New Delhi: Punjab National Bank (PNB), India’s second largest state-run lender, on Thursday reported a 13.5% increase in net profit in the December quarter, aided by growth in interest income and improvement in asset quality.
Net profit rose to Rs.1,306 crore in the three months from Rs.1,150 crore in the year ago, the Delhi-based bank said.
The Delhi-based bank also announced a 25-basis points (bps) cut in its base rate to 10.25% after the Reserve Bank of India (RBI) on Tuesday cut its key lending rate and the cash reserve ratio, or the oportion of deposits banks must maintain with the central bank. One basis point is one-hundredth of a percentage point. PNB kept deposit rates steady.
Net interest income, the difference between the interest earned on loans and that paid on deposits, grew 5.6% to Rs.3,733 crore, although the net interest margin (NIM)—a measure of profitability that measures the difference between the rate charged on loans and that paid on deposits—narrowed to 3.47% from 3.88%.
Net non-performing assets (NPAs), or bad loans, more than doubled from a year earlier to 2.56% of all loans but improved sequentially as bad debt recovery improved.
“After 15 quarters, we have managed to reverse the trend of slippages being more than recovery and upgradation,” said K.R. Kamath, chairman and managing director of PNB.
Around Rs.2,968 crore of loans were classfied as NPAs; the bank managed to recover or upgrade Rs.2,994 crore of debt that had earlier turned bad.
Slowing economic growth and high interest rates have hurt the ability of many borrowers to repay loans, causing a rise in NPAs at public sector banks. RBI’s rate cut on Tuesday was aimed at imparting new impetus to economic growth by encouraging banks to cut borrowing costs.
“Creation of NPAs is a direct reflection of the state of the economy. With RBI cutting the repo rate and the government announcing steps to revive the economy, the situation should improve for the economy and for the banking sector,” said Kamath.
With the bank cutting lending rates, but maintaining deposit rates, there could be a pressure on margins, Kamath said. “We, however, hold on to our NIM guidance of 3.5% for the full year,” he said.
Provisioning for the quarter was at Rs.1,376 crore, compared with Rs.1,526 crore in the year ago. The bank will look to increase its provisions coverage ratio—currently at 56%—in the coming quarters, he said.
While advances grew 13.2%, deposits growth was only 8.2%. “The bank shed bulk deposits of Rs.24,000 crore taken at differential interest rate, which is getting reflected in the slower deposit growth,” Kamath said.
PNB shares rose 9.37% to end trading at Rs.912.45 on BSE on Thursday.
Mumbai-based Union Bank of India reported a 58.3% rise in third quarter profit, aided by a lower base effect. Profit for the quarter rose to Rs.303 crore from Rs.197 crore a year ago.
Provisions, other than those for tax, for the quarter fell to Rs.857.33 crore from Rs.972.67 crore in the year-ago period. Out of this, provisions for bad debts was Rs.553 crore, compared with Rs.425 crore in the year ago. The bank’s gross NPA ratio was 3.36%, against 3.33% in the year-ago quarter.
“There is pressure on asset quality and it will continue for some more time; but we have focused on reducing fresh slippages and we have taken it very seriously to reduce bad debts in absolute term every quarter,” said D. Sarkar, chairman and managing director of Union Bank of India.
“Hopefully, by the end of this fiscal, we will be able to bring back the gross NPA ratio to about 3%,” Sarkar said.
The bank managed to bring down fresh slippages to Rs.677 crore in the December quarter from Rs.792 crore in the September quarter. However, it was still higher than the Rs.566 crore registered in the year ago. The bank recovered or upgraded to standard accounts Rs.453 crore of its old bad debts.
NIM fell to 2.95%, against 3.2% in the year ago. This was because the bank had cut its lending rate in segments such as auto and home loans, Sarkar said. The bank also lowered its base rate by 25 bps on Thursday; it forecast that its NIM will be about 3% for the year-end.
The bank’s stock rose 5.81% to Rs.255.10 a piece on BSE.
Kolkata-based Allahabad Bank said third-quarter net profit declined 44.5% to Rs.310.83 crore from Rs.560.43 crore in the year ago, with NPAs increasing to 2.06% of its loan book from 0.79%.
Delhi-based Punjab and Sind Bank reported a 24% drop in net profit to Rs.73.68 crore.
PTI contributed to this story.