The company, a unit of state-run lender Punjab National Bank, said its consolidated net profit rose to 3.38 billion rupees (nearly $41 million) for the quarter ended Dec. 31 from 2.69 billion rupees a year earlier as overall expenses dipped almost 8%.

Interest rates have moderated in recent times, with the country registering its highest home sales since 2008 last year, according to a report. Real estate firms such as Prestige Estates and Macrotech Developers also expect sales to continue to rise, benefiting home financiers.

The company's disbursements in the retail segment jumped 22%, boosting total disbursements for the quarter to 21% to 41.43 billion rupees. This is the company's largest segment, accounting for almost all of total disbursements.

Its net interest margin, the difference between interest earned and interest paid out in percentage terms, was down to 3.65% sequentially, excluding a one-off item for the quarter, from 3.95%. The company did not provide an equivalent comparative for the year ago quarter.

Its consolidated interest income for the quarter fell 2% to 16.80 billion rupees.

PNB Housing's affordable loan segment, set up nearly a year ago, surpassed an order book of 10 billion rupees. Its contribution to the retail segment was at about 8% for the nine months ending Dec. 31, the company said.

Its asset quality improved, with gross bad loans as a percentage of total loans slipping to 1.73% at the end of December from 1.78% at the end of September.

Peer LIC Housing Finance is due to report its December-quarter results on Feb. 2 while parent Punjab National Bank will report on Thursday.

($1 = 83.0910 Indian rupees)

(Reporting by Dimpal Gulwani in Bengaluru; Editing by Janane Venkatraman)