As a class, state-run banks saw their spreads dip by 25 basis points to 2.91 per cent in 1997-98 from 3.16 per cent, old private-sector banks by 37 basis points to 2.56 per cent from 2.93 per cent, new private sector banks by 70 basis points to 2.88 per cent from 2.18 per cent and foreign banks by 21 basis points to 3.92 per cent from 4.13 per cent.

According to the Reserve Bank's report on banking trends, spreads came under fire as the increase in interest income by 10.9 per cent was surpassed by the increase in interest expenditure by 12.22 per cent. This was mainly on account of higher interest incurred in liability mobilisation and the collapse of term deposits to shorter maturities.

Among state-run banks, State Bank of India's (SBI) spread declined to 3.01 per cent in 1997-98 from 3.43 per cent in thepreceding fiscal while SBI and its associates as a group had a spread of 3.14 per cent, down from 3.48 per cent. Within the SBI group, State Bank of Indore had the highest spread at 3.86 per cent (4.28 per cent).

Outside of the SBI group, Dena Bank had the highest spread at 3.48 per cent (3.85 per cent), with Indian Bank registering the lowest 0.57 per cent (0.71 per cent).

The report, however, adds that the "spreads of nationalised banks sans interest income from recapitalisation bonds during 1997-98 comes to 2.55 per cent. In other words, recap bonds have been instrumental in raising returns for banks.

Among older private sector banks, Nainital Bank had the highest spread of 3.90 per cent (4.21 per cent). The lowest spread was for SBI Commercial & International Bank at 1.21 per cent (1.29 per cent).

Among new private sector banks, HDFC Bank had the highest spread at 3.65 per cent (4.11 per cent) with UTI Bank registering the lowest at 1.05 per cent (2.09 per cent).

In the class of foreign banks,quite a few improved on their spreads. Deutsche Bank had a spread of 6.70 per cent (5.83 per cent), ANZ Grindlays Bank 4.56 per cent (3.47 per cent), StanChart 3.57 per cent (3.49 per cent), Credit Lyonanis 3.89 per cent (0.75 per cent), and Chinatrust Commercial 7.50 per cent (5.70 per cent).

According to the Reserve Bank report, state-run banks had to contend with a lower spread mainly on account of an increase in interest expenditure even though their intermediation costs--other operating expenses--as a ratio of total assets came down by 22 basis points to 2.66 per cent from 2.88 per cent.