know your bank Financial Metrics Good or bad numbers

 Financial Metrics  for banks Good or bad numbers

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1. Financial Metrics

These numbers highlight the bank's financial health and profitability:

• Net Interest Income (NII):
  The difference between interest earned (loans) and interest paid (deposits). A rising NII indicates effective loan growth and cost control.
• Net Interest Margin (NIM):
  A percentage showing how much the bank earns from lending after adjusting for deposit costs. Higher NIM is better.
• Non-Interest Income:
  Revenue from fees, commissions, and trading. A growing non-interest income indicates diversified revenue sources.
• Profitability:
• Net Profit or PAT (Profit After Tax): Indicates overall profitability.
• Cost-to-Income Ratio: Measures efficiency; lower is better.

 

2. Asset Quality Indicators

These show how well the bank manages its loans and credit risk:

• Gross NPA (Non-Performing Assets):
  Indicates the percentage of loans that have turned bad. Lower is better.
• Net NPA:
  NPAs after provisioning. A key indicator of actual stress.
• Provision Coverage Ratio (PCR):
  Provisions made as a percentage of bad loans. A PCR above 70-80% shows proactive risk management.
• Slippages:
  New accounts turning into NPAs. High slippages indicate deteriorating asset quality.

 

3. Credit and Deposit Growth

These indicate business momentum:

• Credit Growth:
  Percentage growth in the bank’s loan book. Strong credit growth is a good sign but must be accompanied by sound asset quality.
• Deposit Growth:
  Growth in the bank's deposits, especially low-cost CASA deposits (Current Account Savings Account).

 

4. Capital Adequacy and Liquidity

These reflect the bank's ability to withstand stress:

• Capital Adequacy Ratio (CAR):
  Indicates the bank’s capital strength. It should meet or exceed regulatory requirements.
• Liquidity Coverage Ratio (LCR):
  Measures liquidity buffer adequacy to meet short-term obligations.

 

5. Operating Efficiency

Shows how well the bank manages costs:

• Operating Profit:
  Indicates core operational strength, excluding extraordinary items.
• Cost-to-Income Ratio:
  Lower ratios signify better cost management and operational efficiency.

 

6. Management Commentary and Guidance

Check for insights on:  ( Guidance )  

• Future loan growth and business expansion plans.
• Updates on stressed sectors or industries (e.g., real estate, MSME).
• Digital banking initiatives or innovation plans.

 

7. Regulatory Developments and Macroeconomic Factors

• Compliance with RBI norms (e.g., provisioning requirements, CRR/SLR).
• Sector-specific risks like exposure to stressed industries.

Last but not the least

8. Peer Comparison

Evaluate the bank's performance relative to its peers in similar segments

 (PSU vs private sector banks).

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