PNB looking for afresh start into insurance business

Punjab National Bank (PNB) is looking for a fresh start into insurance business. A board-level committee has been set up for the same.

In a communication with The Hindu Mohan V. Tanksale, Executive Director, said, a decision in this regard was taken at the last meeting of the board.

The panel will look into all possibilities for its entry into the insurance field. The scope of banks entry into insurance can be either as a corporate agent or work as a multi-product distributor or be a product manufacturer. The panel has been asked to give recommendation on the right business model for the bank’s foray into the insurance segment.

Mr. Tanksale told that the panel will be giving its recommendations in three months.

Several large Indian banks as well as foreign banks have entered the Indian life insurance space, but PNB remained out of this segment. Earlier PNB had planned to enter insurance segment in a multi-way joint venture with Vijaya Bank, Principal and Berger Paints but an exclusivity clause forced it to restrain from pursuing any kind of insurance activity, either underwriting or distribution. Mr. Tanksale told, the problem has been solved.

He told PNB is expecting to achieve a 40% growth in fee-based income during the current financial year. During 2009-10 bank fee-based income amounted at Rs 3,565 crore around 11-12 per cent of the bank’s total income. Mr. Tanksale said PNB has been interested in increasing fee-based income this year to 15 per cent.

The Executive Director has a target of achieving a 20-22 per cent credit growth this year. He disclosed that bank in general is being selective and cautious in lending to commercial real estate business. He relates this to the high risk weight assigned to commercial real estate loans. He informed bank is doing well in auto (cars, in particular), retail home and education segments in terms of credit disbursal. Bank auto loan portfolio is worth around Rs. 3,000 crore, the home segment Rs. 8,000 crore and education Rs. 2,000 crore.

Mr. Tanksale said the credit offtake in case of infrastructure projects is a bit slow. But he quickly said, the sanctions for this are happening. He said, in this case there is a usual delay in time between sanctions and loan availing. In the farm sector the debt closure as already taken place and as the monsoon is normal, thus he expects increase in agriculture credit pick up.

Mr. Tanksale argues that fixing a base rate will not make some borrowers to pay more. He said switch to base rate will force banks to focus on managing the cost of operations.

PNB issue security alerts about phishing attempts

Customers of Punjab National Bank received security alerts from the bank. The bank has alerted its customer to be alert of phishing attempts. The alert stated that recently login attempts into their customers’ accounts have been tracked which were made from certain blacklisted IP addresses.

To keep check on such attempts currently bank has blocked access to accounts through internet banking. To provide more security PNB’s security team has added an extra verification process for all its net banking users.

The bank has also informed its customers that it does not send any email requesting for customer's account information or passwords. And has told its customers not to give away any such information and they should inform bank about in case they receive any such mails

Large Banks eye on Corporation, Andhra & Dena Bank for acquisition

On Wednesday meeting was held between PSU banks and Finance Ministry officials to discuss the consolidation process. Corporation Bank, Andhra Bank and Dena Bank are the main targets for acquisition among the large PSU banks.

In the meeting chiefs of Punjab National Bank, Canara Bank, Union Bank of India, Bank of India and Bank of Baroda were present, they discussed the pros and cons of consolidation among banks in India.

According to anonymous sources from the banking industry, the Union Bank, Bank of Baroda and Punjab National Bank showed interest in acquiring Corporation Bank whereas Canara Bank and Punjab National were interested in Dena Bank.

On the other hand Bank of India has shown interest for acquisition of Oriental Bank of Commerce. Union Bank and PNB are also interested to acquire Andhra Bank.

Bankers said at present discussions are in preliminary stage and it can take very long time to materialize. Sources told the Finance Ministry officials will be meeting CEOs of small to medium size PSU banks to know their views on consolidation. It is believed CEOs of small-to-medium-size banks will most probably oppose their acquisition by large banks on the basis that their loyal customers will leave and also on stand alone basis the performance of banks is better.

Surprisingly, not any of the large banks have shown interest in acquiring any bank located in eastern belt like UCO Bank, Allahabad Bank or United Bank of India as they fear they might have to face resistance from the political front and other labor on this issue.

In the meeting one of the suggestions was put forward that all the three Kolkata based banks should be merged into one. However not any of the large banks were keen in acquiring Bank of Maharashtra, Central Bank of India, Punjab & Sind Bank. According to sources there was lack of interest in case of these banks mainly because of their union problems.

It has been five to six years the government has been having discussion on consolidation among Indian banks. But sources said this time some positive response was seen in the meeting which was not in the previous round of discussion. In this meeting large banks had shown interest on smaller banks through which they can increase their geographical reach and relatively clean balance sheets.

For instances, on Wednesday, PNB prepared a ground for banks which are located in the west including Gujarat and Maharashtra, Union Bank of India and Bank of Baroda has shown interest in southern belt, whereas Bank of India is interested in increasing its presence in the northern region and Canara Bank is also keen in increasing its presence in western India.

Earlier chiefs of Bank of India and Union Bank of India were interested in merger after which they will become strong bank in the western region as both banks major presence in Gujarat and Maharashtra. But the discussions could not materialize because of strong resistance from the Left front.

On Wednesday in the meeting with Finance Ministry banks advised them to formulate rules for M&A. One of the bank chief suggested in the meeting, “Every bank would like to acquire another bank irrespective of its size. Nobody wants to be acquired. But if there is a set rule on which banks are eligible to acquire and what would be to the terms, it would enable banks to work on consolidation.”

World Bank has given $2 billion to government to provide financial support to PSU banks in order to help them in meeting their capital requirement. Many banks have given indication of their capital requirement, to the Finance Ministry so that over the next three years they can maintain growth.

Bankers informed that before giving out the capital to the banks, government is preparing a bid for consolidation.

PNB first bank to open saving accounts for Siachen jawans

Punjab National Bank (PNB) expressed their affection to the soldiers posted at Siachen glacier in Ladakh region, by opening over 300 saving bank accounts with overdraft facility for them.

R C Kaul PNB deputy general manager Jammu circle told, "Our team of the officials reached out to soldiers at Siachen Gaclier. They opened over 300 accounts under saving bank scheme at Partappur base-camp of the Glacier”.

He asserted that PNB is the first bank to make efforts to reach to soldiers posted in one of the coldest regions in the world.

PNB sign MoU with state housing department to provide loans to EWS & LIG

A memorandum of understanding (MoU) has been signed between the state housing department and the Punjab National Bank (PNB) for providing loans to people economically weaker section (EWS) and lower income group (LIG).

For providing loans to the aspiring applicants the bank will be signing MoU with 22 development authorities in the state. In a press statement bank stated they have already signed agreements with development authorities in Gorakhpur, Varanasi, Meerut, Moradabad, Hapur and Allahabad.

While on Saturday PNB's circle head (Lucknow circle), BL Gupta signed an agreement with Lucknow Development Authority (LDA), which will be constructing as many as 10,000 houses in the EWS and LIG category. In a statement bank stated, "The main points which were covered in the MoU were execution of tripartite agreement with the allotee, creation of customer help desks by PNB at allotment office of LDA, expeditious and prompt sanctioning of loans to allot tee and sharing of allot tee database between two organizations".

Axis Bank, PNB and few PSU banks are good buy for long-term investors

Since March 09 the benchmark Nifty index of the NSE has lifted by 78% hence the bank shares have moved up by higher margins, but not of all the banks.

After analyzing the stock market current position the Axis Bank, Punjab National Bank, Bank of Baroda and Bank of India are still in a very good position and a good buy for long-term investors in case growth and historical assessment are taken into account.

Since 2003 over a dozen times there have been crucial turn up or down in the bull market. ETIG evaluated the assessments of banks at these points as market dynamics often change with every considerable gain or fall. Banks’ growth line is also taken into consideration at these points as growth determines valuations.

For instance take the case of ICICI Bank. On five important dates from March 9, 2005 to July 26, 2007 banks stock traded at price to earnings (P/E) multiple of between 15 and 30. This was the only way when the market headed upwards. At this time the the growth in earnings ranged from 20-30%.

Now the bank stock is trading at a P/E of 23 and profits have declined by 10% in FY 2009. Therefore the interesting outcome of this is: although the stock is trading at pretty much the same valuation as it was in those “good old days” but the wave has changed now and it has been most affected due to the slowdown in the economy, which means that it is overrated at current prices.

For many other banks, although the valuations are still low, but their growth too has been affected. Applying the same standard as of ICICI Bank, it has been observed that Indian Overseas Bank (IOB) had a P/E multiple of between 7 and 9 at the five decisive points between March 9, 2005 and July 26, 2007 though its profit growth was in the range of 20-30%.

At present the bank’s P/E is 3.6, but net profit growth is just 10% in FY 2009, due to which banks growth is very slow. As compared to growth in earnings the valuations have come down. Therefore, it should not be interpreted as a cheap stock as the fall in growth demands a decline in valuation. Similar case is case with Allahabad Bank, Oriental Bank of Commerce and Karnataka Bank.

There are also some bank stocks which appear to be underestimated. From March ‘05 to July’ 07, Axis Bank did business at a P/E of 20-25 when net profit growth was 20-50 %. Currently the stock is trading at a P/E of 14, with net profit growth of 69% in FY 2009. The conclusion is that stock markets have not been giving it the best it deserves to show the faster rate of growth.

Even a few public sector banks seem to have intrinsic value. Punjab National Bank (PNB) did business at a P/E of 10-13 when its growth was 10-30 % between March 9, 2005 and July 26, 2007. At present, the stock trades at a P/E of 6.3. However, its net profit has grown by 51% in FY 2009. Estimation has come down but the growth has gone up, making it an even cheaper stock.

Bank of Baroda and Bank of India in the same way as of PNB, also appears to be persuading buys as their current estimations have not taken into account their faster pace of growth. In case it would have been the secular Bull Run the prices might have gone up even more sharply as the market discounts fundamentals much more easily.

Among other banks, Indian Bank and Corporation Bank are also good buys.

While HDFC Bank’s valuations have remained in the range of 25-30 but it has gained a historic growth of 30%-40 %. At present its P/E is at 29 and profit growth was 41% in FY 2009 which means that the stock is as attractive as it was. The important thing for investors is that due to such stability often stock becomes a market performer. Therefore, it is improbable that HDFC Bank will make break through in the market.

PNB sees scope for cutting lending and deposit rates

On Tuesday Punjab National Bank chairman & MD K C Chakrabarty indicated that there is a scope for the cut in both lending and deposit rates. The rates can be reduced by 50-100 basis points. He added later in the day bank's asset and liabilities committee is going to hold a meeting for reviewing the rates. Speaking on the sidelines of a CII event in Delhi he added, "There is always scope for rate cuts."

Recently RBI in its annual monetary policy for 2009-10 release had cut both reverse repo rate and repo rate by 25 basis points to 3.25% and 4.75% respectively, with a view to increase economic growth.

Dr Chakraborty also added that in the current fiscal year more recruitment will be done and also has an aim to increase its customer base. He said, "We will recruit around 1,000 people and aim at adding one crore additional customers this year". The bank is also looking for a growth of 18-20% growth in deposits this fiscal.