Spurred by a jump in non-interest income, the bank has recorded a 22.83 per cent growth in its operating profit to Rs 1,674.02 crore.

Despite a 2.9 per cent negative credit growth, stress on volumes has helped the bank post higher net profits. Chairman MS Verma attributed the "good show" to the bank's emphasis on growth through increase in turnover, other income and revenue flows from its international operations.

The bank's scrip moved up by about Rs 8 on the Bombay Stock Exchange to close at Rs 164.90, against the previous close of Rs 156.

"Spreads have fallen. It will and should fall further," Verma said, referring to the bank's shift to volume-led business and growing disintermediation in the financial sector. Other income grew 32.56 per cent to Rs 1461.09 crore, while its operating profit from international operations grew 85per cent to Rs 164.71 crore.

The spurt in other income came about chiefly through increases in commissions, profit on sale of investments and income from leasing. Net interest income grew 12.08 per cent to Rs 2,802 crore in the first half.

Supported by volumes' growth of 16.08 per cent in average advances, income from advances registered a 9.07 per cent growth. This is despite the fall in average yield on advances in the country to 11.76 per cent from 12.51 per cent for the same period in previous year.

However, taken separately, advances for the second quarter declined. Net global advances at Rs 71,391 crore as on the last Friday of September, 1998, declined 3.8 per cent over the end-March, 1998, figures.

Global deposits grew to Rs 142,556 crore, up 8.7 per cent from end-March, 1998, figures. Domestic deposits grew to Rs 1,35,000 crore, up 9.3 per cent from end-March figures.

The bank has made a provision of Rs 816 crore for the first half, against Rs 658 crore during the year-ago period. Thisinclude Rs 137.44 crore against investment depreciation, Rs 320 crore for taxation and Rs 335 crore against bad loans.

Verma said credit offtake will improve in the second half, and the bank's target of 16 per cent growth in credit will be easily met. "Many of Madhya Pradesh and Tamil Nadu power projects will achieve their financial closures in the coming weeks. They will begin drawing down funds in the next few months. Similiarly, many telecom and road projects will also draw down funds in the second half," he said.

Though industrial segment is reporting a slowdown, there has been a growth in credit to housing and consumer-finance sectors, Verma said.

INSIGHT:

Little to cheer about: Even though the market has taken the State Bank results well, there is little to really cheer about. Though the profit growth for the first half over the corresponding period in the last year is higher by 21.7 per cent, the profit growth in the second quarter over the first quarter of the current year is apaltry 1.17 per cent.

The results mimic that of the HDFC Bank. Spreads were under pressure even on a quarter-to-quarter basis. There was an increase in interest income only as a result of higher volume of transactions, while relying on strong growth in low-cost deposits. The bank relied heavily on profit on sale of investments for its growth for the first half. The indication is of both higher provisioning as also higher wage costs in the second half, depressing profit growth.