"The largest commercial bank in the country will be able to show marginal operating profit in the first half. Despite a negative credit growth the bank will be able to post operating profit on the back of larger volume of business," banking analysts said. In April-September last year, it had posted a negative growth in operating profit.

In the first quarter (April-June) of the current fiscal, the State Bank had recorded a net profit of Rs 426.60 crore. "It will not be able to maintain the momentum in the second quarter. However, traditionally, the bank shows better performance in the second half of the year," a senior analyst with a brokerage said.

In 1997-98, the bank stunned analysts registeringa 40 per cent growth in its net profit which jumped from Rs 1,349.24 crore to Rs 1,861.19 crore. The jump in net profit was largely on account of write back of depreciation in government securities provided for in the previous year.

The bank's interest income has taken a beating as it has posted a negative credit growth in the first half. Moreover, the bank's prime lending rate was pared in April thereby making a dent in the net spread. In the first quarter, SBI's interest income stood at Rs 4221.14 crore.

However, its investment income will show growth as its investment portfolio has grown substantially, sources said. The bank has invested over Rs 4,000 crore worth of proceeds of the Resurgent India Bonds in government papers.

The bank's portfolio of domestic advances -- pegged at Rs 64,000 crore in March -- has come down to about Rs 63,000 crore in September, showing close to a two per cent fall in its credit portfolio. The bank's fund flow to corporates through subscription to commercial paper,preference shares and non-convertible debentures has also come down from Rs 2,000 crore in March to Rs 600 crore in September, sources said.

However, despite the slowdown in its flow of funds to the commercial sector, the bank has been able to step up its year-on-year average credit growth to over 12 per cent this year, up from eight per cent in 1997-98. Last year, the bank had registered a fall in its interest income in the April-September period.

SBI insiders have attributed the negative credit growth to the industrial slowdown.

"Despite higher sanctions and increase in limits, corporates are not drawing loans. None of the big infrastructure projects has achieved financial closure as yet. The bank is now focussing on project-funding and term-lending in a big way to lift credit offtake," sources said.

In 1997-98, the bank had cut its credit growth target from 16 per cent to 13 per cent in the face of economic slowdown. This year, however, it has retained the target at 16 per cent. Despite theindustrial slowdown, SBI's quality of assets has not suffered.

"The net NPA level, pegged 6.07 per cent in March, has not slipped further. Even if the RBI tightens the NPA norms, the bank's net NPA level will go up by one percentage point," sources said.

It is likely to make provisioning on account of bad debts, taxes and depreciation in the investment portfolio in the first quarter. However, provisioning against standard assets and for wage revision will be made at the end of the year.