Risk Management Practices of Three Public Sector Banks

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Interim Project Report

Risk Management in Banking

Submitted toKaushik Bhattacharya


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A Report on

Risk Management Practices of

Three Public Sector Banks

Bank of Baroda, Punjab National Bank

&Canara Bank

By-

HARSH KUPANIA

SUMIT VIJ

SHRESHTA DAS

PRIYAMWADA

Submitted on21

st

January, 2013


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Table of Contents

1. Abstract.......................................................................................................42. Introduction to banking sector....................................................................43. Risk Management in Banking Concepts....................................................54. Asset Liability Mismanagement................................................................65. Gap analysis...............................................................................................66. Duration Analysis......................................................................................87. Interest Rate Risk108. Type ofRisk119. Bank of Baroda1410.Canara Bank....1611.Punjab National Bank...............................................................................2012.References24


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Abstract

This project report is related with the concepts of Risk Management in Banking of three

public sector banks. The basic methodology is to make a comparison of these three banks to

analyze the performance of these banks. The comparison is made on the basis of various risk

management practices that we have mentioned in this report. We have collected the past Ten

years data of all these PSU banks and compare them on this of their Asset-Liability

Mismatch, Gap analysis, Interest Rate Risk ant the Duration Gap analysis.

Introduction

Financial sector reforms in India have brought about rapid changes in the structure of

financial markets, more particularly in banks. After initial shocks, the market is now attuned

to the winds of liberalization and gradually learning the tricks of not only surviving but also

growing in an environment of volatile as man soon. Banking prior to the 90s and banking

now present a perfect study of contrast.

Recently, banks have started to focus on the area ofrisk management as well as asset-

liability management (ALM). Simply speaking, ALM is an attempt to match the assets and

liabilities in terms of their maturities and interest rates sensitivities so that the risk arising

from such mismatchesmainly interest rate risk and liquidity risk- can be contained within

the desired limit. The objective behind all these measures is to make banks fully prepared to

face the emerging challenges. It is also common knowledge that the concept of risk in terms

of its definition, identification, quantification and management as well as the risk of

managing assets and liabilities, without which all endeavors to manage the net interest margin

as well as the total balance sheet would remain a non- starter. Because of ALM, Interest rate

risk management assumes utmost importance. In fact due to very nature of its business, a

bank should accept interest rate risk not by chance but by choice. And when the bank has to

take risk as a choice, then it should ensure that the risk taken is firstly manageable and

secondly it does not get transformed into any other undesirable risk. As stated earlier, the

focal point in managing any risk will be to understand the nature of the risk. This is especially

essential for interest rate risk management. Interest Rate Risk is the gain/ loss that arises due

to sensitivity of the interest income/interest expenditure or values of assets/liabilities to the

interest rate fluctuations.

This project study is an endeavor to understand interest rate risk management practices

followed in banks in India. Banks in fact are using various interest rate risk management

methods. Traditional and modern methods like maturity gap method, rate adjusted gap

method, duration analysis, hedging techniques, and simulation and value at risk method are

being used. So banking in India has come a long way. In fact interest rate risk management

being part of ALM is being given utmost importance by banks.


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Risk Management in Banking Concepts

Risk management underscores the fact that the survival of an organization depends heavily

on its capabilities to anticipate and prepare for the change rather than just waiting for thechange and react to it. The objective of risk management is not to prohibit or prevent risk

taking activity, but to ensure that the risks are consciously taken with full knowledge, purpose

and clear understanding so that it can be measured and mitigated. It also prevents an

institution from suffering unacceptable loss causing an institution to suffer or materially

damage its competitive position. Functions of risk management should actually be bank

specific dictated by the size and quality of balance sheet, complexity of functions, technical/

professional manpower and the status of MIS in place in that bank.

Risk: the meaning of Risk as per thecomprehensive dictionary is a chance of encountering

harm or loss, hazard, danger or to expose to a chance of injury or loss. Thus, something

that has potential to cause harm or loss to one or more planned objectives is called Risk.

The word risk is derived from an Italian word Risicare which means To Dare. It is an

expression of danger of an adverse deviation in the actual result from any expected result.

Banks for International Settlement (BIS) has defined it as- Risk is the threat that an event or

action will adversely affect an organizations ability to achieve its objectives and successfully

execute its strategies.

Risk Management: Risk Management is a planned method of dealing with the potential loss

or damage. It is an ongoing process of risk appraisal through various methods and tools

which continuously

Assess what could go wrong

Determine which risks are important to deal with

Implement strategies to deal with those risks


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AssetsLiabilitiesMismatching

A bank with mismatched assets and liabilities can be badly hurt by unexpected interest

rate changes. In the 80s, many Savings & Loan associations went bankrupt owing to rates

increases: since they had borrowed short and lent long, both their income and their net

worth had become negative.

Banks use the gap and the duration analyses to respectively evaluate (not necessarily to

eliminate) their exposure to income and to capital risks.

Gap analysis

It estimates the net effect on income of interest rate changes (parallel shifts). Income risk

is two forged: there is a reinvestment riskwhen assets mature before liabilities (ex. when a

bank has financed a 6 months T-bill by issuing a 1 year fixed rate CD: when, after 6

months, it cashes the T-bill, it may be unable to reinvest the proceeds at a profitable rate.

Please note that it is not unusual for a bank to finance a 5-years floating rate loan by

issuing a 3-years fixed rate bond: also in this case it is exposed to a reinvestment risk).

There is also a refinancing riskwhen liabilities mature before assets (ex. when a bank has

financed a 1 year fixed rate asset by issuing a 6 months CD: when the liability will mature,

the bank has to refinance its position by issuing another 6 months CD. But, if interest rates

have increased, the bank will have to pay a higher rate).

For the Gap analysis all items, on both sides of the balance sheet, are classified into twocategories: rate-sensitive andfixed-rate (non-sensitive).

ASSETS LIABILITIES

Rate-sensitive: RSA

(variable-rate loans and bonds; bills

and short-term securities) 40

Rate-sensitive:RSL

(variable-rate deposits; short-term or

variable-rate securities) 30

Fixed-rate: NSA

(fixed-rate loans; fixed-rate long-term

bonds; reserves) 60

Fixed-rate: NSL

(fixed-rate loans; fixed-rate long-term

bonds; net worth) 70

Gap = RSARSL = 4030 = 10 million


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The (annual) income will change by the size of the gap multiplied by the size of theinterest rates change: if the rates increase by 2% (200 basis points), the annual income will

increase by: 2%(10 million) = 200,000 euro.

GAP>0 The bank is asset sensitive: it benefits from interest rate increases and suffersfrom decreases.

GAP


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Duration analysis

Estimates the effect on the banks net worth (capital gains and losses) of an interest rate

change (parallel shifts).

ASSETS LIABILITIES

Rate-sensitive 40 Rate-sensitive 30

Fixed-rate Fixed-rate

*Reserves 10

*Zero coupon 5 years (83 mln, market

value at 6%) 62


value at 8%) 50 *Net worth 8

Total 100 Total 100

After a 200 bp increase in interest rates, we have:ASSETS LIABILITIES

Rate-sensitive 40 Rate-sensitive 30

Fixed-rate Fixed-rate

*Reserves 10

*Zero coupon 5 years (83 mln,

market value at 8%) 56,46


value at 10%) 34,64 *Net worth -1,82

Total 84,64 Total 84,64

The bank is bankrupt, notwithstanding its advantage of 0.2 mln in interest income. The cause

is a very large mismatching between assets and liabilities duration:

DA Assets average duration 0 40 100 0 10 100 20 50 100 10/ / /

DL

Liabilities average duration 0 30 92 5 62 92 3 4/ / .

DG Duration gap D

L

AD

A L10

92

1003 4 6 87. .

1st approximation:Duration gap


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NW DL

AD A i D A i

A L G1

For an increase of 200 bp, DG gives an estimation of NW1 = 13.74mln: a poor

approximation since the actual fall is 9.82 mln.

2nd approximation: Modified duration gap

NWD

i

L

A

D

iA i MD A iA

A

L

L

G21 1

ForMDG = 6.30, we have: NW2= 12.6 mln.

3rd

approximation: Modified duration gap and convexity gap

NW MD A i CL

AC A i

A A L3

21

2

MD A i C A iG G 1

2

2

with: C CA 50

100

20 10% 180 04. ; C CL 62

92

5 8% 17 93. , we have: NW3=

9.45 mln: a not too bad approximation.

Of course, all the approximations are better for smaller changes in interest rates. For i=0.01, we obtain: NW1 = 6.87, NW2= 6.30, NW3 = 5.51 as against an actual fall of

5.61 mln.

A positive DG is an implicit bet that interest rates will fall; a negative one that they willrise. To obtainDG = 0, in order to cover much of the capital risk, the bank can:


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Interest Rate Risk

Interest rate risk is the largest market risk in the banking book. A bank's interest rate risk

reflects the extent to which its financial condition is affected by changes in market interest

rates. There are two different ways of thinking about such effects when analysing banks'

exposure to interest rate risk: the net interest income risk measure and the investment riskmeasure.

The income risk measure is employed to assess the impact of a change in overall interest rate

level to the net interest income from the banking book, whereas the investment risk measure

is employed to assess changes in the market value of the trading portfolio (on and off balance

sheet items available for sale) in response to interest rate changes.

Various economic forces affect the level and direction of interest rates in the economy.

Interest rates typically climb when the economy is growing, and fall during economic

downturns.

Similarly, rising inflation leads to rising interest rates (although at some point, higher rates

themselves become contributors to higher inflation), and moderating inflation leads to lowerinterest rates. Inflation is one of the most influential forces on interest rates.

Management of interest rate and currency risks by banks

Banks are essentially in the business of managing risks. In particular, they are required to

handle interest rate mismatches as well as currency mismatches in their capacity as

authorized dealers and market-makers in the currency market.. The Reserve Bank has also

assigned responsibility on banks for ensuring suitability and appropriateness while

transacting derivative instruments with the corporates and also ensuring that the corporates

have appropriate risk management framework... Absence of proper oversight over corporates

business particularly their currency and interest rate risks has come to the fore now when we

have witnessed a number of cases of corporates seeking restructuring/CDR, many of whom

have got into difficulties due to foreign exchange related losses and excessive leverage,

restructuring/defaults of overseas ECB/Foreign Currency Convertible Bonds (FCCB)

obligations, loss to the overseas branches of Indian banks who have subscribed Credit Linked

Notes (CLNs) under the FCCB issues past.

Banks enter into derivative contracts for the purpose of hedging their own risks. They also

play an important role as market makers in the derivatives markets to enable their customers

to hedge their risks. Client trades are typically covered on a back-to-back basis by banks in

the inter-bank market, implying that the banks are hedged as far as market risks on clientrelated transactions are concerned but they continue to hold on to the credit risks arising from

the exposure to their clients. Banks also carry a significant amount of interest rate risk in their

investment portfolio due to holding of the Statutory Liquidity Ratio (SLR) bonds and non-

SLR securities. Managing risks in the investment portfolio, thus, acquires additional

significance in an environment of increased volatility of interest rates notwithstanding the

HTM dispensation available to banks up to certain limits. Typically, banks have been using a

combination of duration targets and duration gap analysis for managing risks arising out of

movements in interest rates. A series of stress tests are being conducted periodically by the

Reserve Bank on the impact of interest rate shocks on the banking and trading books of

banks. The results have been presented in the Financial Stability Reports (FSR) published by

the Reserve Bank of India.


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Type of Risk

When we use the term Risk, we all mean financial risk or unexpected financial loss. If we

consider risk in terms of probability or occur frequently, we measure risk on a scale, with

certainty of occurrence at one end and certainty of non-occurrence at the other end. Risk is

the greatest phenomena where the probability of occurrence or non-occurrence is equal. As

per the Reserve Bank of India guidelines issued in Oct. 1999, there are three major types of

risks encountered by the banks and these are Credit Risk, Market Risk & Operational Risk.

Further after eliciting views of banks on the draft guidelines on Credit Risk Management and

market risk management, the RBI has issued the final guidelines and advised some of the

large PSU banks to implement so as to gauge the impact. Risk is the potentiality that both the

expected and unexpected events may have an adverse impact on the banks capital or its

earnings.

The expected loss is to be borne by the borrower and hence is taken care of by adequately

pricing the products through risk premium and reserves created out of the earnings. It is the

amount expected to be lost due to changes in credit quality resulting in default.

Where as, the unexpected loss on account of the individual exposure and the whole portfolio

is entirely borne by the bank itself and hence care should be taken. Thus, the expected losses

are covered by reserves/provisions and the unexpected losses require capital allocation.

LIQUIDITY RISKLiquidity risk is the current and prospective risk to earnings or capital arising from a banks

inability to meet its obligations when they become due without incurring unacceptable

losses.Liquidity risk includes the inability to manage unplanned decreases or changes in

funding sources. Liquidity risk also arises from the failure to recognize or address changes in

market conditions that affect the ability to liquidate assets quickly and with minimal loss invalue.

CREDIT RISKIn the context of Basel II, the risk that the obligor (borrower or counterparty) in respect of a

particular asset will default in full or in part on the obligation to the bank in relation to the

asset is termed as Credit Risk.

Credit Risk is defined as-The risk of loss arising from outright default due to inability orunwillingness of the customer or counter party to meet commitments in relation to lending,


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trading, hedging, settlement and other financial transaction of the customer or counter party

to meet commitments.

Credit Risk is also defined, as the potential that a borrower or counter party will fail to meets

its obligations in accordance in agreed terms.

MARKET RISKIt is defined as the possibility of loss caused by changes in the market variables such as

interest rate, foreign exchange rate, equity price and commodity price. It is the risk of losses

in, various balance sheet positions arising from movements in market prices.

RBI has defined market risk as the possibility of loss to a bank caused by changes in themarket rates/ prices. RBI Guidance Note focus on the management of liquidity Risk and

Market Risk, further categorized into interest rate risk, foreign exchange risk, commodity

price risk and equity price risk.

Market risk includes the risk of the degree of volatility of market prices of bonds, securities,

equities, commodities, foreign exchange rate etc., which will change daily profit and loss

over time; its the risk of unexpected changes in prices or rates. It also addresses the issues of

Banks ability to meets its obligation as and when due, in other words, liquidity risk.

OPERATIONAL RISKOperational risk is the risk associated with the operations of an organization. It is defined as

risk of loss resulting from inadequate or failed internal process, people and systems or from

external events.

It includes legal risk. It excludes strategic and reputational risks, as the same are not

quantifiable.

Operational risk includes the risk of loss arising from fraud, system failures, trading error andmany other internal organizational risks as well as risk due to external events such as fire,

flood etc. the losses due to operation risk can be direct as well as indirect. Direct loss means

the financial losses resulting directly from an incident or an event. E.g. forgery, fraud etc.

indirect loss means the loss incurred due to the impact of an incident.

REGULATORY RISKThe owned funds alone are managed by an entity, it is natural that very few regulatorsoperate and supervise them. However, as banks accept deposit from public obviously better


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governance is expected from them. This entails multiplicity of regulatory controls. Many

Banks, having already gone for public issue, have a greater responsibility and accountability

in this regard. As banks deal with public funds and money, they are subject to various

regulations. The various regulators include Reserve Bank of India (RBI), Securities Exchange

Board of India (SEBI), Department of Company Affairs (DCA), etc. More over, banks shouldensure compliance of the applicable provisions of The Banking Regulation Act, The

Companies Act, etc. Thus all the banks run the risk of multiple regulatory-risks which

inhibits free growth of business as focus on compliance of too many regulations leave little

energy scope and time for developing new business. Banks should learn the art of playing

their business activities within the regulatory controls.

ENVIRONMENTAL RISKAs the years roll the technological advancement takes place, expectation of the customers

change and enlarges. With the economic liberalization and globalization, more national and

international players are operating the financial markets, particularly in the banking field.

This provides the platform for environmental change and exposure of the bank to the

environmental risk. Thus, unless the banks improve their delivery channels, reach customers,

innovate their products that are service oriented; they are exposed to the environmental risk.


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Bank of Baroda

Bank of Baroda is the highest profit-making public sector undertaking (PSU) bank in India

and the second largest PSU bank in terms of number of total business in India. Based

in Vadodara, India, it is the country's first largest public sector lender in terms of annual

profit. BoB is ranked 715 on Forbes Global 2000 list. BoB has total assets in excess of Rs.

3.58 lakh crores, or Rs. 3,583 billion, a network of 4007 branches (out of which 3914

branches are in India) and offices, and over 2000 ATMs. It plans to open 400 new branches

in the coming years. It offers a wide range of banking products and financial services to

corporate and retail customers through its delivery channels and through its specialized

subsidiaries and affiliates in the areas of investment banking, credit cards and asset

management. Its total global business was Rs. 7,003.30 billion as of 30 Sep 2012. Its

headquarter is in Vadodara and corporate headquarter is in BandraKurla Complex Mumbai.

HERE IS THE CALCULTION OF RSA, RSL,GAP, GAP RTIO, CUMMULATIVEGAP & NET WORTH OF BOB FROM MARCH 2003 TO MARCH 2012.

Industry :Banks -

Public Sector

(Rs in Crs)

Year

Mar

12

Mar

11

Mar

10

Mar

09

Mar

08

Mar

07

Mar

06

Mar

05

Mar

04

Mar

03

SOURCES OF

FUNDS :

Capital

412.3

8

392.

81

365.5

3

365.5

3

365.

53

365.5

3

365.5

3

294.5

3

294.5

3

294.3

4

Reserves Total

28,10

3.92

21,4

33.7

6

15,34

9.06

12,95

9.17

10,9

93.0

1

8,512

.03

7,743

.31

5,556

.54

4,997

.72

4,188

.18

Equity Share

Warrants 0 0 0 0 0 0 0 0 0 0

Equity

Application Money 0 0 0 0 0 0 0 0 0 0

Minority Interest 91.18

72.9

1 59.42 46.43

36.2

9 31.82 24.61 41.76 35.97 31.58

Deposits392,615.95

311,

603.25

245,951.15

196,608.44

155,

295.08

128,107.41

96,051.01

83,405.12

74,646.54

67,668.69

Borrowings

23,59

8.06

22,3

78.3

3

13,40

4.27

12,77

6.67

3,96

2.17

1,171

.15

5,048

.87

1,924

.54

1,289

.35

949.0

1

Other Liabilities &

Provisions

12,59

0.52

10,3

32.7

1

9,147

.34

8,820

.48

12,8

84.1

3

8,725

.49

7,446

.64

6,178

.15

6,259

.17

5,229

.30

Policy Holders

Fund 0 0 0 0 0 0 0 0 0 0

Others 0 0 0 0 0 0 0 0 0 0

TOTAL LIABILITIES

444,8

21.49

355,

881.

275,1

29.43

222,7

56.24

170,

652.

138,1

87.94

109,2

33.33

91,22

2.49

81,26

4.11

73,13

1.80
http://en.wikipedia.org/wiki/Vadodarahttp://en.wikipedia.org/wiki/Forbes_Global_2000http://en.wikipedia.org/wiki/Lakhhttp://en.wikipedia.org/wiki/Croreshttp://en.wikipedia.org/wiki/Vadodarahttp://en.wikipedia.org/wiki/Bandra_Kurla_Complexhttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Mumbaihttp://en.wikipedia.org/wiki/Bandra_Kurla_Complexhttp://en.wikipedia.org/wiki/Vadodarahttp://en.wikipedia.org/wiki/Croreshttp://en.wikipedia.org/wiki/Lakhhttp://en.wikipedia.org/wiki/Forbes_Global_2000http://en.wikipedia.org/wiki/Vadodara


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06 08

APPLICATION OF

FUNDS :

Cash & Balances

with RBI

22,26

8.35

20,3

94.4

2

14,07

6.07

10,90

1.21

9,61

7.34

6,569

.79

3,470

.96

2,777

.11

3,121

.19

3,567

.25Balances with

Banks & money at

Call

43,54

2.00

31,0

29.3

1

22,49

3.41

14,30

1.41

13,5

52.7

7

12,40

5.72

10,47

1.33

6,839

.90

4,397

.37

3,538

.50

Investments

86,69

7.00

74,1

54.4

2

63,16

3.27

53,62

6.58

44,6

57.7

6

35,67

7.00

35,64

5.17

38,02

3.35

38,80

4.41

30,72

5.70

Advances

292,0

77.14

232,

085.

11

177,7

11.90

145,5

59.50

108,

578.

97

85,55

8.04

61,48

3.12

44,47

7.15

36,53

3.59

36,17

4.08

Fixed Assets

2,428

.19

2,38

3.20

2,369

.39

2,559

.63

2,67

4.64

1,343

.60

1,216

.59

905.3

7

852.3

9

737.4

5

Other Assets

10,39

9.33

6,16

7.31

4,462

.73

4,628

.39

4,45

4.73

5,359

.28

4,392

.80

4,377

.76

3,814

.33

3,618

.12

Miscellaneous

Expenditure not

written off 0 0 0 0 0 0 0 0 0 0

Others 0 0 0 0 0 0 0 0 0 0

TOTAL ASSETS

457,4

12.01

366,

213.

77

284,2

76.77

231,5

76.72

183,

536.

21

146,9

13.43

116,6

79.97

97,40

0.64

87,52

3.28

78,36

1.10

Contingent

Liability

153,1

54.99

127,

562.

36

88,22

1.17

73,73

0.71

82,5

95.2

7

61,65

4.29

39,34

6.12

36,95

4.03

30,49

3.92

24,55

1.53

Bills for

collection

22,86

2.48

18,9

86.6

8

18,26

7.18

14,04

7.39

8,36

0.15

6,883

.55

6,096

.96

6,340

.39

5,014

.96

4,245

.77

RSA

444,5

84.49

357,

663.

26

277,4

44.65

224,3

88.70

176,

406.

84

140,2

10.55

111,0

70.58

92,11

7.51

82,85

6.56

74,00

5.53

RSL416,3

05.19

334,

054.

49

259,4

14.84

209,4

31.54

159,

293.

54

129,3

10.38

101,1

24.49

85,37

1.42

75,97

1.86

68,64

9.28

GAP (RSA - RSL)28,27

9.30

23,6

08.7

7

18,02

9.81

14,95

7.16

17,1

13.3

0

10,90

0.17

9,946

.09

6,746

.09

6,884

.70

5,356

.25

CUMMULATIVEGAP

28,279.30

51,8

88.07

69,917.88

84,875.04

101,

988.34

112,888.51

122,834.60

129,580.69

136,465.39

141,821.64


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GAP RATO

(RSA/RSL)

1.067

9292

52

1.07

0673

41

1.069

5018

45

1.071

4178

96

1.10

7432

48

1.084

2946

25

1.098

3549

09

1.079

0204

73

1.090

6217

12

1.078

0233

97

NET WORTH

(TOTAL ASSETS -

TOTAL LIABLITIES)

12,59

0.52

10,3

32.7

1

9,147

.34

8,820

.48

12,8

84.1

3

8,725

.49

7,446

.64

6,178

.15

6,259

.17

5,229

.30

Canara Bank

Widely known for customer centricity, Canara Bank was founded by

ShriAmmembalSubbaRaoPai, a great visionary and philanthropist, in July 1906, at

Mangalore, then a small port town in Karnataka. The Bank has gone through the various

phases of its growth trajectory over hundred years of its existence. In June 2006, the Bank

completed a century of operation in the Indian banking industry. Today, Canara Bank

occupies a premier position in the comity of Indian banks. With an unbroken record of profits

since its inception, Canara Bank has several firsts to its credit. These include:

Launching of Inter-City ATM Network Obtaining ISO Certification for a Branch Articulation of Good Banking Banks Citizen Charter Commissioning of Exclusive Mahila Banking Branch Launching of Exclusive Subsidiary for IT Consultancy Issuing credit card for farmers Providing Agricultural Consultancy Services

Over the years, the Bank has been scaling up its market position to emerge as a major'Financial Conglomerate' with as many as nine subsidiaries/sponsored institutions/joint

ventures in India and abroad. As at September 2012, the Bank has further expanded its

domestic presence, with 3650 branches spread across all geographical segments. Keeping

customer convenience at the forefront, the Bank provides a wide array of alternative delivery

channels that include 3184 ATMs, covering 1182 centres. Several IT initiatives have been

undertaken during the year, which include Funds Transfer through Interbank Mobile Payment

Services (IMPS) in ATMs, ASBA facility to net banking users, E-filing of tax returns and

facility for viewing details of tax deducted at source, Terminal at 223 branches for customers

to use net banking, SMS/e-mail alerts for all transactions done through ATM, net banking,

POS, mobile banking, online payments irrespective of amounts, online loan applications and


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17 | P a g e

tracking facility, generation of automatic pass sheets through e-mail and automatic renewal of

term deposits. Under Government business, the Bank has implemented internet based

application for UGC Maulana Azad National Fellowship Scheme, Web portal for National

Scheme for Girl Child Secondary Education, Electronic Accounting Systems of e-Receipts-

Customs (EASeR-C) for collection of customs duty and e-payment of commercial taxesmodule for UP, Karnataka, Delhi and Tamil Nadu.

Not just in commercial banking, the Bank has also carved a distinctive mark, in various

corporate social responsibilities, namely, serving national priorities, promoting rural

development, enhancing rural self-employment through several training institutes and

spearheading financial inclusion objective. Promoting an inclusive growth strategy, which

has been formed as the basic plank of national policy agenda today, is in fact deeply rooted in

the Bank's founding principles. "A good bank is not only the financial heart of the

community, but also one with an obligation of helping in every possible manner to

improve the economic conditions of the common people". These insightful words of our

founder continue to resonate even today in serving the society with a purpose. The growth

story of Canara Bank in its first century was due, among others, to the continued patronage of

its valued customers, stakeholders, committed staff and uncanny leadership ability

demonstrated by its leaders at the helm of affairs. We strongly believe that the next century is

going to be equally rewarding and eventful not only in service of the nation but also in

helping the Bank emerge as a "Global Bank with Best Practices". This justifiable belief is

founded on strong fundamentals, customer centricity, enlightened leadership and a family

like work culture.

HERE IS THE CALCULTION OF RSA, RSL,GAP, GAP RTIO, CUMMULATIVE

GAP & NET WORTH OF CANARA BANK FROM MARCH 2003 TO MARCH 2012.

Industry :Banks - Public Sector

(Rs in Crs)

Year

Mar

12

Mar

11

Mar

10

Mar

09

Mar

08

Mar

07

Mar

06

Mar

05

Mar

04

Mar

03

SOURCES OF FUNDS

Capital 443 443 410 410 410 410 410 410 410 410

ReservesTotal 22600 19959 14612 12171 10310 10445

7164.6

6075.5

5274.2

4054.1

EquityShare

Warrants 0 0 0 0 0 0 0 0 0 0

Equity App

Money 0 0 0 0 0 0 0 0 0 0

Minority

Interest

161.4

8

149.1

6

136.3

7

181.5

7

159.0

4 30.87 27.2 22.96

190.5

2

161.1

9

Deposits

3268

94.04

2932

57.91

2345

17.77

1867

56.47

1537

28.7

1423

76.43

1167

76.68

9673

7.76

8640

5.88

7214

2.05

Borrowings 15614 142958473.

8 139652777.

81724.

6545.8

4512.0

62152.

7 785.7


18/24

18 | P a g e

Other

Liabilities &

Provisions 13690 11361

8691.

3

6968.

1 13536 11696

8963.

8

7455.

3

6782.

1

5918.

9

Policy

Holders

Fund 0 0 0 0 0 0 0 0 0 0Others 0 0 0 0 0 0 0 0 0 0

TOTAL

LIABILITIES

3657

13.34

3281

04.23

2581

50.3

2134

84.34

1673

85.49

1549

87.07

1249

24.34

1037

58.23

9443

3.23

7755

3.03

APPLICATION OF

FUNDS :

Cash &

Balances

with RBI 17813 22032 15733 10047 13365

9095.

3

7914.

3

4984.

5 6891

5607.

6

Balances

with Banks &

money at

Call 10434

8739.

5

3990.

3

6680.

1

4758.

7

7291.

3

4891.

7

3641.

3

5062.

3

1814.

8

Investment

s

10649

7 86499 71120 58425 49598 45293 37013 38038 35922 30536

Advances

2327

28.74

2114

48.51

1694

63.86

1383

60.53

1076

17.09

9889

4.93

8002

5.7

6092

7.56

4887

0.83

4075

1.91

Fixed

Assets 2888

2884.

5

2931.

6

2998.

3

2941.

5

2876.

2

704.7

6

693.2

6

699.6

4

679.6

7

Other

Assets

9043.

5

7860.

7

3602.

8

3941.

1

2641.

5

3232.

4

3339.

1

2928.

9

3769.

9

4081.

9

MisExp notwritten off 0 0 0 0 0 0 0 0 0 0

Others 0 0 0 0 0 0 0 0 0 0

TOTAL

ASSETS

3794

03.55

3394

64.82

2668

41.6

2204

52.45

1809

21.38

1666

82.96

1338

88.09

1112

13.56

1012

15.29

8347

1.97

Contingent

Liability

1900

56.81

1296

54.29

1243

44.55

1518

12.07

1089

13.42

6194

3.56

5527

3.61

5796

6.19

5280

6.28

5154

5.22

Bills for

collection 12497 11193

7491.

6 10522 11137

6206.

2

4422.

6

3961.

5

3711.

1

3320.

4


19/24

19 | P a g e

RSA

36747

2

32872

0

26030

7

21351

3

17533

8

16057

4

12984

4

10759

1 96746 78710

RSL34267

030770

224312

820090

315666

614413

211735

0 97273 88749 73089

GAP (RSA -

RSL) 24802 21018 17179 12610 18673 16443 12494 10319

7996.

7

5621.

5

CUMMULAT

IVE GAP 24802 45820 62999 75609 94282

11072

4

12321

9

13353

7

14153

4

14715

6

GAP RATO

(RSA/RSL)

1.072

4

1.068

3

1.070

7

1.062

8

1.119

2

1.114

1

1.106

5

1.106

1

1.090

1

1.076

9

NET WORTH

(TOTAL

ASSETS -

TOTAL

LIABLITIES) 13690 11361

8691.

3

6968.

1 13536 11696

8963.

8

7455.

3

6782.

1

5918.

9


20/24

20 | P a g e

Punjab National Bank

With over 72 million satisfied customers and 5937 domestic branches, PNB has continued to

retain its leadership position amongst the nationalized banks. The Bank enjoys strong

fundamentals, large franchise value and good brand image. Over the years PNB has remained

fully committed to its guiding principles of sound and prudent banking irrespective of

conditions. Bank has been earning many laurels and accolades in recognition to its service

towards doing good to society, technology usage and on its overall performance. Some of the

major awards won by the Bank are the Best Bank Award, Most Socially Responsive

Bank by Business World-PwC, Most Productive Public Sector Bank, Golden Peacock

Awards by Institute of Directors, etc. Besides, the Bank is ranked 26th amongst FE 500

Indias Finest Companies, 26th amongst the Top 500 India's Largest Corporations by

Fortune 500 India. The Banker ranked PNB on 186th position in 2011, improving from 257thposition a year before. PNB ranked 668th amongst 2000 Global Giants as per the Forbes and

170th in 2012 improving from 195th in 2011 in Top 500 Most Valuable Banking Brands by

Brand Finance Banking 500. India Inc Top 100 Most Powerful CEOs for the year 2012, Shri

K.R. Kamath, CMD, PNB, adjudged Most Powerful amongst the Nationalised Banks in

India, with overall rank at 50 by Economic Times. Bank has also been ranked 26th amongst

India Top Companies as per ET 500 and 25th amongst the Top 50 most valuable corporate

brand by Brand Finance-ET.

Bank has been a frontrunner in the industry so far as the initiatives for Financial Inclusion is

concerned. With its policy of inclusive growth and the mission Banking for Unbanked, it isa matter of pride for the Bank that it has been able to cover all its 4588 villages allotted under

the Swabhiman Campaign of Government of India through Business Correspondents.

Further, the Bank has also adopted 118 villages across country. Under FI plan, the Bank has

engaged Technical Service Providers (TSPs) and the corporate Business Correspondents

(BCs) for providing banking services in villages using ICT based BC model. The village

level BC agents are using Hand Held Terminals/ POS machines & smartcards. Bank has

extensively used technology to reach out to those which have remained away from formal

banking set up.

The Bank is offering all the technology enabled services to its customers ranging from

Mobile Banking, Call Centre, Internet Banking, on line booking of rail tickets, payment of

utilities bills, booking of airline tickets to SMS alerts and Mobile Banking services to keep

them updated about their financial transactions at all time. Towards developing a cost

effective alternative channels of delivery, the Bank with more than 6050 ATMs has the

largest ATM network amongst Nationalized Banks. ATM Network of the Bank provides

other value added services such as Funds Transfer, Bill Payments and mobile registration for

generation of SMS alerts; Direct Tax Payment, request for stop payment of cheques, etc. are

also provided to the cardholders.


21/24

21 | P a g e

Backed by strong domestic performance, the Bank has its global aspirations as well. Bank has

expanded its footprint into 10 countries. Bank also has 4 overseas branches in Hong Kong,

Dubai & Afghanistan and an Offshore Banking Unit (OBU) Branch in SEEPZ, Mumbai.

Bank has one wholly owned overseas Banking subsidiary, PNB International Ltd. (UK) along

with other two overseas subsidiaries are Druk PNB Bank Ltd, Bhutan and PNBKazakhstan besides Representative Office in Sydney, Australia, Dubai, Almaty, China &

Norway. Bank is planning to set up its second wholly owned subsidiary in Canada. Bank is

also looking to upgrade its Representative Offices at Norway, China and Australia to full-

fledged branches. Bank is also exploring possibilities for presence in Maldives, South Africa,

Bangladesh, Myanmar, Pakistan, Singapore and Brazil.

HERE IS THE CALCULTION OF RSA, RSL,GAP, GAP RTIO, CUMMULATIVE

GAP & NET WORTH OF PNB FROM MARCH 2003 TO MARCH 2012.

(Rs inCrs)

Year

Mar

12

Mar

11

Mar

10

Mar

09

Mar

08

Mar

07

Mar

06

Mar

05

Mar

04

Mar

03

SOUR

CES OF

FUNDS

:

Capita

l 339.18 316.81 315.3 315.3 315.3 315.3 315.3 315.3 265.3 265.3

Reser

vesTotal

28,864.66

22,297.85

18,387.44

15,244.92

12,756.54

10,736.67

9,588.03

8,261.57

5,191.83

4,128.48

Equity

Share

Warra

nts 0 0 0 0 0 0 0 0 0 0

Equit

y

Applica

tion

Money 0 0 0 0 0 0 0 0 0 0

Minority 331.42 301.29 227.06 139.94 136.87 131.3 127.16 122.67

144.92

123.86


22/24

22 | P a g e

Interes

t

Depos

its

384,40

8.22

316,23

1.93

251,45

7.66

210,65

9.17

166,91

7.02

139,94

4.07

119,75

2.01

103,20

3.69

88,07

3.38

75,95

1.73

Borro

wings

42,645

.42

34,638

.50

22,762

.94

17,136

.14

8,646.

18

4,711.

11

8,973.

08

3,973.

63

2,689

.81

1,733

.90Other

Liabiliti

es &

Provisi

ons

13,884

.97

12,526

.26

10,444

.32

10,116

.95

14,972

.55

10,392

.35

9,654.

96

12,254

.81

8,362

.50

5,964

.77

Policy

Holder

s Fund 0 0 0 0 0 0 0 0 0 0

Othe

rs 0 0 0 0 0 0 0 0 0 0

TOTAL

LIABILI

TIES

456,58

8.90

373,78

6.38

293,15

0.40

243,49

5.47

188,77

1.91

155,83

8.45

138,75

5.58

115,87

6.86

96,36

5.24

82,20

3.27

APPLIC

ATION

OF

FUNDS :Cash &

Balances

with RBI

18,50

7.64

23,79

1.19

18,33

4.78

17,05

9.55

15,25

9.14

12,37

2.51

23,39

4.96

9,460.

76

6,742.

93

6,569

.01

Balances

with

Banks &

money at

Call

11,61

2.25

6,300.

11

5,915.

91

4,965.

60

3,968.

53

3,505.

57

1,587.

24

1,750.

75

2,090.

77

1,528

.78

Investm

ents

125,7

46.34

96,91

1.28

79,25

3.88

65,39

1.68

55,88

3.28

47,07

5.87

42,85

1.13

51,68

2.60

43,58

5.72

35,08

9.04

Advances

301,346.52

247,746.58

191,110.85

158,453.42

121,571.05

97,873.46

75,409.29

61,094.47

47,862.28

40,798.13

Fixed

Assets

3,217.

14

3,150.

48

2,531.

41

2,622.

19

2,538.

64

1,228.

14

1,249.

12

974.7

3

910.7

2

902.5

1

Other

Assets

10,04

3.98

8,413.

00

6,447.

89

5,119.

98

4,523.

82

4,175.

25

3,918.

80

3,168.

36

3,535.

32

3,280

.57

Miscell

aneous

Expendit

ure not

written

off 0 0 0 0 0 0 0 0 0 0Others 0 0 0 0 0 0 0 0 0 0


23/24

23 | P a g e

TOTAL

ASSETS

470,4

73.87

386,3

12.64

303,5

94.72

253,6

12.42

203,7

44.46

166,2

30.80

148,4

10.54

128,1

31.67

104,7

27.74

88,16

8.04

Conting

ent

Liability

212,4

21.74

127,6

11.31

92,78

9.21

110,4

72.81

104,1

76.34

66,76

1.36

53,03

9.75

43,04

0.88

32,23

0.11

23,58

8.81

Bills forcollectio

n

16,32

2.79

11,98

1.55

9,529.

79

7,567.

10

7,106.

59

7,942.

25

5,704.

17

4,046.

07

4,813.

08

3,334

.76

RSA

457,2

12.75

374,7

49.16

294,6

15.42

245,8

70.25

196,6

82.00

160,8

27.41

143,2

42.62

123,9

88.58

100,2

81.70

83,98

4.96

RSL

427,3

85.06

351,1

71.72

274,4

47.66

227,9

35.25

175,7

00.07

144,7

86.48

128,8

52.25

107,2

99.99

90,90

8.11

77,80

9.49

GAP

(RSA-

RSL)

29,82

7.69

23,57

7.44

20,16

7.76

17,93

5.00

20,98

1.93

16,04

0.93

14,39

0.37

16,68

8.59

9,373.

59

6,175.

47

Gap

ratio

1.069

7911

1.067

1393

1.073

4849

1.078

6846

1.119

419

1.110

7902

1.111

6812

1.155

5321

1.103

1106

1.079

3665

Cummu

lative

gap

29,82

7.69

53,40

5.13

73,57

2.89

91,50

7.89

112,4

89.82

128,5

30.75

142,9

21.12

159,6

09.71

168,9

83.30

175,1

58.77

Net

Worth

(Total

assets -

Total

Liabiliti

es)

13,88

4.97

12,52

6.26

10,44

4.32

10,11

6.95

14,97

2.55

10,39

2.35

9,654.

96

12,25

4.81

8,362.

50

5,964.

77


24/24

References

Websites:

www.bankofbaroda.com

www.wikipedia.com

www.capitaline.in/

www.bseindia.com

www.moneycontrol.com

http://in.finance.yahoo.com/

http://economictimes.indiatimes.com/
http://www.bankofbaroda.com/http://www.capitaline.in/http://www.capitaline.in/http://www.bseindia.com/http://www.bseindia.com/http://www.moneycontrol.com/http://www.moneycontrol.com/http://in.finance.yahoo.com/http://in.finance.yahoo.com/http://economictimes.indiatimes.com/http://economictimes.indiatimes.com/http://economictimes.indiatimes.com/http://in.finance.yahoo.com/http://www.moneycontrol.com/http://www.bseindia.com/http://www.capitaline.in/http://www.bankofbaroda.com/

Documents

Risk Management Practices of Three Public Sector Banks