The rise in interest rates has taken its toll on banks' bottom lines. Of the seven public-sector banks that have announced their financial performance for the quarter ended September 2004, five have reported a drop in net profit, thanks to their investment portfolios having been hit.

But only one of the four private sector banks to have announced results till now has reported a drop in its net profit.

Among the five public sector banks affected, Corporation Bank reported the steepest (81 per cent) drop in net profit to Rs 27.39 crore. The next worst hit was the State Bank of Travancore, which posted a 62.5 per cent fall in net profit to Rs 24.09 crore, followed by Syndicate Bank (net profit down by 34 per cent to Rs 75.58 crore).

UCO Bank reported a 9.9 per cent fall in net profit, from Rs 156.32 crore to Rs 140.83 crore. State Bank of Mysore saw a 4.6 per cent drop in its bottom line to Rs 42.90 crore.

The lone private bank to have posted a decline in net profit year on year is UTI Bank, which posted a 28 per cent drop to Rs 46.22 crore. The banks most affected are those that have taken a one-time hit in order to shield themselves from further interest rate fluctuation.

Following the rise in bond yields, the Reserve Bank of India allowed commercial banks to re-classify a part of their investment in government  securities as held-to-maturity (HTM), which does not need to be marked to market.

The central bank allowed this as a one-off measure this financial year, but on the condition that the depreciation till the date of transfer would be fully provided for. Banks have taken the hit on account of the one-time provision.

Corporation Bank made a provisioning of Rs 205 crore. Syndicate Bank took a provisioning knock of Rs 318 crore. UCO Bank did not take a one-time hit as it did not carry out any transfer of securities.

However, its mark-to-market Interest rates take toll on public sector bank profits provisioning on the trading portfolio was Rs 35 crore, said V P Shetty, chairman and managing director of UCO Bank.

The two PSBs that bucked the trend by posting a growth in profits were Allahabad Bank and Union Bank of India.

A fall in other income (which includes treasury profits) played havoc with bank financials in the September quarter as all the seven PSBs saw a decline of as much as 41 per cent in other income. The numbers would have been worse had it not been for the credit growth in the economy.

State Bank of Travancore had a 34.6 per cent rise in net interest income, followed by Allahabad Bank (33.8 per cent), UCO Bank (28.9 per cent) and State Bank of Mysore (28 per cent).