2.11   The benefits of financial sector reforms were reflected in the improved working results of SCBs in 1997-98.  The profits - both operating and net - recorded substantial improvements in all the banking groups and gross Non-Performing Assets (NPAs) relative to gross advances have come down by 180 basis points.  Banks had benefited by the relative decline in the yields on government paper and consequently the required provisioning on account of 'mark-to-market' proportion on their investment portfolios has come down.  Spreads of most of the banking groups have come down reflecting their lower credit-deposit ratios and increasing diversification to non-traditional sources of income.

Chart II.3 : Operating Profit to Total Assets of Scheduled Commercial Banks -Bank Group-wise: 1996-97 and 1997-98

Scheduled Commercial Banks

2.12   During 1997-98, operating profits of all SCBs increased by Rs.2,384 crore (19.5 per cent) i.e. from Rs.12,239 crore in 1996-97 to Rs.14,624 crore in 1997-98  (Table II.4 and Chart II.3).  Due to lower provisioning requirements, net profits recorded a higher increase of Rs.1,995 crore (44.3 per cent) in 1997-98.  As a proportion to total assets, net profits increased from 0.67 per cent in   1996-97 to 0.82 per cent in 1997-98 (Chart II.4). During 1997-98 out of the 103 SCBs, 65 banks accounting for 70 per cent of the total assets recorded profit rates above the average net profit ratio (of 0.82 per cent).  In 1996-97, only 56 banks accounting for 63 per cent of total assets of SCBs had net profit ratio above the average net profit ratio of 0.66 per cent.

Chart  II.4 : Net Profit to Total Assets of Scheduled Commercial Banks - Bank Group-wise: 1996-97 and 1997-98

2.13   The spread (net interest income) of all SCBs declined from 3.22 per cent in 1996-97 to 2.95 per cent in 1997-98.  This was mainly due to the increase in interest income of SCBs (10.9 per cent) being surpassed by the increase in interest expenditure (by 12.2 per cent) mainly due to higher interest paid on bank term deposits and collapsing of term deposits to shorter maturities.  Besides, the non-interest income of SCBs had also increased substantially (by 24 per cent) in 1997-98.  Among the components of expenditure, besides interest expenditure, intermediation cost (other operating expenses) as a proportion of total expenditure and total assets have come down during 1997-98.  The wage bill, which is a major component of intermediation cost, as a proportion of total expenditure and total assets has also come down during 1997-98.

Public Sector Banks

2.14   The financial results of Public Sector Banks (PSBs) are presented in Table II.5 (A).  The operating profit of PSBs increased from Rs.8,887 crore in 1996-97 to Rs.10,264 crore (15.5 per cent), though, as a ratio of total assets, it moved down marginally from 1.60 per cent in 1996-97 to 1.58 per cent in 1997-98.  Due to lower provisions (to total assets) in 1997-98, the net profit as ratio to total assets increased to 0.77 per cent in 1997-98 (0.57 per cent last year).  Among the 27 PSBs, 14 PSBs (11 last year) had recorded net profit ratio well above the average net profit ratio of SCBs.  The spread has also come down from 3.16 per cent in 1996-97 to 2.91 per cent in 1997-98 mainly due to increase in interest expenditure (by 10.5 per cent). The intermediation cost (i.e., other operating expenses) as a ratio of total assets came down by 22 basis points, from 2.88 per cent in 1996-97 to 2.66 per cent in 1997-98.14 out of 27 PSBs qualifies for the autonomy package3 announced by Union Government as at the end of March 1998 [Table - II.5 (B)]. The areas in which PSBs have been given autonomy are :

Chart II.5 : Provisions & Contingencies to Total Assets of Scheduled Commercial Banks -Bank Group-wise : 1996-97 & 1997-98

2.15   The State Bank Group constitutes 29 per cent of total assets of PSBs.  Its net profit increased from Rs.1,707 crore in 1996-97 to Rs.2,460 crore in 1997-98; a rise of 44 per cent (Table II.6).  Its spread has came down from 3.48 per cent in 1996-97 to 3.14 per cent in 1997-98.  Among the PSBs, SBI group has a higher ratio of net profit and spread.  Nationalised banks which constituted 52.3 per cent of total assets of SCBs, showed a substantial improvement in profitability; both operating and net profit as a ratio of total assets increased to 1.33 per cent in 1997-98 (1.26 per cent last year), and 0.62 per cent (0.41 per cent last year), respectively.  If, however, one estimates net profitability of nationalised banks net of interest income from recapitalisation bonds, the net profit ratio comes down from 0.62 per cent to 0.38 per cent in 1997-98.  During 1997-98, the number of Nationalised banks with negative net profit would increased from two to four, if one makes allowance for interest income on account of recapitalisation bonds4  (Appendix Table II.3D).  The spread has also shown a decline from 2.97 per cent in 1996-97 to 2.78 per cent in 1997-98 (Table II.7).  The spread of nationalised banks sans interest income from recapitalisation bonds during 1997-98 comes to 2.55 per cent.

Chart  II.6 : Spread to Total Assets of Scheduled Commercial Banks - Bank Group-wise : 1996-97 and 1997-98

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