Banks` first quarter profits to take a hit

2007-08 2008-09* % chg SBI1,4261,59511.9 PNB42552623.7 Bank of India31537218.0 Bank of Baroda331327-1.1 Canara Bank2412441.5 Union Bank22525211.7 ICICI Bank7748013.4 Axis bank17523433.7 Source: Sharekhan                                                * Estimates   However, the borrowing by oil companies to meet their working capital came to the rescue of lenders. Bank loans grew by 26.3 per cent in the quarter compared to 24.6 per cent in the previous year.  Net interest margin, a key measure of banks' profitability, may take a hit as the cost of funds rose and loans rates grew at a slower pace.  Lenders raised the interest rates on deposits between 50 and 125 basis points, but were not able to pass on the cost in same proportion despite raising the lending rates. Prime lending rates were revised upwards by 75 basis points.  The profits of public sector banks may be hit harder by the deteriorating asset quality following the farm debt waiver and higher default rates.  ICICI Bank's profits may rise 28 per cent to Rs 980 crore in the period, bolstered by fee-based income and a revision in lending rates. The bank's total income is expected to grow at 25 per cent to Rs 4,300 crore, a survey of analysts showed. Net interest income may climb 29.5 per cent to Rs 1916 crore in the period.  State Bank of India's profits may climb at a slower pace of 11.9 per cent to Rs 1,426 crore because of higher provisioning for erosion in bond value.  The bank has already indicated that it will make a provision of Rs 1,000 crore in this quarter for a decline in the value of its securities. June was a month of tough monetary action to manage inflationary expectations. RBI raised the repo rate, rate at which banks borrow funds for the short term, in two steps by 75 basis points.