PNB Q2 profit up 12%; beats estimates

NEW DELHI (Reuters) - Punjab National Bank (PNB), India's No. 2 state-run lender, posted a 12 percent rise in quarterly profit, handsomely beating estimates, as the bank earned more in interests.

PNB shares, valued at $6.4 billion, jumped 5.6 percent 1,031 rupees, outperforming the broader market that was down 1.3 percent.

The results were in line with India's mid-sized lenders, most of whom posted strong quarterly profits, mostly exceeding street estimates, providing a much-needed relief to the stocks which have taken a sharp hit recently on asset quality concerns.

PNB earned 12.05 billion rupees for July-September, compared with 10.75 billion rupees a year back.

A Reuters poll of brokerages showed analysts expected PNB to post a profit of 11.3 billion rupees for the period.

PNB, which has managed to maintain a relatively better net interest margin (NIM) -- a key indicator of performance -- compared to its peers, said NIM for the quarter dropped by 11 basis points to 3.95 percent.

The company expects to keep its NIM above 3.5 percent going forward, chairman K. R. Kamath told reporters.

PNB's interest income rose by 16 percent on the year to 34.53 billion rupees.

In July, PNB agreed to buy a 30 percent stake in the Indian venture of Metlife, the biggest U.S. life insurer, for an undisclosed amount. PNB also entered into a 10-year distribution tie-up with Metlife India.

Indian banking stocks faced flak from investors last week when Union Bank of India posted a sharp rise in bad loans, bringing in fresh fears of declining asset quality at state-run lenders.

This followed a credit rating downgrade of SBI by Moody's earlier this month, which had brought the broader market down by 1.8 percent, keeping nervous investors away from banks.

The RBI last Tuesday deregulated savings deposit rates, its last administered bank rate, in a move that will expose such accounts to policy rates changes and push up the cost of funds for banks, sending shares in the industry lower.

PNB will take a call on raising savings bank rates after looking at market reaction and is yet to decide on a timeline for that, Kamath said.

Rise in savings deposits rate is a negative for bigger banks with high savings account balances, as smaller and newer banks are now free to offer higher rates in order to attract deposits.

But Kamath seemed un affected by the prospect.

"I have enough cushion to absorb the shock," he said.

(Reporting by Anurag Kotoky; Editing by Harish Nambiar)