It had reported net profit of Rs 505 crore in the corresponding (July-September) quarter of 2013-14.

“In the previous quarter, we had said our growth rate will catch up with that of the (sector) and, by and large, we have in this quarter,” said the bank.

Other income showed a robust growth of Rs 1,558 crore as compared to Rs 899 crore in the year-ago period. All non-interest income components have performed well, contributing to 73 per cent growth in other income.

“We had good recovery in return on assets this year, of Rs 483 crore,” Chairman and Managing Director, K R Kamath said here in a post-earnings conference call on Tuesday.

Total income rose 11.9 per cent from a year ago to Rs 13,020 crore. Net interest income rose 3.4 per cent to Rs 4,151 crore.

However, provisioning for bad assets rose 13.4 per cent to Rs 2,301 crore. The bank made an additional provision for wages by Rs 60 crore, in addition to the normal quarterly one of Rs 180 crore.

Gross non-performing assets (NPAs) or bad loans rose to 5.65 per cent of the total from 5.14 per cent in the corresponding period a year before. Net NPAs moved up to 3.26 per cent from 3.07 per cent in the corresponding period last year.

The total business rose to Rs 8.31 lakh-crore in September as compared to Rs 7.2 lakh-crore in September 2013. Net advances were Rs 3.57 lakh-crore, up 13.7 per cent from a year before.

“Credit growth has been subdued because of the negative growth in large industry. And, a reasonable growth of around 20 per cent in agriculture, small and medium industries...the risky areas or where we have stressed (assets), we have clearly stayed away,” Kamath said.

PNB's shares closed 2.6 per cent down at Rs 931.50 apiece on the BSE versus the benchmark Sensex's 0.6 per cent gain. This was because the results were below Street expectations.

Saday Sinha, banking analyst, Kotak Securities, says: "PNB's net interest income (NII) came lower than our expectations (3.4 per cent year-on-year versus 10.3 per cent) on the back of interest reversal (Rs 200 crore), due to deterioration in the asset quality. Net profit came lower than our expectations on the back of higher operating expenditure (19.1 per cent year-on-year) as well as NPA provisions (63 per cent rise), despite strong non-interest income (73.3 per cent more), aided by robust recovery from written-off accounts. Net interest margin came down sharply to 3.18 per cent as compared to 3.47 per cent in Q2 of last year and 3.42 per cent in the first quarter. Gross NPA and net NPA rose 5.9 per cent and 11 per cent, respectively and are now 5.65 per cent and 3.26 per cent, respectively. PNB has a restructured book close to about 10 per cent of advances, while its stressed portfolio is close to 13 per cent, higher by any standard."

Vaibhav Agrawal, vice-president of banking research at Angel Broking, has a similar view. He said PNB reported a weak set of numbers, affected by asset quality challenges. NII grew at a subdued 3.4 per cent year-on-year, due to interest reversal of Rs 290 crore. He adds that on asset quality, the bank found no respite, with a slippage ratio of 4.1 per cent.