The banking sector has outperformed the manufacturing sector by posting a 48 per cent rise in net profit during the second quarter ended September 2003.

The manufacturing sector recorded a 29 per cent growth in net profit during the period.

The net profit growth rate of 38 listed banks looked at in this study would have been higher had it not been for the 92 per cent surge in provision for taxes that the banks made.

The provision for taxes at these banks accounted for 29.75 per cent of their profit before tax in the quarter ended September 2003, up from 24.59 per cent in the corresponding quarter of the previous year.

Interest income continued to grow at a slower pace than the bottomline.

The growth rate in interest income dropped to an all-time low of 0.78 per cent, from 3.47 per cent in the April-June quarter and over 12 per cent in the January-March 2003 and October-December 2002 quarter.

But despite the lower growth in interest income, banks' profitability continued to increase, largely on account of other income.

The other income component jumped 47 per cent year-on-year, accounting for over one-fourth of the total income of the banking sector. The share of other income in total income steadily increased from 13.31 per cent in the June 2002 quarter to 21.27 per cent in the March 2003 quarter.

Apart from other income, the decline in the cost of borrowings also played a major role in the increased profitability.

Interest expenditure for the quarter ended September 2003 declined 5.97 per cent against a 0.78 per cent rise in interest income.

During the quarter ended June 2003, interest expenditure declined 3.93 per cent compared with a 3.47 per cent rise in interest earned.

Among banks, private banks outperformed their peers in the public sector, registering a 52 per cent net profit rise compared with a 47 per cent growth reported by public sector banks.