Punjab National Bank PESTLE Analysis
Detailed PESTLE analysis of Punjab National Bank examining political, economic, social, technological, legal & environmental factors.
Political Factors:
Punjab National Bank is one of the largest public sector banks in India. It is subject to the Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) requirements, set by the RBI. Any increase in CRR ratio mandates banks to deposit certain amount, calculated as a percentage of net demand and time liabilities to the RBI. Similarly, any increase in SLR mandates banks to deposit certain liquid assets like cash, gold, unencumbered securities with the RBI. However, this reduces PNB’s ability to further lend funds to borrowers or invest in other funds. The bank is subject to other regulations. As part of the Basel III liquidity framework, RBI keeps issuing guidelines related to liquidity management to banks. These guidelines became effective from January 2015 and deal with matters related to liquidity coverage ratio, monitoring tools, stress testing, other liquidity ratios, etc.
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This concludes the political factors in the Punjab National Bank PESTLE Analysis.
Economic Factors:
Below are the economic factors in the PESTLE Analysis of Punjab National Bank:
As Punjab National Bank has operations in foreign countries, it faces exchange rate risks. This risk can be of 2 types.
Firstly, the bank could hold unhedged foreign currency during the overnight position limit. Secondly, even in case of hedged funds, there is a counterparty risk. The opposite party may still fail to honour its agreement. Both the cases could lead to reduced profitability for the bank. Moreover, any volatility in foreign currency exchange rates may also negatively affect the bank’s borrowers. Their ability to pay fully and on time is reduced and in certain cases could even lead to non-performing assets. Also, the RBI has certain guidelines in place regarding permissible exposure to foreign exchanges. Here again, the bank may not always be able to keep its foreign exchanges as per the permissible limit set by the RBI. Also, the bank faces interest rate risk. There could be changes in market interest rates, which could affect the bank’s net interest income. For instance, if the interest paid by the bank on deposit could increase more than the interest the bank receives on lending to borrowers. This could reduce the profitability of the bank.
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Social Factors:
Following are the social factors impacting Punjab National Bank PESTLE Analysis:
Recent years have witnessed the growth of internet banking by Indian consumers. This has also incentivized banks to adopt and implement digital strategies to connect with consumers. Thus, Punjab National Bank offers a range of options in the areas related to online banking, telephone banking, etc. PNB launched a new mobile application based on a Unified Payment Interface (UPI), called ‘Bharat Interface for Money’ (BHIM) app. In a year it received 6 lakhs accounts registered. It continues to expand its service delivery models and is also working on increasing penetration among new or existing customer segments. Punjab National Bank even introduced PNB E-Rupaiya. It was a pilot scheme, that introduced pre-paid cards for online transactions in rural areas with limited net connectivity. Consequent to the scheme’s success, it has identified 26 villages where the E-Rupaiya scheme can be expanded and implemented. Such initiatives by the bank, would help in attracting new customer segments, and grow more.
Technological Factors:
The technological factors in the PESTLE Analysis of Punjab National Bank are mentioned below:
There are several changes taking place in the technology related to the banking industry. Yet, the bank cannot assure that it would be able to adapt to these changes in a timely manner. Implementing these changes in technology may also lead to increased costs for the company. It continues to implement and upgrade its IT systems. There is still the risk of any unpredictable technical difficulties that could adversely affect its operations. Also, the bank has faced disruptions in its IT system in the past. This was due to some external unusual traffic or some configuration required to handle such systems. Any such problems related to IT in the future could affect the normal functioning of the business and affect its service to customers. This could lead to loss of reputation of the bank and decreased demand in the future. It also faces the threat of cyberattacks, which could access sensitive company and customer data.
As the business provides online banking services to its customers, any loss of such data could have material impact on the financial performance of the bank.
Legal Factors:
Following are the legal factors in the Punjab National Bank PESTLE Analysis:
Punjab National Bank has an established brand name and has also registered for the same under Trademarks Act, 1999 and Copyright Act, 1957. Yet, it still faces the risk of intellectual property rights infringement and the goodwill of the brand may be negatively affected due to this. Additionally, the law may not provide adequate recourse in case of any such infringement. Another possibility is that PNB may have to incur legal costs to maintain its intellectual property rights. Similarly, the bank is also subject to litigation, if it is found guilty of using another entity’s registered trademark. Such an action could invite fines/penalties if convicted in the court. Also, there is pending litigations against the bank. One such party is Karnataka Industrial Areas Development Board, Bengaluru (KIADB). The Board has alleged that it made fixed deposits worth Rs. 25 crores and is entitled to receive Rs. 27.53 crores on maturity. If these allegations prove true, PNB would have to pay the requisite amount and may also lose its goodwill among depositors.
Environmental Factors:
In the Punjab National Bank PESTLE Analysis, the environmental elements affecting its business are as below:
The bank may suffer losses in the face of unforeseen events like earthquakes, floods, cyclones, contagious diseases, etc. The recent outbreak of Covid-19 is a prime example of this crisis. Covid-19 has led to a fresh surge of Rs. 4000 crores worth of Non-Performing Assets. The pandemic has had an adverse economic impact, causing several job losses and losses to businesses. This has also led to a loss in the buying power of people. If borrowers do not pay amount on time, this could lead to creation of more NPAs. Yet, the new dynamics also present opportunities for PNB, particularly in the area of green banking. For example, it can start document image technology. This would remove the need to use paper cheques and bills, instead with images.
Furthermore, these images can also be stored electronically. This would improve communication process also as these images can be shared via email, fax and retrieved easily. Such new processes would save time and cost.
To conclude, the above Punjab National Bank PESTLE Analysis highlights the various elements which impact its business performance. This understanding helps to evaluate the criticality of external business factors for any brand.
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