The dismal show on the net profit front by BoI was despite a 20 per cent rise in the operating profit at Rs 697 crore this year. BoI has reported a substantially higher operating profit, compared with the other public sector banks. BoI's net spread during the year shrank to 3.05 per cent from 3.21 per cent. BoI had to provide for Rs 332.67 crore against NPA in 1997-98 as against Rs 4 crore provided in the previous year. The high NPA provision has, apart from wiping away the benefit of Rs 121.74 crore accruing from writeback of excess provisions on investments, eaten into the 20 per cent growth recorded in the operating profits.

According to S Gopalakrishnan, the newly appointedexecutive director of the bank, the provisions for NPAs shot up this year due to the general economic slowdown and stringent NPA provisioning on accounts affected by south-east Asian crisis as well as some old accounts.

The net NPA of the bank moved up to 7.34 per cent from 6.5 per cent. The bank has provided Rs 332.67 in 1997-98 under provisions and contingencies as against Rs 219.48 crore in the previous year.

The break-up of provisions and contingencies shows that the bank provided Rs 332.67 crore for NPAs, followed by Rs 116 for taxation and Rs 22 crore for other provisions, amounting to total provisions of Rs 454 crore. The final provisions and contingency figure of Rs 332.67 crore is arrived at by deducing Rs 121.74 crore accrued on account of the writeback of previous years' excess provision based on this year's lower YTM.

As against this, last year's provisions and contingency of Rs 219.48 crore was accounted by a mere Rs 4 crore for NPAs, Rs 115 crore for taxation, Rs 98 crore againstdepreciation of investments and Rs 2 crore for other provisions. Without the help of the writeback of investment depreciation provisions, the bank would have reported a Rs 115 crore negative growth in net profits. Besides, unlike other banks like Bank of Baroda and State Bank of India, BoI has decided to mark to market only 80 per cent of its investments as against the 100 per cent by others. Had BoI decided to mark to market 100 per cent of its investments, the net profit would have been still further hit.

BoI general manager PS Shenoy said the bank has adopted a more conservative accounting model, based on depreciation of individual scrips rather than the `basket accounting' adopted by other banks, while marking to market its portfolio. Had it used the `basket accounting' procedure, it would have been able to write back a much higher amount from the surplus depreciation provisions.

Gopalakrishnan said the bank will increase its tier-II capital through issue of subordinated bonds to the extent of Rs 500crore this year to boost its falling capital adequacy ratio. The CAR fell to 9.11 per cent as against 10.26 per cent in the previous year.