New Delhi/Mumbai: Punjab National Bank (PNB), the country’s second largest public sector lender, recorded a 12% increase in net profit in the September quarter while Central Bank of India posted a 35.62% dip in profit to provision for bad debt.

Interest margin: PNB is keeping its 3.5% NIM projection unchanged despite RBI deregulating interest rates on savings, K.R. Kamath said. Photo: Pradeep Gaur/Mint.

Net interest income, or the difference between interest earned and interest paid, rose 16% to 3,453 crore. Non-interest income increased 24% to 888.86 crore.

But net interest margin (NIM) narrowed to 3.95% from 4.06% a year earlier.

The bank is keeping its 3.5% NIM projection for the full fiscal year unchanged despite the Reserve Bank of India deregulating interest rates on savings accounts, chairman and managing director K.R. Kamath said. PNB will wait for other banks to announce their savings rates before taking a call, he said.

PNB, due to its vast branch network, has one of the highest CASA ratios (current and savings accounts to total deposits) in the industry at 37.1%.

Provisions were up 38% at 710.32 crore. The bank made an additional provision of 110 crore for its government securities portfolio due to rising yields. “We had factored in yields touching 8.44%. But with yields moving up to 8.62%, we had to make an additional provision for our g-sec portfolio," Kamath said.

PNB’s deposits growth at 25% outpaced its advances that grew at 19.3%. “We will try to grow 1-2% more than the industry. We should be able to maintain a 19% credit growth," Kamath said.

The net non-performing assets (NPA) to loans ratio rose to 0.84% from 0.69% earlier. “The bank has managed to improve its cash recovery and upgradation. The cash recovery at 931 crore and upgradation at 440 crore in the first half of this fiscal was almost equal to what was achieved in the whole of last year," he said.

An analyst said PNB’s profit was better than expected. “The bank has managed to maintain its asset quality despite migration to system-based NPA recognition," said Vaibhav Agrawal, vice-president, research, at Angel Broking. “On the whole, the asset quality of the banking sector has not deteriorated as much as expected in the second quarter."

PNB’s scrip climbed 3.78% to 1,013.45 on the Bombay Stock Exchange on Tuesday even as the Sensex fell 1.27%.

Mumbai-based Central Bank of India’s net profit dropped to 244.25 crore from 379.38 crore a year earlier as provisions rose 79.15% to 430.83 crore, including 392 crore for bad debts compared with 380 crore last year.

In the second quarter alone, the bank saw 1,200 crore of slippages, or good loans turning bad, as it moved loans up to 10 lakh as well to system-based recognition. The bank will be moving its entire loan book to a system-based recognition of NPA. The bank expects the transition to be completed before April.

“We may see further little damage in asset quality because of this. Overall, our NPAs may go up by another 0.25%," said M.V. Tanksale, chairman and managing director. The bank’s gross NPA was at 2.94% in the second quarter against 2.28% a year ago. Net NPA rose to 1.37% from 0.68%.

NIM fell substantially to 3% from 3.42% a year ago, but that, according to Tanksale, was because last year the bank had an abnormal gain of 200 crore in interest.

The bank’s script fell 5.95% to 102 a piece on Tuesday.