State-owned Punjab National Bank (PNB) on Monday said it witnessed a 22 per cent increase in net profit to Rs 620.81 crore for the second quarter ended September 30 on account of easing of bad loans.

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The country's second-largest lender had posted a net profit of Rs 507.05 crore during the corresponding quarter a year ago.

The bank's total income during the July-September quarter rose to Rs 23,438.56 crore as against Rs 15,556.61 crore in the corresponding quarter last year, PNB said in a regulatory filing.

However, the bank said the numbers are not strictly comparable as there was a merger of Oriental Bank of Commerce and United Bank of India with PNB effective April 1 this year.

During the quarter, net interest income jumped to Rs 8,393 crore from Rs 6,492 crore in the year-ago period.

The bank's operating profit rose to Rs 5,674.91, from Rs 3,561.95 crore in the same quarter in the previous financial year.

Provisions (other than tax) and contingencies increased significantly to Rs 4,696.15 as against Rs 2,928.90 crore at the end of the July-September 2019 period.

On the asset quality front, the lender's gross non-performing assets (NPAs) moderated to 13.43 per cent of the gross advances at the end of September 2020, from 16.76 per cent a year ago period. Net NPAs also declined to 4.75 per cent as against 7.65 per cent a year ago.

However, provisions for bad loans rose to Rs 3,811.17 crore in the quarter, against Rs 3,253.32 crore in July-September 2019.

During the quarter, the bank has availed dispensation for deferment of provision in respect of frauds amounting to Rs 1,558.58 crore in terms of option available as per RBI guidelines. Accordingly, an amount of Rs 389.64 crore has been charged to profit and loss account, and Rs 1,168.94 crore has been deferred to subsequent quarters, it said.

The provisioning coverage ratio as on September 30 rose to 83 per cent, the bank said.

Capital-to-risk-weighted assets ratio (CRAR) as per Basel-III stood at 12.8 per cent at the end of September 2020 quarter. Out of which, tier-I CRAR is 10.33 per cent, CET-I is 9.53 per cent and Tier-II CRAR is 2.51 per cent as on September 2020.

It further said the COVID-19 pandemic continues to spread across several countries, including India, resulting in a significant volatility in global and Indian financial markets and a significant decline in global and local economic activities.

The situation continues to be uncertain and the bank is evaluating the situation on an ongoing basis, it said.

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The lender added that the major identified challenges for the bank would arise from eroding cash flows and extended working capital cycles, and the bank is gearing itself on all the fronts to meet these challenges.