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M. Ramesh

CHENNAI, March 22

THE Indian Bank, which still happens to have to wear the label `weak bank', has topped the list of all public sector bank in increase in interest spreads - the difference between `interest earned' and `interest expended'. And that too, in a scenario, where the entire banking sector has achieved large hikes in interest spreads.

In the four-year period between 1997-98 and 2000-01, the Chennai-headquartered Indian Bank achieved a 340 per cent increase in interest spread, from Rs 111 crore to Rs 489 crore - a performance bettered only by (see table) the ICICI Bank (453 per cent increase) and the HDFC Bank (393 per cent).

But then, for these two banks, the increase was on a much smaller base.

During the same period, the interest spreads of the PSU banks as a whole grew from Rs 18,902 crore to Rs 29,291 crore, or by 55 per cent.

This trend has continued into the first nine months of the current year too, with the interest spreads of most of the banks working out to over 80 per cent of what it was for the whole of the previous year.

So, when bank chiefs say that the `spreads are shrinking', what do they mean? The spread rates - the difference between the average rates of interest received and paid - is shrinking. But, thanks to increase in advances, the interest spreads, in absolute terms, have actually been going up.

During 1997-98 and 2000-01, the public sector banks' advances increased from Rs 2,59,906 crore to Rs 4,14,628 crore - a 60 per cent growth.

In the same period, the 23 old private sector banks' advances grew from Rs 24,046 crore to Rs 37,973 crore, or by 58 per cent.

The new private sector banks saw their advances treble, or increase 200 per cent, from Rs 10,004 crore to Rs 30,086 crore.

Aided by increasing interest spreads and windfall profits in treasury operations, most banks managed to report huge increases in net profits for the first nine months, a trend that has continued in the fourth quarter also.

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