Canara Bank reported a 5.29 per cent decline in net profit during the second quarter ended September 30, 2013. The bank made a net profit of Rs.626 crore during the quarter compared to Rs.661 crore in the corresponding quarter of 2012-13.

While acknowledging that the higher provisions for deteriorating quality of assets did affect profits, Chairman and Managing Director R. K. Dubey said the decline was also caused by the sharp increase in bond yields in the last year. Mr. Dubey pointed out that trading profit fell from Rs.444 crore in the second quarter of last year to Rs.69 crore in the preceding comparable quarter.

Provisions for non-performing assets (NPAs) increased from Rs.421 crore to Rs.674 crore. Overall provisions, including for taxes, amounted to Rs.948 crore, an increase of 53 per cent over last year.

However, despite the increased provisioning, the provision coverage ratio declined by 525 basis points since the corresponding quarter of 2012-13.

The gross NPA ratio stood at 2.64 per cent, worsening by six basis points when compared with a year ago. Net NPAs, which worsened by 18 basis points during the period, stood at 2.30 per cent at the end of the quarter. The lower net profit was despite the bank reporting a 11 per cent increase in operating profit — from Rs.1,282 crore to Rs.1,425 crore.

The bank reported a 13 basis point decline in its net interest margin (NIM) — the interest spread between those on advances and deposits. The NIM stood at 2.22 per cent at the end of the quarter. “The increase in bond yields has affected our margins,” Mr. Dubey said.