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Important Banking Ratios

The document outlines essential banking ratios and metrics necessary for analyzing the safety and performance of banks, emphasizing the importance of factors like capital adequacy, non-performing assets, and profitability ratios. It provides a checklist of key ratios to evaluate, including Capital Adequacy Ratio, Non-Performing Assets percentage, and Return on Equity, among others. The document highlights that banks require different analysis compared to regular companies, focusing on risk, liquidity, and capital strength.

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Deepak Kumarverma
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192 views12 pages

Important Banking Ratios

The document outlines essential banking ratios and metrics necessary for analyzing the safety and performance of banks, emphasizing the importance of factors like capital adequacy, non-performing assets, and profitability ratios. It provides a checklist of key ratios to evaluate, including Capital Adequacy Ratio, Non-Performing Assets percentage, and Return on Equity, among others. The document highlights that banks require different analysis compared to regular companies, focusing on risk, liquidity, and capital strength.

Uploaded by

Deepak Kumarverma
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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BANKING RATIOS

SIMPLIFIED
Key metrics you MUST check
before trusting any bank
Why Bank Analysis is
Different ?
Banks are not like normal
companies.
You can’t just look at revenue
and profits.
You must check:
a. Risk
b. Liquidity
c. Capital strength
d. Asset quality

Here is the checklist ☞


KEEP SWIPING
Capital Adequacy
Ratio (CAR)
What it means:
Shows if the bank has
enough capital to absorb
unexpected losses.

Importance:
a. Higher CAR = Safer
during crises.
b. Global Standard: Basel III
norms require minimum
~8%+, but safer banks
maintain 12%-15%.

KEEP SWIPING
Non-Performing
Assets (NPA) %

What it means:
Loans where borrowers have
stopped paying for >90 days.

Types:
a. Gross NPA: Total bad loans.
b. Net NPA: After provisioning
for losses.

Importance:
Higher NPA = Higher credit
risk.

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Provisioning Coverage
Ratio (PCR)
What it means:
% of bad loans covered with
provisions/reserves.
Importance:
High PCR = Bank is
prepared even if loans go
fully bad.
Good Level: >70%
Excellent if >80%

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CASA Ratio (Current
Account Saving
Account deposits)
What it means:
Cheap funds that the bank
gets without paying high
interest.

Importance:
High CASA ➔ Low cost of
funds ➔ Better profit
margins.

KEEP SWIPING
Net Interest Margin
(NIM)
What it means:
The "spread" between interest
earned on loans and interest
paid on deposits.
Importance:
Higher NIM = Bank is making
more money from its lending
business.
Good Level:
Developed countries:1.5%- 3%
Emerging markets:3% - 4.5%

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Return on Assets (ROA);
Return on Equity (ROE)

ROA (Return on Assets):


Profitability relative to total
assets.
Good: >1%
ROE (Return on Equity):
Profitability relative to
shareholder funds.
Good: >15%
Importance:
Shows how efficiently bank is
using assets & capital.

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Other Vital Checks

Credit to Deposit Ratio (CD


Ratio):
a. Shows how aggressively the
bank lends.
b. Ideal: 75%-85%

Loan Growth vs Deposit


Growth:
a. Healthy banks grow deposits
faster or balanced with loans.

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Other Vital Checks

Cost-to-Income Ratio:
a. Operational efficiency.
b. Lower = Better (ideal <45-
50%)
Basel III Compliance:
Ensures strong capital and
liquidity buffers.
Management Quality:
Track record, transparency,
governance culture.

KEEP SWIPING
The Smart Analyst's
Checklist
1. CAR > 12%
2. Gross NPA < 2%
3. Net NPA < 1%
4. PCR > 70%
5. CASA > 40%
6. NIM ~ 3-4%
7. ROA > 1%
8. ROE > 15%
9. Cost-to-Income Ratio < 50%
10. Stable Management
11. Basel III compliance

KEEP SWIPING
Stay Tuned for More
Analysis on
Different Sector

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