.10 Products and services

1 Corporate banking
2 Personal banking
3 Industrial finance
4 Agriculture finance
5 Financing of trade
6 International banking
7 Home loan
8 Auto loan
9 ATM/Debit card
10 Deposits interest rates
11 Credit interest rates
12 Other services:-
Locker facility, senior citizen scheme, merchant banking.

3.11 NEW VISION & MISSION STATEMENTS

(2013)

VISION & MISSION statements are powerful and give a strong message to
all employees of an organization. Normally, they are static in nature but any
large scale change in beliefs and thoughts would require suitable re-
orienting these statements. The new VISION & MISSION of the Bank is
given below:

VISION

“To be a Leading Global Bank with Pan India footprints and become a
household brand in the Indo-Gangetic Plains, providing entire range of
financial products and services under one roof.”

MISSION

“Banking for the unbanked”

23
 CHAPTER 4

REVIEW OF

LITERATURE

24
 REVIEW OF LITERATURE

4.1 BANKING

Banking, the business of providing financial services to consumers and

businesses. The basic services a bank provides are checking accounts,
savings accounts and time deposits that can be used to save money for
future use; loans that consumers and businesses can use to purchase
goods and services; and basic cash management services such as check
cashing and foreign currency exchange.

4.2 TYPES

Four types of baSnks specialize in offering these basic banking services:

1) commercial banks,

2) savings and loan associations,

3) savings banks, and

4) credit unions.

A broader definition of a bank is any financial institution that receives,

collects, transfers, pays, exchanges, lends, invests, or safeguards money
for its customers. This broader definition includes many other financial
institutions that are not usually thought of as banks . These institutions
include finance companies, investment companies, investment banks,
insurance companies, pension funds, security brokers and dealers,
mortgage companies, and real estate investment trusts.

25
4.3 PURPOSE

Banking services serve two primary purposes. First, by supplying

customers with the basic mediums-of-exchange (cash, checking accounts,
and credit cards),

Second, by accepting money deposits from savers and then lending the
money to borrowers, banks encourage the flow of money to productive use
and investments. This in turn allows the economy to grow.

Enabling the flow of money from savers to investors is called financial

intermediation, and it is extremely important to a free market economy.

4.4 DIFFERENT KINDS OF LOAN ACCOUNTS:

A loan is a type of debt. Like all debt instruments, a loan entails the
redistribution of financial assets over time, between the lender and the
borrower.

In a loan, the borrower initially receives or borrows an amount of money,

called the principal, from the lender, and is obligated to pay back or repay
an equal amount of money to the lender at a later time. Typically, the
money is paid back in regular installments, or partial repayments; in an
annuity, each installment is the same amount. The loan is generally
provided at a cost, referred to as interest on the debt, which provides an
incentive for the lender to engage in the loan. In a legal loan, each of these
obligations and restrictions is enforced by contract, which can also place
the borrower under additional restrictions known as loan covenants.
Although this article focuses on monetary loans, in practice any material
object might be lent.

26
Banks sanction credit facilities to the borrowers according to their use and
requirement. It is essential for the banks that the nature of credit facilities
to be sanctioned is the one which takes care of the requirement of the
borrower. For instance sanction of a cash credit limit for financing fixed
assets or sanction of cash credit stock limit for financing fixed assets or
sanction of cash credit stock limit for financing book-debts or receivables
of the borrower, may actually not be of any use to the borrower.

The various kinds of credit facilities may be as under:

1) OVERDRAFT
Overdrafts are allowed by the banks to such customers who maintain
accounts in the nature of current accounts with frequent operations. In this
kind of account, a limit is fixed up to which the customer can overdraw his
account. The overdrafts are generally granted against the security of bank
deposits, life policies, document of title, saving certificates, shares and
debentures etc.
At times the overdrafts are also allowed without any security which are of a
very temporary nature and are called clean overdrafts. On such account
interest is charged on the amount drawn on day to day basis.

1. CASH CREDIT
A cash credit account like an overdraft account is a running account but
with a fixed drawing limit. This drawing limit is fixed keeping in view the
value of the security. Cash credit accounts may be against :
1 Hypothecation of stocks of raw material, stock in process or finished
goods or stores, spares etc.
2 Hypothecation of book debts or receivables.
3 Pledge of stocks of raw material or finished goods or documents of

27
 title to goods, bullion etc.

2. DEMAND LOANS
Demand loans are the loans for a further amount (unlike cash credit) where
no further debits (except for interest) are permitted once the initially fixed
advance is availed. Demand Loans are allowed for short term durations
say, one year and are required to be repaid on falling due. Interest is also
charged on the amount outstanding on the close of each day and debited
quarterly. As per RBI guidelines on loan system of delivery of bank credit,
the bank sanction working capital demand loans repayable over a period of
one year by bifurcating the working capital limits into cash credit and
demand loans. Such loans generally carry same rate of interest which is
charged to cash credit advance. The security for such advances is also
common security for such advances is also common security with cash
credit accounts.

3. TERM LOANS
As the name suggested, these loans are given for fixed period of time with
the provision that its repayment shall also come in regular pre-fixed
periodical installments which may be equated or graduated. These loans
are generally sanctioned for acquiring fixed assets by the persons engaged
in business and trade or in manufacturing or servicing etc. Interest on
these accounts is charged on the daily products and is debited on a
quarterly basis, except in case of agriculture related activities and small
scale industrial activities, where interest is debited, generally on half-yearly
basis. Term loans are generally sanctioned for a period of more than 3
years and less than 10 years by the banks. Term loans up to 7 years
repayment are called medium term loans and beyond that, loan term loans.

28
 4. WORKING CAPITAL TERM LOANS
Banks also sanction term loans meant to be utilized not for creation of
fixed assets but for creation and maintenance of current assets to support
the working capital requirement. These term loans are normally up to five
years duration and they carry the same interest rate as the normal term
loans. The repayment is fixed keeping in view the liquidity constraints and
cash generation capacity of the borrower. These are secured by charge on
the current assets along with working capital credit limits.

5. CASH CREDIT PLEDGE

Who can pledge, The owner of goods, the agent of the owner, the joint
owner with the consent of other co-owner and a person having limited
interest in the goods can pledge the securities.
The pledgee has certain rights such as:
1 He may retain the goods until the payment of the debt or
performance of the promise is fulfilled.
2 Pledgee steps in the shoes of the pledger.
3 To recover charges incurred for preservation of the goods pledged.

Duties of the Pledgee

1 To return the goods once the money is paid back by the pledger.
2 To take that much care of the goods, which he would have been
taking had the goods belonged to him.

29
 6. CASH CREDIT HYPOTHECATION
Where the credit facilities are sanctioned in the form of hypothecation, the
bank should take care of the following aspects;
1 Firm is not enjoying similar facilities with other banks on the
security of same goods.
2 Borrowers enjoys facilities from one bank only and an
undertaking in writing should be obtained from him.
3 Bank name board should be displayed where the securities are
located stating that bank has charge over such goods.
4 Borrowers should submit a stock submit a stock statement
periodically,
5 Such stocks should be insured for fire and other risks.
If borrowers fail to return the advance against the hypothecation of goods,
the bank should take possession of the goods with consent of the
borrower and should become a pledgee. On becoming pledgee, the bank
get all the rights of a pledgee.

7. BILLS PURCHASE OR DISCOUNTING

Banks also allow advances by purchasing the demand documentary bills
or discounting the usance documentary bills and negotiating the bills
drawn under letters of credit, covering genuine sale of commodities in
trade and movement thereof. Bills not covering the goods are called
accommodate each other and they don’t represent genuine transactions.
These bills are negotiable instruments under NI Act and advance there
against is of self liquidating nature, since payment is received either on
demand or after fixed time period. The advances against demand bills are

30
considered to be relatively safe since the document of title to goods remain
with the bank till the payment is received. Not only this, the banks facing
liquidity constraints can also approach RBI for allowing refinance against
the bills discounted.
The bills may be of varying types such as:
1 Documentary bills
2 Clean bills and
3 accommodation bills

4.5 What is the Credit Cycle?

The Credit Cycle refers to the expansion and contraction of access to

credit.

During period of expanding access to credit, asset prices rise. More people
have access to increasing amounts of credit. This can cause speculative
behavior where individuals make highly leveraged investments justified by
the assumption that asset values will continue to rise.

During a period of contracting access to credit, the opposite happens.

Fewer people have access to decreasing amounts of credit. Asset values
unwind as highly leveraged positions are liquidated. This in turn, causes
further declines in asset values.

A cycle involving the access to credit by borrowers. Credit cycles first go

through periods in which funds are easy to borrow; these periods
are characterized by lower interest rates, lowered lending requirements and
an increase in the amount of available credit. These periods are followed by
a contraction in the availability of funds. During the contraction period,
interest rates climb and lending rules become more strict, meaning
that less people can borrow. The contraction period continues until risks
are reduced for the lending institutions, at which point the cycle starts

31
again. During the upward phase in the credit cycle, asset prices experience
bouts of competitive, leveraged bidding, inducing assets price inflation in a
particular asset market due to the recursive "ballooning" nature inherent in
fractional reserve banking. This can then cause an unsustainable,
speculative price "bubble" to develop. As this upswing in new debt
creation also increases the money supply and stimulates economic
activity, it tends to temporarily raise economic growth and employment.

When new borrowers cannot be found to purchase at inflated prices, a

price collapse can occur in the market segment inflated by excess debt,
along with a dramatic reduction in liquidity in that market. This can then
cause insolvency, bankruptcy and foreclosure for those borrowers who
came in late to that market. If widespread, this can then damage the
solvency and profitability of the private banking system itself, resulting in a
dramatic reduction in new lending as lenders attempt to protect their
balance sheet from further losses. This in turn results in a contraction in
the growth of the money supply, often referred to as a "credit squeeze" or a
"drying up of liquidity".

Prime examples of this "boom-bust" cycle of credit creation and

destruction can be found in the United States housing bubble and the
subsequent subprime mortgage crisis, the dot-com bubble and the
Japanese asset price bubble.

4.6 TERM LOAN

A term loan is sought with a view to finance mainly the acquisition of fixed
assets which are expected to be used to enable the enterprise to earn
profits over a long period of time. Term loans almost always
mature between one and 10 years.

A term loan is a monetary loan that is repaid in regular payments over a set
period of time. Term loans usually last between one and ten years, but may

32
last as long as 30 years in some cases. A term loan usually involves
unfixed interest rates that will add additional balance to be repaid.

Term loans can be given on an individual basis but are often used for small
business loans. The ability to repay over a long period of time is attractive
for new or expanding enterprises, as the assumption is that they will
increase their profit over time. Term loans are a good way of quickly
increasing capital in order to raise a business’ supply capabilities or range.
For instance, some new companies may use a term loan to buy company
vehicles or rent more space for their operations.

The sources from which such loan is expected to be liquidated is the net
cash generation of the project from year to year. All this calls for a details
appraisal of the project to establish its long term viability i.e. ability to pay
interest on the loan as and when these fall due, besides getting an
appropriate amount of return on owned funds and dividend or drawings so
as to keep entrepreneur interest intact in continuation of the enterprise.
The aspects in project appraisal include examination of the need for
establishment of the project, systematic review of the technical, economic,
financial and organization aspects of the project to ensure that it is
technically sound and consistent with the overall economic objectives of
economy and would yield appropriate financial returns.
The appraisal of the term loan covers four broad aspects of the project i.e.
a) Financial viability.
b) Technical feasibility.
c) Economic viability.
d) Managerial competence.

4.7 WORKING CAPITAL FINANCE:

Working capital for any manufacturing unit means the total amount of
circulating funds required for the continuous operations of the unit on an

33
ongoing basis.
In other words for an uninterrupted functioning of a unit at a given capacity
(to achieve a particular turnover level to remain viable and operate much
above the break even level to earn profits), it requires a specified minimum
level of current assets namely raw materials, stock in process, finished
goods and receivables apart from reasonable cash in hand and certain
other current assets.
In other words, the cost of working capital comprises:
1. amount of raw material of various kinds in store or in transportation ;
2. amount of consumable stores and other material required for
production purpose ;
3. value of stock in process;
4. value of all finished goods including in transit ;
5. amount of receivables or sundry debtors;

The means of finance this cost of working capital would be:

A: credit available on purchase
B: current liabilities other than above and bank borrowing
C: surplus of long term funds over the long term uses (i.e., net working
capital)
D: short term bank borrowing.

FIXING THE QUANTUM OF WORKING CAPITAL

Various components of working capital namely, raw material, stock in
process, finished goods and receivables can be calculated, on the basis
of operating cycle:
The level of raw material taking into account the said factors, can be
worked out as under:
a) work out the monthly consumption (opening raw material stock +
purchases – closing raw materials stock/12) taking into account
the accepted turnover level and raw materials need for that

34
 turnover level;
b) determine the average stock maintained in past on the basis of
closing and opening stocks in the profit and profit and loss
account and the stock reports submitted to the bank or the
practice being followed by similar units in the industry;
c) workout the stocking period taking in consideration the factors as
given in the operating cycle concepts , to determine past
trends/norms, by dividing the average stock by monthly
consumption.
d) Fix up norm for future, based on past/prescribed norms or norms
i.e., norm x accepted per month consumption.
e) Calculate the value of the stock for the accepted norm.

4.8 DETERMINING THE QUANTUM OF BANK FINANCE:

The sum total of anticipated current assets and also reasonable level of
other current assets as worked out in the above manner,would be the level
of working capital required. Thereafter the amount of bank credit,can be
determined as
under:
i. Assess the level of net working capital (surplus of long term sources
over long term uses) available, which normally should not be less
than 25% of total current assets.
ii. Work out bank finance to be sanctioned being gap of total current
assets less NWC and other current liabilities.

The detailed calculation of levels of each component of working capital and

creditors has been explained in the case studies, which may be referred ,if
required.

35
4.9 FIXATION OF FUND-BASED AND NON-FUND BASED LIMITS:

After arriving at the MPBF on the basis of Inventory and Receivables

Norms and appropriate method of Lending, we may decide about the
various Fund-based and Non-fund based Limits and Sub-limits. The fund-
based limits should not exceed the MPBF.
The bulk of the inventory limits are released generally in the shape of Cash
Credit based on projected levels of the borrowers operations and holding
of raw-materials, stock-in-process and finished goods. The receivables
limits may be either by way of C/C against Book Debts or by way of bills
limits. Within the sanctioned limit, drawing power may be allowed on the
basis of monthly stock statements/statements received under QIS
depending upon the regularity and reliability and with the permission of
Zonal Manager and to ensure there is no double financing.
In addition to the fund-based limits, non-fund based limits like Inland and
Foreign L/C, Guarantees and Acceptances are given keeping in viwew the
needs as well as the capacity of the borrowers.

4.10 ASSESSMENT OF WORKING CAPITAL FINANCE

For assessment of borrowers working capital need’s the projections

submitted for the following year are relevant. The first step in assessing the
quantum of working capital finance is to find out whether the projections
given by the borrower’s are reasonable. The reasonableness of borrower’s
projections can be determined as under:
1. The bank can use with advantage the past data given by the
borrower's as well as the data available with it. What has been the

36
 bank's past experience in dealing with that particular borrower? to
what extent the earlier projections have come true? Did they
compare favorably with the actual when the results were complied?
If earlier projections had compared favorably with actuals, in that
case it will increase the banks faith in that particulars borrowers and
the bank can presume that the borrower is following sound practices
and he is having a realistic view of the future. The borrower is also
not trying to get higher bank finance by inflating the figures. If in the
past the projections did not compare favorably with the results, the
bank needs to be careful. The bank in such a situation will also be
required to look into the gap between actuals is narrowing or
widening over a period of time. If the gap is widening, this is
necessarily a cause of concern. Still greater care needs to be
exercised in accepting the projections in such cases.

2. The projections should be studied in close conjunction with past

data. How the unit has fared in the past? What has been the rate of
growth? What relationship the different items of past bear to sales
and cost of production? What has been the level of current assets or
current liabilities, other current liabilities and net working capital
(NWC) etc.? The comparison has to be made between the past
performance and the future projections. If the future projections are
markedly different from the past trend in relation to projected rate of
growth, the reasons for the same have to be ascertained before
accepting the various projections.

3. The borrower based his projections on certain assumptions as to

various factors affecting his operations, e.g. market demand, cost of
raw materials, price, availability of inputs and other environmental
factors. The bank has to assess how far these assumptions are

37
 realistic and likely to materialize.

4. How are limits already sanctioned by the bank have been utilized by
the borrowers in the past? Have the accounts been particularly
conducted as per terms of sanction or these have been frequently
violated. Is the borrower particular in honoring his commitments?
What is the position of the various accounts? Did he submitted the
required data for follow-up and renewal of his facilities in time?

5. There is a limit upto which the operations of the unit can be

efficiently carried out. Beyond this the operations will start giving
negative results. This level has to be identified. There may be one
single factor which may restrict further expansion in operations
notwithstanding that all the facilities in other areas exist. This factor
inhibiting further growth has to be identified. While accepting the
borrower’s projections, it has to be ensured that projections do not
go beyond this factor which may be termed as the “choking factor”
as this choke further expansion.

6. CRITICAL ANALYSIS OF SALES PROJECTIONS:

In determining the quantum of bank finance, the projections relating

to sales, production, cost of production, cost of sales, current
assets, current liabilities and net working capital have direct
relevance.
The most important area to be looked into is sales. All other aspects
are directly related to the projected level of sales. Therefore,
determining the projected level of sales is the first level step in
assessing the working capital needs of a borrower. Once the level of
sales has been determined, the other data can be easily determined

38
 in relation to sales. The projected level of sales depends upon:

►what is the installed and licensed capacity? Does it have any idle
capacity which can now be utilized?
►Is the unit undertaking any expansion, modernization or
diversification programme?
►Are essential inputs available to take care of projected production
figures?
►What are the present market conditions and terms of sales?
►From what sources increase in NWC will be met?
►Are there any pending orders in hand etc.?
A higher than normal sales estimated for the following year can be
accepted only after the bank is satisfied on the basis of the above
scrutiny that the projected level of sales can be achieved and the
available past data and future plans give positive indications in this
regard. The bank has to ensure that the borrowers are willing to
create the necessary support to achieve the sales target.

7. The bank satisfied itself as to the projected level of sales can

determine the other data:
a. The relationship between different items constituting cost of
production can be studied in relation to sales and cost of sales.
Valuation of various items should be based on current costs.
b. After the projections relating to items constituting cost of
production, the level of production and sales have been finalized,
the holding period of items of current assets is to be determined
based on the rule that the projected holding should be preferably
lower of norms or past practice.

39
 c. The levels of other current assets can also be estimated on the
basis of the borrowers contribution.
d. The bank is to bridge the gap between current assets and current
liabilities after ensuring the borrowers contribution. Therefore,
the quantum of bank finance is very much depending upon
availability of short term credit from other sources i.e. other
current liability.
e. The projected level of NWC should at least be 25% of total
current assets under second method of lending.
f. Further NWC should be maintained in absolute terms.

8. Once the borrower's overall projections for the year have been
accepted by the Bank, the actual requirement of working capital and
bank finance can be worked out on the basis of steps given in Form
V. The steps broadly are:
♦ The actuals requirement of working capital can be arrived at on
the basis of position of current assets and other current liabilities from
Form IV.
♦ The bank is to partly meet the difference between current assets
and other current liabilities
♦ If available NWC is more than the minimum stipulated working
capital under the second method of lending, the available NWC is to be
taken into account for arriving at the permissible level of bank finance
i.e. Permissible Bank Finance will be reduced, accordingly.

It has been observed by RBI that banks while pruning the projected
levels of inventory and receivables to the prescribed levels for the

40
 purpose of arriving at Permissible Bank Finance make adjustments in
the projected. RBI has clarified that the projected NWC represents long
term surplus available to support current operations and therefore, does
not need to be adjusted as a result of pruning the level of current
assets. As such, adjustments should not be made in the projected NWC
in such suitation but level of bank finance should be reduced
necessitated by the reduction in the level of current assets.

4.11 RISK MANAGEMENT IN BANKS

RBI issued final guidelines on risk management in banks on Oct 20, 1999
which broadly cover management on credit, market and operational risk in
the banking sector. The banks are advised to adopt proper systems to
measure, monitor and control operational risk that is emerging in the wake
of phenomenal increase in the volume of financial transactions. The banks
should give credit risk prime attention and should put in place a loan policy
to be cleared by their Boards, that covers the methodology for
measurement, monitoring and control of credit risk.
The highlights are:
1 Banks to set up a comprehensive risk rating system for counter
parties.
2 Banks have to fix a definite time frame for moving over to value-at-
risk(VaR)
3 Banks should evaluate portfolio quality on an ongoing basis instead
of near balance-sheet date.
4 Investment proposals to be subjected to same credit risk analysis as
in case of loan proposals.
5 Investment proposals to be included in the total risk evaluation.
6 For off-balance sheet exposure, the current and potential credit
exposure to e measured on a daily basis.

41
 7 For managing liquidity risk, banks should place limits on inter-bank
borrowings which include call funding, purchased funds, core
deposits to assets, off balance sheet commitments, swapped funds
etc.
8 Banks have to provide a contingency plan to meet adverse swings in
the liquidity conditions.

4.12 RISK MANAGEMENT IN BANK LENDING OPERATIONS.

Risk connotes chances of damages that may be caused by unforeseen

events and its consequences for operations of organization. Banks
operates in an environment which, has lot many uncertainties due to which
there could be threat to viability and sustainability of activities which banks
finance.
Risk management can be thought of as an important toll of managing the
credit related affairs to achieve the organizational objectives of earning
better yield from deployment by not allowing the lending to become non-
performing advance, which involves extra prudence on the part of the
bankers. It is the rational handling of a situation after properly
understanding all the issues/risks involved, so as to avoid the losses which
may arise because of existence of some elements un-favorable to the
transaction proving to be a profit earning one.

In context of bank lending operations, it begins with a scientific

identification of the risk involved in the loan transactions along with the
nature and frequency of such risks, understanding and analyzing the
causes of the risk, formulating strategies and talking actions to avoid the
risk and monitoring the situations to see that the risk avoidance succeeds.

42
Various kinds of risks:
1. Market risk
2. Liquidity risk
3. Counter party (credit) risk
4. Political and country risk
5. Currency exchange rate risk
6. Hedging risk
7. Funding risk
8. Operational risk – legal, jurisdiction, litigation and documentation
risks
9. Aggregation risk
10. Systemic risk

4.13 PROCESS OF RISK MANAGEMENT:

Broadly, the process of risk management for lending operations can

comprise the following functions:
1 Risk perception,
2 Understanding risk factors,
3 Risk assessment or quantification,
4 Risk control measures,
5 Monitoring.
The risk monitoring has to be regular exercise to be undertaken on an
ongoing basis for taking a view of:
→chances in the position of the supported organizations,
→fix up exposure limits for fixed assets requirement, for working capital
needs and for non-fund based requirements,
→modify information requirements and their periodicity and nature and
→to determine cost to be fixed for the borrowings in terms of interest

43
It need not be over-emphasized that risk management in lending operations
in banks is an important job to be performed, if a better revenue yield
through lending is the objective. In present day context, the delay in
recovery of bank loans is as harmful as the non-recovery, in a limited way,
when seen in the light of income recognition guidelines.

Since delay in recovery or non-recovery is the effect of various risk factors,

the banker can do well to look into these risk factors to manage them.

Hence, in order to achieve their objectives of better yields from deployment

of funds, banks will be under obligation to take risk factors and take into
account these risk factors and take measure to control such risks.

4.14 Key Ratios

FY 08 FY 09
Return on Assets 1.39% 1.15%
Return on Equity 23.5% 19.0%
Earning Per Share Rs.98.03 Rs.64.98
Net Interest Margin 3.62% 3.58%
Book Value Per Share Rs.416.73 Rs.341.98
Yield on Advances 11.46% 10.36%
Average Cost of Deposits 6.25% 6.26%
Cost to Income Ratio 42.27% 46.81%

44
4.15 PROJECT FINANCE RISKS

Development: Bid risk

Resources risk
Cost estimation risk
Credit risk
Operation:
Market/off take risk
Liability risk
Operating risk
Input risk
Construction:
Completion risk
Technology risk

Non-commercial political risk:

Environment risk
Force major risk

Economic environment:
Inflation risk
Interest rate and currency risk
International price movement risk

45
 CHAPTER 5

RESEARCH
METHODOLOGY

46
 RESEARCH METHODOLOGY

5.1 MEANING OF RESEARCH: -

Research is an art of scientific investigation.

Research means “a careful investigation or inquiry specially through

search for new facts in any branch of knowledge.”

According to Clifford Woody: -

“Research comprises defining and redefining problems,

formulating, hypothesis or suggested solutions, collecting, organizing and
evaluating data, making deductions and reaching conclusions and at last
carefully testing the conclusions to determine whether they fit the
formulating hypothesis”.

Research means the systematic method consisting of

enunciating the problem, formulating a hypothesis, collecting the facts or
data, analyzing the facts and reaching certain conclusions either in form of
solutions towards the concerned problem or in certain generalization for
some theoretical formulation.

47
The project titled, as “OVERALL WORKING OF PUNJAB NATIONAL BANK”
required research to be done. The comparison required the collection of
Primary Data as well as the Secondary data. The credibility literally means
the market value and the profitability of a particular brand or a company
among its competitors. PUNJAB NATIONAL BANK is one of the popular
public sector bank in India. A detailed study has been done on working
capital, risk management, assets liability management and various other
services provided by the bank.

5.2 RESEARCH DESIGN

NON-PROBABILITY

EXPLORATORY & DISCRIPTIVE EXPERIMENTAL RESEARCH

The research is primarily both exploratory as well as descriptive in nature.

The sources of information are both primary & secondary.

A well-structured questionnaire was prepared and personal interviews were

conducted to analyze the services offered by the bank and the ways it
could be improved.

SAMPLING METHODOLOGY

Sampling Technique: Initially, a rough draft was prepared keeping in mind

the objective of the research. A pilot study was done in order to know the
accuracy of the Questionnaire. The final Questionnaire was arrived only
after certain important changes were done. Thus my sampling came out to
be judgmental and continent

48
5.3 Sampling Unit:

The respondents who were asked to fill out questionnaires are the
sampling units. These comprise of customers of Punjab National Bank.

Sample size:

The sample size was restricted to only 100, which comprised of mainly
people from different regions of Varanasi.

Sampling Area :

The area of the research was VARANASI ZONE, UTTAR PRADESH.

Secondary data:

(i) Data collected for companies from various site available of the
companies included in research.

(ii) Data collected from reports prepared earlier by PNB research

department and the reports of financial team.

49
 CHAPTER 6

DATA ANALYSIS
AND
INTERPRETATION

50
 DATA ANALYSIS AND INTERPRETATION

CASE STUDY:

WORKING CAPITAL ASSESMENT (UPTO RS. 10 LAC)

M/s. ABC Agri-Autos, a proprietary concern was established about two

years ago by Sh. Sunil Kumar a qualified mechanical engineer. Before
establishment of the unit, he served in a tractor manufacturing unit as
production supervisor for 3 years. Not satisfied with his job and having
intention to have his own business, he established this unit as an ancillary
to three Tractors and Eicher Tractors by raising a term loan of Rs. 2.50 lac
from the bank, repayable in five years beginning from first quarter
repayable of second year in equal quarterly instalments and with the help
of funds from his parent and friends and relatives on a lease-hold plot
along with building valuing Rs.3 lac which is mortgaged to bank in addition
to guarantee of his father (NMs- Rs. 3 lac) who is having his own cloth shop
in the town.
In viewing of his qualification and connections in these tractor
manufacturing units, he is a position to push his product which has been
found to be of good quality as compared to his competitors. He is
purchasing most of the raw material from nearby town and all items of raw
materials, stores and spares are available easily, although there is always a
fear of fluctuation in the prices of these inputs. Other inputs like power,
fuel and labour are also easily available and so far he has not faced any
problem. There is growing demand for tractors in the region/country and he
is also doing some sale in the replacement market (directly to dealers) to
expand his market base.

51
During the stock inspection, the bank inspection had identified finished
goods stocks worth Rs. 35,000 purchased in order o execute an urgent
order during the 1st year which remained unsold due to quality problem.
The supplier of these stocks is not ready to take back the stocks and repay
back the payment. The party makes an effort to keep the level of finished
goods lower particularly at he time of closing of the financial year
particularly at the time of closing of the financial year on account of tax
planning, while the normal level of finished stocks with the party is 20-30%
higher than the level shown in the balance-sheet.
There is no regular system of placement of orders by the buyers but they
keep on requisitioning the finished products on an ongoing basis. The
average monthly turnover of the party during the last three months is Rs. 2
lac and they are about to close their second year of operations.

The party has requested for enhancement of their working capital limits
from existing level of Rs.3 lac(temporarily enhanced to Rs. 4 lac) to Rs.7
lac. Following is their financial information:

1st yr 2nd yr 3rd yr

actuals estimates projection
Opening stocks:
Raw material - 90 130
Stock in process - 40 55
Finished goods - 115 220
Purchase of:
Raw materials 645 900 1285
Finished goods 290 390 580
Wages to workers 65 85 105
Depreciation 55 50 70
Power and fuel 40 60 80
Other expenses 80 95 120
Selling expense 120 170 190
Interest/bank charges 105 125 200
Other expenses 30 30 40

52
Profits 45 80 150
Total 1475 2230 3225
Sales 1200 1800 2600
Closing stocks of:
Raw material 90 130 170
Stock in process 40 55 75
Finished goods 115 220 360
Other income 30 25 20
Total income 1475 2230 3225
BALANCE SHEET
Proprietors capital 275 350 345
Reserves (inclusive of depreciation 70 140 250
reserve) (55) (105) (175)
Loans from friend/relative 60 85 170
Term loan from bank 250 240 200
Cash credit: stocks 250 350 600
Cash credit: book debts/bills 50 50 100
Sundry creditors 40 155 130
Other liabilities 30 35 30
TOTAL LIABILITIES 1025 1405 1825
Cash in hand/bank 15 25 20
Loans & advances( including advances 40 90 110
to building contractor _ (30) (80)
Security: phone/ electricity 35 45 50
Stocks 245 405 605
Receivables 150 260 330
Fixed assets 540 580 710
TOTAL ASSETS 1025 1405 1825

EXAMINATION OF BORROWERS ESTIMATES FOR WORKING

CAPITAL

From the information provided as above, the following basis can be

taken to examine the estimates given by the borrower for the purpose of
making assessment of working capital requirements:

• The turnover has been estimated for the 3rd year by the borrower
at Rs. 26 lac which is Rs. 26 lac which is 44% more than the
turnover expected to be achieved during the 2nd year. The

53
 borrower has based his estimates on the actual average monthly
turnover achieved by him during the last 3-4 months at the rate of
Rs. 2 lac per month. The borrower is supplying finished goods to
tractor manufacturing units, for which he is working as an
ancillary. In addition, he is also catering to replacement market.
All this shows that he is trying to expand his market on a sound
footing having diversified buyers pockets. The production
capacity, he has spare capacity available with him which is not
going to be handicap in achievement of the estimated production
level. As for the availability of the inputs is concerned, these are
also available easily. The quality of his product is also good as
compared to his competitors. Hence taking into account the
selling aspects and production, as also his management capacity,
the turnover at the level of Rs. 26 lac for the 3rd year can be very
safely assumed to be achievable and the assessment of working
capital can be considered at that level.

• The profitability statement given by the borrower also reflects that

the raw material consumption or cost of production have been
estimated by the borrower at a level which is commensurate to
the level of turnover for the 1st and 2nd year. During the 1st year the
raw material consumption, which is major part of the cost
structure is 46% and the cost of production 63% while for the 2 nd
year these are 48% and 63% and for the 3rd year these are 48%
and 62%. Similarly the amount of selling expenses, administrative
expenses appears to be in line with the expansion of the activity
and the financial expenses have been estimated in line with the
proposed level of borrowing. In view of this the profitability level
can also taken as achievable.

54
 • While having a look at the projected balance sheet, particularly
the current assets, the levels for the 1st, 2nd and 3rd year can be
compared as under:-

Operating parameters:
Raw materials consumption 555(46.3) 860(71.7)
1245(103.8)
Cost of sales 755(62.9) 1135(94.9)
1600(133.3)
Sales 1200(100) 1800(150.5)
2040(170)
(Figures in brackets represent per month data)
Raw material 1.95 1.86
1.64
Stock in process 0.64 0.59
0.56
Finished goods 1.48 1.59
1.91
Receivables 1.50 1.73
1.52

The level (holding) of various current assets components, as would be

observed, appear to be in line with the past trends except for the
finished goods, which the borrowers has estimated at a much higher
level. For this the party has given justification that the year end level of
finished goods is kept low by them because of tax planning where as,
usually the level is higher in the stock reports by 20-30%. If the plea of
the party is accepted based on the average stock to be verified from the
stock reports, there will not be any problem in accepting party’s view
point. Otherwise also, the borrower has estimated substantially lower
levels of raw material, stock in process and receivables which are major
components of the working capital.
Hence we can accept the profitability statement along with the levels of
current assets as estimated and need based.

55
 Working Capital Needed:

Raw materials (1.64 months consumption) 170

Stock in process (0.56 months cost of production) 75
Finished goods (1.91 months cost of sales) 325
Receivables (1.52 months sales) 330
Sub total 900
10% contingency on the sub-total 90
Other current assets 50
Total Current Assets/ Working Capital
1040

Beside the above case study, a survey was also executed taking a sample
of customers of Punjab National Bank. The main purpose of this survey
was to know how well this bank satisfies its customer’s need and what
exactly are the expectations of the customers from this bank. This survey
will surely act like a boon to the organization as it is the first hand data
gathered on our part. Response and analysis of every question are
depicted below. Every question is represented with relevant graph as
under:

56
Analysis And interpretation of questionnaire:

1) Age Group: -
a) 20yrs to 25yrs
b) 25yrs to 30yrs
c) 30yrs to 40yrs
d) 40yrs to 50yrs
e) Above 50yrs

Age Group Number

20-25 yrs 13
25-30 yrs 17
30-40 yrs 35
40-50 yrs 28
Above 50 yrs 7

35

30

25

20
Pe rce nta ge
15

10

5
0
2 0-2 5 yrs 25 -30 yrs 30 -40 yrs 4 0 -5 0 yrs Abo ve 50 yrs
Age Group

57
2) What is Your Occupation.
a) Service
b) Business Man
c) House Wife
d) Student
e) Other

Occupation Number
Service 34
Business man 27
House wife 4
Student 28
Other 7

35
30
25
20
Number
15
10
5
0
Service Business House wife Student Other
man
Occupation

58
3) What Type Of Account you Are Holding
a)Saving Account
b) Current Account
c) Recurring Account
d) Joint Account
e) Fixed Deposit Account

Type of Account Number

Saving Account 36
Current Account 20
Recurring
Account 15
Joint Account 18
FD Account 11

40
35
30
25
Num be r20
15
10
5
0
S aving Current Rec urring Joint FD A cc ount
A c c ount A c c ount A c c ount A c count
Type O f Accoun ts

59
4) In Which bank Do You Have account Other than Punjab National Bank.
a) State Bank Of India
b) ICICI
c) Union Bank
d) HDFC
e) Other

Bank Number
SBI 36
ICICI 23
Union Bank 12
HDFC 9
Other 20

40
35
30
25
Nu m b e r20
15
10
5
0
SBI IC ICI Union B ank H DF C O ther
Ba n ks

60
5) Do You Have Taken Any Loan.If Yes Which One.
a) Business Loan
b) Home Loan
c) Education Loan
d) Personal Loan
e) Other

Type Of Loan Number

Business Loan 25
Home Loan 38
Education Loan 32
Personal Loan 0
Other 5

40
35
30
25
Num b e r20
15
10
5
0
B us ines s Hom e Loan E duc ation P ers onal O ther
Loan Loan Loan
T ype O f Loa n

61
6) Which of the following Facilities Given by your bank is Most Preferred
by You .
a) ATM
b) E-Banking
c) Overdraft Facilities
d) Minimum Balance
e) Agent Facilities
f) Security Locker

Facilities Number
ATM 50
E-banking 24
Overdraft
Facilities 15
Minimum Balance 2
Agent Facility 0
Security Locker 9

50
45
40
35
30
Nu m b e r25
20
15
10
5
0
A TM E -bank ingO verdraft M inim um A gent S ec urity
F ac ilities B alanc e F ac ility Loc k er
P re fe re d F a cility

62
7) Which Type Of ATM you Have
a) Gold ATM
b) Silver ATM
c) Platinum ATM
d) Maestro ATM

Type Of ATM Number

Gold ATM 10
Silver ATM 13
Platinum ATM 11
Maestro ATM 35
Master Card 31

35
30

25
20
num be r
15
10

0
Gold A TM S ilver A TM P latinum M aes tro A TMM as ter Card
A TM
Type Of ATM

63
8) Have you ever tried E- Banking
a) Yes
b) No

E-Banking Number
yes 24
No 76

E-Ba nking Fa cility

y es , 24

y es
no

no, 76

64
9) The Customer Services Provided By your Bank is.
a) Highly Satisfied
b) Satisfied
c) Average
d) Unsatisfied
e) Poor

Customer Service Number

Highly Satisfied 11
Satisfied 51
Average 26
Unsatisfied 12
Poor 0

C u s to m e r s e rv ic e

H ig h ly S a t is fie d
S a tis fie d
A ve ra g e
U n s a t is fie d
poor

65
10 How Did You Got Associated with The Bank.
a) Advertisement
b) Reference
c) Deliberate Tie Ups
d) Word Of mouth

Medium Number
Advertisement 28
Reference 53
Deliberate tie up 13
Word of mouth 5
Other 1

60

50

40
Number

30

20

10

0
Advertisement Reference Deliberate tie up W ord of m outh Other
M e dium

66
11 Are You Aware Of The Recent Services Offered By Punjab National
Bank.
a) Yes
b) No

Awareness Number
Yes 62
No 38

Awareness Of Recent Service

No, 38
Yes
No
Yes, 62

CHAPTER 7
67
FINDINGS

68
 FINDINGS:

1. Out of the sample size taken the major account holder falls in the
segment of 30–40 year age group followed by 40-50 year age
group. A significant observation in respect of this question was
that 30 customer fall in a cumulative age group of 20-30 years.
This signifies that students are also quiet aware of holding bank
accounts.

2. This was one of the main question in the survey which signifies
the occupation of people holding the account. It depicts that
people involved in service occupation amounts to the major
segment in this question. This is just because people working in
MNCs holds it compulsory to have a salary account. There is also
a very significant observation in this segment that housewives
are also much involved in banking.

3. Third question was about the kind of account the surveyed

people hold. It was a subsequent observation that people tend to
hold saving bank account the most. There can be a valid reason
supporting to it that as the major surveyed population was
service class and service class people are always tempted to
saving.

4. This question tell us clearly that people don’t really hold a single
account. They tend to have different accounts in different banks.
The only reason to support the response can be that customers
just want to capitalize the service and scheme of different bank. It
also tells that SBI is also one of the most sought after bank in
banking sector.

5. People surveyed are much attracted or have a clear tendency to

69
 acquire loans. This can be very clearly deduced by the response
of the fifth question. People are very much keen to acquire home
loans and education loan.

6. It’s a very obvious kind of deduction from this question, any

individual holding any kind of account are always supposed to
have a ATM in their pocket. This is what this response depicts the
most likeable service provided by banks is the ATM service. E-
banking is also emerging to be one of the most likeable service
both in youngster as well as service class people.

7. People are still not so aware of the e-banking service as in the

surveyed population only 24 people have ever experienced e-
banking. This doesn’t tells that the rest of the population are
unaware of the e-banking, its just the kind of thing that this
segment have never tried using e-banking.

8. People holding a PNB account are quiet satisfied with its

services. This can be the reason why PNB is one of the most
reliable bank having a terrific public image.

70
 CHAPTER 8

RECOMMENDATION

AND

SUGGESTION

71
 SUGGESTIONS AND RECOMMENDATIONS

It has been observed that to put a new organization into a running position is
much more difficult than to handle a already working organization, manager’s
task is difficult in a banking industry he is the person who is completely liable for
the working of branch. To put a right person at a right job is not an easy task for
the manager.

I observed some of the factors in my branch such as:

• Lack of staff
• lack of Efficient staff
• Lack of speed
• Lack of quality service
• Complicated work procedure
• Not providing service on time

There were even some problems regarding financial transaction which were
encountered by me during my training period:
• Lengthy loan processing time
• Need of high documentation
• Difficulty in assessing the working capital
• Problem in maintaining the data base

Observation regarding problem faced by customers

• Improper attention towards non working class
• Lack in providing proper documentation knowledge
• Lack in creating awareness of internet banking

72
 • Lack in educating customers for new schemes

Beside all these factors the branch has also achieved some achievements such
as 12000 accounts in 2 days and distribute micro loan of around 5 crore rupees to
different 55 Self Help Groups to start their small businesses.

Opening of 1st Micro branch in India is also a achievement and it is a starting of

new type of banking revolution which can change the life of villagers which
depends on the “MAHAJAN” to lend them money at high interest rate.

73
 CHAPTER 9

LIMITATIONS

74
 LIMITATION OF STUDY

1. The research is confined to a certain parts of Varanasi and does not

necessarily shows a pattern applicable to all of Country.

2. Some respondents were reluctant to divulge personal information which

can affect the validity of all responses.

3. In a rapidly changing industry, analysis on one day or in one segment can

change very quickly. The environmental changes are vital to be considered in
order to assimilate the findings.

Following were the difficulties faced during the completion of project:

 Non filling up of certain questions of the questionnaire which led to the

cancellation of that particular questionnaire.

 Non understanding of certain parameters in the questionnaire.

 Taking a sample size of 50 people does not reflect the mindset of all kinds
of people from different backgrounds, different age groups and income
groups.

Again research study of 3 months is a time constraint and covering whole of

Varanasi population by taking a sample size of 100 is not feasible.

75
 CONCLUSION

While working in Punjab National Bank’s 1st Micro Branch of India I got in-depth
knowledge about Micro finance. I recognize that there is a lot more to discover
and learn, I learned to be more responsible, have more patience and most
important it helped me to learn how to handle the work pressure.

Punjab National Bank continues to maintain its frontline position in the Indian
banking industry. In particular, the bank has retained its NUMBER ONE position
among the nationalized banks in terms of number of branches, Deposit,
Advances, total Business, operating and net profit in the year 2008-09.

PNB’s endeavor is to provide excellent, courteous and world class technology

based services to one and all. Bank’s proven customer-centric initiatives,
business processes in tandem with the emerging market trends are bringing
fructuous results.

As India’s largest nationalized bank with a nationwide network of 4604 branches

including 249 ECs at 2557 locations and 4 foreign offices, PNB’s leadership has
always stood the test of time.

PNB has always looked at technology as a key facilitator to provide better

customer service and ensured that its ‘IT strategy’ follows the ‘Business strategy’
so as to arrive at “Best Fit”. The bank has made rapid strides in this direction.

I would like to express my gratitude to all the employees of the bank they guided
me and were quite patient to teach me all the routine tasks during banking
transactions. Therefore I would like to thank every employee of the bank for their
co-operation.

76
 QUESTIONNAIRE

Dear Respondant,
I am the student of MBA,Institute of Institute of Business Studies And
Research doing survey on the topic ‘Overall Working Of Punjab National Bank’
I would be highly if you kindly give your precious time in filling up this
questionnaire.

Name: ______________________________________________________
Address: ______________________________________________________
__________________________________________________
Mobile No.: _______________________________________________________
E-Mail ID: ______________________________________________________

1) Age Group: -
a) 20yrs to 25yrs
b) 25yrs to 30yrs
c) 30yrs to 40yrs
d) 40yrs to 50yrs
e) Above 50yrs

2) What is Your Occupation.

a) Service
b) Business Man
c) House Wife
d) Student
e) Other

3) What Type Of Account you Are Holding

a) Saving Account
b) Current Account
c) Recurring Account
d) Joint Account
e) Fixed Deposit Account

4) In Which bank Do You Have account Other than Punjab National Bank.

77
 a) State Bank Of India
b) ICICI
c) Union Bank
d) HDFC
e) Other

5) Do You Have Taken Any Loan.If Yes Which One.

a) Business Loan
b) Home Loan
c) Education Loan
d) Personal Loan
e) Other

6) Which of the following Facilities Given by your bank is Most Preferred by You .
a) ATM
b) E-Banking
c) Overdraft Facilities
d) Minimum Balance
e) Agent Facilities
f) Security Locker

7) Which type of ATM do you have

a) Gold ATM
b) Silver ATM
c) Platinum ATM
d) Maestro ATM

8) Have you ever tried E- Banking

a) Yes
b) No

9) The Customer Services Provided By your Bank is.

a) Highly Satisfied
b) Satisfied
c) Average
d) Unsatisfied
e) Poor

10) How did you got associated with the bank.

78
 a) Advertisement
b) Reference
c) Deliberate Tie Ups
d) Word Of mouth
e)Other

11 Are You Aware Of The Recent Services Offered By Punjab National Bank.
a) Yes
b) No

12 Any Suggestions
……………………………………………………………………………………………………
……………………………………………………………………………………………………
……………………………………………………………………………

79
 BIBLOGRAPHY

 Books-

--- Financial management by Prasann Chandra

---C.R. Kothari, “Research Methodology, Methods &

Techniques” New age
International publishers 2008

• WEBSITES

www.pnbindia.co.in

www.pnb.com

www.google.com

• Training module of PNB employees.

80