Most public sector banks are expected to witness a substantial decline in their profit after tax (PAT) earned during the final quarter of the last fiscal when compared with the corresponding period in 2007, as per the latest research report released by an equity brokerage firm.

However, the net interest income (NII) of these banks for Q4FY 2008 has risen marginally when compared to Q4FY2007 interest earnings as estimated in the report.

The study also reveals around 10% decline in non-food credit growth of Indian banks during Q4FY2008, when compared to the growth witnessed during the corresponding period in 2007.

For Q4FY2008, the NIIs of state-owned banks like State Bank of India, Punjab National Bank, Allahabad Bank, Corporation Bank, Union Bank of India and Bank of Baroda are estimated to increase by 9%, 3%, 12%, 4%, 7% and 7% respectively when compared to Q4FY2007 NII figures. However, PATs of these banks for Q4FY2008 are estimated to decline by 6%, 32%, 54%, 27%, 25% and 40% respectively when compared to Q4Fy2007 PAT figures.

In case of Indian private sector banks, the report states, ICICI Bank and Axis Bank are expected to witness 26% and 1% decline respectively in their PATs for Q4FY2008 when compared to the previous year?s corresponding period. The NIIs of these banks is estimated to increase for the quarter by 10% and 3% respectively when compared to Q4FY2007 figures.

A senior banking analyst said, ?The moderate growth registered in the quarter was primarily driven by a lower retail credit demand as housing demand declined substantially. Near-peak interest rates on mortgage products coupled with a correction in the property prices, seem to have been in line with the moderation in Indian banks? Q4FY2008 credit growth.?

Commenting on the future outlook of the Indian banking sector, Viren Mehta, partner, Ernst & Young, said, ?Margins for Indian banks will remain under pressure. With inflationary pressures continuing, there is also a likelihood that the tightening pressures will continue. This would definitely put pressure on the banks? profitability.?

Tarun Bhatia, head, financial sector rating, Crisil, said, ?The profitability of the banking sector will be under pressure for the year 2007-08 as cost of borrowing continues to be high for the simple reason that the deposit rates too continue to be high.?