A bank looks complicated from the outside, but its results revolve around a handful of numbers. Learn these five and you can read most of a bank’s quarterly statement.
1. Net interest income (NII)
A bank pays interest on deposits and earns interest on loans. NII is the difference between the interest it earned and the interest it paid. Suppose a fictional bank, Godavari Bank, earns ₹10,000 crore of interest and pays ₹6,000 crore. Its NII is ₹4,000 crore. For most banks this is the largest source of income.
2. Net interest margin (NIM)
NII in rupees depends on the size of the bank. NIM puts it in proportion: NII divided by the average earning assets (mainly loans and investments), usually expressed as a percentage. If these are full-year figures and Godavari’s average earning assets are ₹1,60,000 crore, its NIM is 4,000 ÷ 1,60,000 × 100 = 2.5%. (Quarterly statements annualise the figure so that quarters can be compared with years.) NIM lets you compare banks of different sizes and watch one bank over time.
3. Non-interest income
Fees on services, commissions, treasury gains and other items. It adds to NII to give total income. A bank that depends heavily on treasury gains may see this line swing with market conditions.
4. Cost-to-income ratio
Operating expenses (salaries, premises, technology) divided by total income. A ratio of 45% means the bank spends ₹45 of every ₹100 of income on running itself. It shows efficiency, though branch-heavy and digital-first banks naturally differ.
5. Gross and net NPAs
NPAs, or non-performing assets, are loans where borrowers have stopped repaying for more than 90 days. Gross NPA is the total of such loans, often shown as a percentage of all loans. Net NPA subtracts the provisions already made. They show the quality of the loan book.
Putting the five together
Picture a simple flow: deposits come in at one rate, loans go out at a higher rate (NII and NIM). Add fees (non-interest income). Subtract running costs (cost-to-income). Then subtract the money set aside for loans that go wrong (provisions, linked to NPAs). What remains is profit.
Two other terms often appear next to these: CASA ratio (the share of deposits held in low-cost current and savings accounts) and capital adequacy (how much capital the bank holds against its risk-weighted assets). Both matter for how a bank funds itself and how much of a cushion it has.
Why a rate change affects NIM
A bank’s deposits and loans do not reprice at the same speed. When interest rates fall, loans linked to external benchmarks adjust quickly, while many deposits are fixed for their term and adjust only on renewal, so margins can narrow. When rates rise, the effect can reverse, though the pattern depends on each bank’s mix of loans and deposits. This is one reason why NIM moves from quarter to quarter without any change in the bank’s behaviour.
Four quarters of one fictional bank
Look at how a trend reads. Godavari Bank reports NIM of 3.1%, 3.2%, 3.0% and 2.9% in four consecutive quarters, with cost-to-income ratios of 46%, 45%, 47% and 48%. Taken together, the bank earned a thinner margin on its assets and spent a larger share of income on running costs. Neither number alone shows the pattern. Neither says whether the bank is well managed, and both could have explanations in the notes, such as a change in the loan mix or investment in new branches or technology.
What the five numbers do not tell you
- NII and NIM do not show how fast loans and deposits are growing. The balance sheet does.
- A bank can show healthy profit while holding a thin capital buffer. Capital adequacy, reported separately, covers this.
- Whether the bank can meet withdrawals is a separate question from whether it is profitable.
- A few large borrowers or one sector can dominate the loan book. The notes sometimes disclose this.
Terms that appear next to these
- CASA ratio: current and savings account deposits as a share of total deposits. These typically cost the bank less than term deposits.
- Credit-deposit ratio: loans as a share of deposits.
- Slippage ratio: new NPAs in a period as a share of loans at the start of it.
- Capital adequacy ratio: capital as a share of risk-weighted assets.
How to practise
Choose one bank and build a small table with one row for each of the last eight quarters and a column for each of the five numbers. Fill it from the bank’s filings. After eight rows, you will see which numbers are stable and which move with the cycle, and you will find it easy to read the next quarter’s results in that context. Compare each quarter with the same one a year earlier, as explained in a note on year-on-year versus quarter-on-quarter growth.
The aim is to describe how a bank earns its money and what it sets aside, and nothing in these numbers is a recommendation about any particular bank.
None of these numbers tells you whether a bank is a good or poor institution; they describe how it earns and what it has to absorb. If you want each of these terms defined with the statement lines they come from, see net interest income, NIM and NPAs, explained.
Start by reading just these five for one bank across four quarters. The trends will teach you more than any single quarter.
