Indian Private Sector Banks

2.16   During 1997-98, the old Indian private sector banks, which constitute 7 per cent of total assets of SCBs, recorded increases of 29 per cent in operating profits and 9 per cent in net profits.  As a per cent of total assets, net profits came down from 0.91 per cent in 1996-97 to 0.80 per cent 1997-98 (Table II.8).  Among the 25 old Indian private sector banks, 13 banks had net profit ratio well above the overall net profit ratio.  The spread has shown a deceleration of 37 basis points, from 2.93 per cent in 1996-97 to 2.56 per cent in 1997-98.

New Private Sector Banks

2.17   New private sector banks constitute 3.3 per cent of the total assets of all SCBs in 1997-98 (2.4 per cent last year).  The new private sector banks recorded increases in both operating and net profits at 53 per cent and 43 per cent, respectively, during 1997-98; as a proportion of total assets, however, both operating and net profits were lower in 1997-98 than in 1996-97, mainly due to higher provisions on account of 100 per cent 'mark to market' of their investments.  In fact, new private sector banks has one of the highest provisions to total asset ratio (next to foreign banks) in India (Table II.9).  The operating profit ratio came down from 2.98 per cent in 1996-97 to 2.84 per cent in 1997-98, while the net profit ratio moved down from 1.73 per cent in 1996-97 to 1.55 per cent in 1997-98.  But the level of net profit ratio at 1.55 per cent of 1997-98 was far higher than the industry average of 0.82 per cent.  Out of 9 new private sector banks, 8 had net profit well above the overall net profit ratio of SCBs.  Also, a notable feature of the cost structure of new Indian private sector banks is the low intermediation cost of 1.76 per cent in 1997-98. New private sector banks exhibited one of the lowest intermediation cost ratios viz., operating expenditure to total assets (1.76 per cent in 1997-98) as compared with those of the public sector banks (2.66 per cent), old private sector banks (2.30 per cent) and foreign banks (2.96 per cent).  The share of the wage bill in intermediation cost at 17.5 per cent in 1997-98 (15.3 per cent last year) is the lowest among all banking groups.  Consequently the share of non-wage bill expenditure to intermediation cost which consists mainly of information technology related expenditure is as high as four-fifth of intermediation cost.  Like other banking groups, their spread (net interest income) too showed a decline from 2.88 per cent in 1996-97 to 2.18 per cent in 1997-98.

Chart  II.7  :  Intermediation Cost to Total Assets of Scheduled Commercial Banks - Bank Group-wise : 1996-97 and 1997-98

⁴ The recapitalisation exercise was confined to nationalised banks.

Foreign Banks

2.18   Foreign banks constituted 8.2 per cent of total assets in the banking sector in India in 1997-98 (8.3 per cent in the preceding year).  Their operating profits increased from Rs.2,032 crore in 1996-97 to Rs.2,544 crore in 1997-98 recording an increase of 25 per cent (Table II.10).  Due to heavy loss suffered by the Bank of Tokyo-Mitsubishi Ltd. in 1997-98, the foreign banks' net profit ratio declined from 1.19 per cent in 1996-97 to 0.96 percent in 1997-98.  Among the bank groups, foreign banks generally have a higher spread.  The spread of foreign banks also recorded a decrease from 4.13 per cent in 1996-97 to 3.92 per cent in 1997-98.  Their intermediation costs ratios were high at 2.96 per cent in 1997-98, marginally lower than 3.00 per cent incurred in 1996-97.  But share of the wage bill in intermediation cost was 32 per cent in 1997-98 as against 35.2 per cent in the previous year.  Foreign Banks generally incurred higher expenditure on information technology.  

Off-Balance Sheet Activities of Scheduled Commercial Banks

2.19   An interesting feature of the performance of SCBs is the growing exposure to off-balance sheet activities (Table II.11).  Off-balance sheet exposure to total assets of foreign banks amounted to 365 per cent in 1997-98 (266 per cent in 1996-97). In the case of new private sector banks, this ratio was 87 per cent in 1997-98 (85 per cent in 1996-97) (Chart II.8). In all other bank groups, the corresponding ratio was below 35 per cent.  The increase was mainly on account of 'forward exchange contract' and 'contingent liabilities' in all the bank groups with the exception of new private sector banks' group in respect of contingent liabilities.

Chart II.8 : Off -Balance Sheet Items to Total Assets of  Scheduled Commercial Banks -

Bank Group-wise : 1996-97 and 1997-98