"The recent rate cuts are unlikely to shield bank profits for FY-1999," banking analyst at Kotak Securities Anand Shanbag said. Banks in the public sector are plagued with a number of negative factors in fiscal 1999 which will push down the growth estimates substantially. While the weak banks will be the worst sufferers, the big ones like the State Bank of India may end up posting a flat profit growth. Despite a higher growth in operating profits, most of the banks will register a dip in their net profits in the absence of the huge writebackbenefit which the industry had availed of in fiscal 1998.The list of negative factors that have plagued the industry in 1998-99 include declining interest income, lower spreads, higher provisioning for non-performing assets (NPAs), less volatility in the markets leading to lower non-interest income and a Rs 1,245 crore hit on account of the rising wage bill.

"Credit offtake in the third quarter has been bad. While credit grew at 12.4 per cent (up to March 12) during 1997-98, in FY 1999 credit has grown by just 9.5 per cent," another banking analyst in a leading foreign institutional investors said. As a result, interest income is likely to come down. Interest Income for all 27 nationalised banks in 1997-98 was Rs 59,066.83 crore and grew by 9.59 per cent over the previous year. However, big banks like the State Bank will remain relatively unaffected as the average credit growth will remain on the higher side despite the poor credit offtake.

"The year will be bad as interest spreads are also declining.Spreads for State Bank is declining by 50 basis point while for Corporation Bank, the spread will decline by 60 basis points," analysts said.The slowdown in the economy will also hurt the recovery process in banks which will see higher provisioning on account of swelling NPAs. Provisions and contingencies were pegged at Rs 5,236 crore for FY 1998 which was lower by 8.69 per cent over the previous year.

With the lack of volatility in both the money and forex markets for most part of the year, banks are unlikely to post substantial gains in other income too. "Whatever trading profits were to be booked have been done in the fist six months. Trading was dull in the second half and this is likely to translate into slightly higher growth rates in other incomes over the previous year," analysts said. Besides, industrial slowdown has also dragged income from Letter of Credits and guarantees southwards. Other incomes for the nationalised banks stood at Rs 8,635 crore constituting 12.75 per cent of total income ofbanks recording a 17.32 per cent growth over the previous year.