Punjab National Bank reported reasonable September quarter results, despite several challenges. The net profit growth stood at 12 per cent.

While rising provisions of PNB was in-line with other public sector banks, its quarter results were different on two counts. One, non-performing assets (NPAs) didn't rise sharply for PNB in September, despite the shift to system-identification of NPAs. Secondly, the net interest margins (NIM) improved sequentially. This coupled with strong fee income growth, led to operating profit growth of 20 per cent. PNB stock reacted positively to its financial results and ended the day with 3.78 per cent gain (the Nifty lost 1.3 per cent). Yield on investments remained flat and didn't contribute to growth.

In the coming quarters, NIMs may remain at current levels. The full impact of base rate hike done by PNB in late July will show up in the current quarter. Secondly, there is scope for the bulk deposits to fall. These two factors may neutralise any rise in costs due to increases in savings bank rates. While the management has estimated a NIM of 3.5 per cent for the whole year, this projection is a bit pessimistic given that the bank clocked 3.88 per cent during the first half of this fiscal.

Asset quality concerns however, remain. The share of restructured assets to the total advances rose from 4.65 per cent in the June quarter to 7.93 per cent in the September quarter. Infrastructure (mainly power), iron and steel and drilling were the major sectors which continued to this rise. Around 11 per cent of the restructured assets slipped into NPAs. The net NPA ratio after provisioning was however at a moderate 0.84 per cent as of September 2011.

Restructured advances, standard advances and investment depreciation led to the rise in provisioning. A spike in bond yields hit the investment book given its long duration of 3.35 years. The investment depreciation went up from Rs 67 crore in September 2010 to Rs 161 crore in September 2011.

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