Wrong. The real story -- and it's official -- is that these 19 banks had cumulative net-profits of only Rs 1,580.66 crore, less by Rs 986.63 crore. The difference was accounted for by the interest earned on recapitalisation bonds issued at 10 per cent.

Simply put, the centre has effectively contributed Rs 986.63 from its own kitty, which state-run banks showed as net-profits from their operations. After all this, these banks also paid a dividend to the centre! It is pertinent to note here that it is not only the net profits that are misleading -- to the extent that a large portion of it did not come from banking operations per se -- but recapitalisation itself. Banks never got any monies, but paper. Real cash inflows were only to the extent of the interest earned on the 10 per cent recap bonds, which boosted net-profit figures.

Take Bank of India, for instance. The bank declared anet-profit of Rs 364.51 crore for 1997-98. Adjust the same for interest on recap bonds and the figure reads Rs 244.30 crore. In the case of United Bank of India and Vijaya Bank, against declared net-profits of Rs 9.62 crore and Rs 23.32 crore, the figure after a like exclusion, is a net loss of Rs 131.57 crore and Rs 22.86 crore respectively. The Reserve Bank of India's Trend and Progress of Banking In India, 1997-98, makes mention of this `surreal' performance by state-run banks.

While observing that state-run banks accounted for 52.3 per cent of total assets of scheduled commercial banks and registered a substantial improvement in profitability, with both operating and net profit as ratio of total assets improving to 1.33 per cent (1.26 per cent) and 0.62 per cent (0.41 per cent) respectively, the report qualifies this statement: "If, however, one estimates net profitability of nationalised banks net of interest income earned on recapitalisation bonds, the net-profit ratio comes down from 0.62 per cent to0.38 per cent in 1997-98". The same would hold true even for spreads for this class of banks, which would stand corrected to 2.55 per cent from 2.78 per cent. And all this is not good news.

The fact is that even the cumulative net profit of Rs 1,580.66 crore after adjusting for the interest earned on recap bonds is nothing to crow about. Net profits of state-run banks in 1997-98 accrued largely out of writeback of depreciation provisions.In all, Rs 20,046.12 crore has been pumped in by the centre towards recapitalisation. In 1997-98, Rs 2,700 crore was brought in to recapitalise three banks as against the Rs 1,509 crore for six banks in the preceding fiscal. Recipients of such doles in 1997-98 were Canara Bank (Rs 600 crore), Indian Bank (Rs 1,750 crore) and Uco Bank (Rs 350 crore) while in 1996-97, there was Andhra Bank (Rs 165 crore), Central Bank of India (Rs 500 crore), Punjab & Sind Bank (Rs 150 crore), Uco Bank (Rs 54 crore), United Bank of India (Rs 338 crore) and Vijaya Bank (Rs 302 crore). Over theperiod, however, four banks have returned Rs 642.80 crore to the centre.