HDFC Bank, ICICI Bank and Global Trust Bank, three of the new generation private sector banks, reported more than 20 per cent growth in their net profits without the help of writebacks. The operating profit of PSU banks, on the other hand, rose at a slower pace. The net income for SBI, the largest commercial bank in the country, grew 2.79 per cent in 1987-98.Bank of India and Bank of Baroda recorded 14.35 and 12.47 per cent growth in net income, respectively.

The moderate rise in operating profit for these banks, however, was not sufficient to take care of the increasing bad debts, the provisions for which have shot up during the fiscal.

Even though new private sector banks like HDFC Bank and ICICI Bank recorded nearly the same amount of growth in operating profits as Bank of Baroda or Bank of India, low level of NPA helped them post handsome net profits.

Compared to the high NPA level of over six per cent for the three public sector banks, ICICI Bank and HDFC Bank have low NPA levels at 1.14 per cent and 1.24 per cent, respectively. The provisions and contingencies moved up by 51.6 per cent for Bank of India, mostly accounted for by provisions made for new bad debts and slippage of some sub-standard assets to the doubtful category. State Bank and Bank of Baroda, however, managed to reduce the quantum of provision and contingency. These two banks were alsoable to reduce the percentage of their net NPA levels even though in absolute terms there had been an increase in their net NPA.

However, other new private sector banks like IndusInd Bank and Global Trust Bank recorded high NPAs. The NPA of IndusInd shot up to 3.96 per cent from 2.08 per cent the previous year, while that of Global Trust is not available.

Most of these banks were able to show better operating profits this year because of the increase in other income. A large proportion of this has come from their treasury operations following more leeway allowed to banks by Reserve Bank in their treasury operations. Banks were allowed to park 15 per cent of their tier-I capital abroad and had more options in deploying FCNR(B) funds, their chief foreign exchange resource. Large PSU banks were also able to take advantage of the high volatility in the domestic interest rates. These banks made huge profits in call market operations in the second half of 1997-98 lending to foreign banks following a suddenshort-term liquidity problem caused by the increase in banks' cash reserve ratio (CRR) limit by the Reserve Bank. Interest income continued to be under pressure due to decreasing spread caused by competition from aggressive foreign and private sector banks. The spread for SBI fell to 3.57 per cent from 4.01 per cent in 1996-97 and that of BoI from 3.21 to 3.05 per cent.