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Mumbai , Nov. 17

THE contribution of interest income on investments has climbed up to 36 per cent of total income in 2002-03 while the core income of banks, the interest/discount earned on advances/bills, has slid down to below 40 per cent.

At the system level, trading profits contributed significantly to the profitability of banks during 2002-03.

However, at bank level, while it was the major source of profits for some bank groups such as old private banks, small foreign banks did not earn any profits from securities trading, according to the Reserve Bank of India.

Profits from the sale of investments for commercial banks went up 39 per cent to Rs 13,245 crore from Rs 9,541 crore in the previous year.

Trading profits accounted for about 7.7 per cent of the total income of banks and about 33 per cent of their operating profits during 2002-03 up from less than 5 per cent in 1998-99.

The change in income patterns is in tandem with the shifting pattern of assets in banks' balance sheets.

Due to the change in the asset pattern, income from investments registered a higher compound annual growth rate of 17.4 per cent during the period 1996-97 to 2002-03 as compared with the interest on advances at 10.2 per cent, narrowing down the gap between their shares in total income.

The steep decline in lending rates has also contributed to the changing pattern of income.

Interestingly enough, while fifty-one banks recorded increase in trading profits during 2002-03, nine banks reported net loss on sale of investments.

The share of profits from securities trading varied across bank groups. Old private sector banks depended heavily on securities trading which contributed over 50 per cent of their operating profits both in 2001-02 and 2002-03.

Foreign banks, which booked profits over Rs 1,000 crore from securities trading in 2001-02, saw a fall in trading profits to Rs 504 crore, which contributed only 13.5 per cent of their operating profits.

The SBI group booked higher profits of Rs 2,675 crore from securities trading up from Rs 1,034 crore in 2001-02.

At the bank level, while 27 banks (accounting for about 14 per cent of total assets of the banking system) earned more than 50 per cent of their profits from securities trading, 16 banks (mostly small foreign banks whose combined share in total assets is less than 0.5 per cent) had not made any profits from securities trading.

For another 10 banks, trading profits were below 15 per cent pf their operating profits.

Thirty-eight banks earned more than Rs 100 crore each from securities trading in 2002-03.

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