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Mumbai , Nov. 17

THE first quarter of 2003-04 has seen significant improvement in the performance of scheduled commercial banks over the corresponding period of the previous year despite higher provisioning thanks to containing of expenses and interest.

The net profits to total assets of commercial banks for the quarter ended June 2003 stood at 0.32 per cent compared to 0.24 per cent for the quarter ended June 2002, according to the RBI Report.

In 2002-03, the net profits of scheduled commercial banks increased by nearly 50 per cent - especially in the case of new private banks - on top of a rise of 81 per cent in the previous year on the back of higher treasury income.

The operating profits of commercial banks exhibited a growth of 36 per cent in 2002-03, much higher than the average annual growth rate of 16 per cent recorded over the last six years.

The spread of banks shot up by 19.5 per cent, with most banks registering double-digit increase in 2002-03 mainly due to containing of interest expenditure in a softer interest rate regime.

The substantial increase in spreads meant that the spread to total assets ratio increased significantly for most bank groups.

However, the ratio of spread to total assets has continually been shrinking for most bank groups as yields on assets have declined more than proportionately vis-à-vis the cost of liabilities.

Lending rates remained sticky, reflecting the impact of structural factors as well as the revival of credit demand during the latter half of the year.

As a result, the spread between the long-term deposit rates and lending rates widened during 2002-03.

Total income of commercial banks increased by 14.1 per cent in 2002-03, higher than the average growth rate of 12.1 per cent recorded over the 1997-2002 period.

While interest income on advances came down for public sector banks to 46 per cent of interest income from 50 per cent in 1997-98, it was compensated by an increase in income on investments to 47 per cent, up from 43 per cent in 1997-98.

The expenditure of commercial banks saw a growth of 11.4 per cent in 2003-03, lower than the average annual growth of 11.7 per cent witnessed in 1997-2002.

Payments to and provision for employees, a major item of operating expenses, came down to 17 per cent in public sector banks following the voluntary retirement scheme, from around 20 per cent seen over the last few years.

New private banks, however, were an exception.

Their expenses increased markedly, reflecting partly the rise in interest expenses and partly the rise in operating expenses.

Interest on deposits, the major component of interest expenses, has come down for all bank groups as a result of falling interest rates.

In the case of public sector banks, it has come down to 60 per cent in 2002-03 from over 65 per cent in 1997-98.

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