"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", the report said. It adds that the banks had benefited by the relative decline in the yields on government paper and, consequently, the required provisioning for the "mark-to-market" portion of their investment portfolios has come down.

However, the central bank cautioned that the spreads of banking groups have come down, reflecting their credit-deposit ratios and increasing diversification to non-traditional sources of income.

According to the report, during 1997-98 operating profits of all SCBs increased by Rs 2,384 crore (19.5 per cent) from Rs 12,239 crore in 1996-97 to Rs14,624 crore in 1997-98. Due to lower provisioning requirements, net profits recorded an increase of Rs 1,995 crore (44.3 per cent) in 1997-98. As a proportion of total assets, net profits increased from 0.67 per cent in 1996-97 to 0.82 per cent.

The report says that during 1997-98, 65 of the 103 SCBs, accounting for 70 per cent of the total assets, recorded profit rates above the average net profit ratio (0.82 per cent). Aggregate deposits of SCBs showed a sustained increase during 1997-98, rising by Rs 99,811 crore (19.7 per cent) during the financial year as compared with the rise of Rs 71,780 crore (16.5 per cent) in the preceding year. The rise in mainly on account of time deposits.

During 1997-98, bank credit recorded an increase of Rs 45,677 crore (16.4 per cent) as compared with the rise of Rs 24,387 corre (9.6 per cent). The increase in non-food credit growth, which was relatively subdued in the first half of 1997-98, started picking up in the second half, the report said. Among public sectorbanks (PSBs), operating profits increased from Rs 8,887 crore in 1996-97 to Rs 10,264 crore (15.5 per cent) but as a ratio of total assets it has moved down marginally to 1.58 per cent in 1997-98 from 1.60 per cent in 1996-97. Due to lower provisions in 1997-98, net profit as a ratio to total assets increased to 0.77 per cent in 1997-98. The State Bank Group constituted 29 per cent of the total assets of public sector banks. Its net profits increased to Rs 2,460 crore in 1997-98 from Rs 1,707 crore in 1996-97.

During 1997-98, the old private sector banks, which accounted for seven per cent of total assets, recorded a 29 per cent rise in operating profits and a nine per cent rise in net profits.

New private sector banks accounted for 3.3 per cent of the total assets of all SCBs in 1997-98 (2.4 per cent the year before). The new private sector banks recorded increases in both operating and net profits at 53 per cent and 43 per cent respectively during 1997-98. However, on account of the need for 100 percent mark-to-market on their investments, operating and net profits were lower in 1997-98 than in 1996-97. "In fact, new private sector banks have one of the highest provisions to total assets ratio in India", the report said. The operating profit ratio came down from 2.98 per cent in 1996-97 to 2.84 per cent in 1997-98 while the net profit ratio moved down from 1.73 per cent in 1996-97 to 1.55 per cent in 1997-98. But the level of net profit ratio, at 1.55 per cent in 1997-98, was far higher than the industry average of 0.82 per cent.

Foreign banks constituted 8.2 per cent of total assets in the banking sector in India in 1997-98--their share coming down a notch from 8.3 per cent in the preceding year. Their operating profits increased from Rs 2,032 crore in 1996-97 to Rs 2,544 crore in 1997-98, recording a 25 per cent rise. "Due to heavy losses suffered by the Bank of Tokyo-Mitsibushi in 1997-98, the foreign banks' net profit ratio declined from 1.19 per cent in 1996-97 to 0.96 per cent in 1997-98.