Bank stocks are on the roll again, with State Bank of India leading the pack on the bourses. The banking leader hit the upper end of the circuit. The stock has gained 7.82 per cent to Rs 172.5 over its previous closing of Rs 160. Other bank stocks have followed the leader.

However, analysts don't see any reason for a sustained rise in banking stocks. ``This is only a re-rating based on the lower yield curve. This will help banks provide for a much lower depreciation than what was anticipated by the market,'' says an analyst at Kotak Securities. However, a clearpicture will emerge only when the RBI fixes the benchmark.

Milind Karmarkar of Dalal and Broacha, feels that banks will begin their clean-up effort of their balance sheet encouraged by the tax relief provided by the budget. Five per cent of the NPA provisions are now tax deductible.

In the face of the sustained bear hammering at the bank counters, there were widespread fears that the profitability of the banks will be hit very badly, says an analyst. These fears have been allayed by the rate cut and the tax sops, he adds. The banks, however, will face a squeeze on the margins following the rate cut, unless matched by corresponding reduction in their deposit rates.

This is not the first time that interest rates have been brought down. Since the beginning of 1998, the RBI has progressively reduced the bank rate in five stages from 11 per cent to the current level of eight per cent. The jubilation could mean misplaced optimism, if we consider the pace of poor offtake of funds. Investments of most bankshave grown at a much faster rate than credit offtake. With still no definite signs of a revival in industrial growth, there remains an element of uncertainty on the credit offtake front.