This document defines and provides formulas for several key financial ratios and terms that are used to analyze bank performance based on their annual reports. These include: Gross NPA Ratio, Net NPA Ratio, Provisioning Coverage Ratio, Total Capital Adequacy Ratio, Tier 1 and Tier 2 CAR, CASA Ratio, Net Interest Margin, Non Interest Income, and Return on Assets. Formulas and brief explanations are provided for each ratio. The purpose is to help people who do their own research on bank performances.

1. Amit Agrawal

2.  Some of the financial ratios/terms to look for in
bank annual reports for self analysis.
 This presentation is made for information
purpose only.
 This might help people who do their own
research regarding bank performances.

3.  Gross NPA Ratio
 Net NPA Ratio
 Provisioning Coverage Ratio
 Total Capital Adequacy Ratio (CAR)
 Tier 1 CAR
 Tier 2 CAR
 CASA Ratio
 Net Interest Margin
 Non Interest Income
 Return on Assets (ROA)

4.  Those loaned accounts on which the bank has not
received any interest payment for the last three
months can be marked as NPAs.
 High gross NPA ratio means the asset quality is in
a very bad shape.
 Formula: (Gross NPA/Total Loans) X 100

5.  Banks write off some NPAs and net NPA is
calculated.
 If net NPA is higher, provisions will also be higher
depending on the scenario, in that case bank’s
profit might take a hit.
 Formula: (Net NPA/Total Loans) X 100

6.  PCR gives an indication of the provisions made
against bad loans from the profit generated.
 Higher the PCR (above 70%) lower the asset
quality issues.
 Formula: (Total provisions made/Gross NPA) X
100

7.  CAR is a measure of a bank's capital. It is
expressed as a percentage of a bank's capital to
its risk (weighted assets and current liabilities).
 Formula: (Total capital/ Total risk-weighted
asset) X 100

8.  Tier 1 capital consists of shareholders' equity and
retained earnings.
 It is the primary funding source of the bank.
 Risk-weighted assets (RWA) measures a bank's
exposure to credit risk from the loans it
underwrites.
 Formula: ( Tier 1 capital/Total RWA) X 100

9.  Tier 2 Capital is known a bank's
supplementary capital.
 This is at a higher risk than its Tier 1 capital .
 Tier 2 capital comprises products like cumulative
or redeemable preference shares, normal long
dated bonds, etc.
 Formula: (Tier 2 capital/ Total RWA) X 100

10.  Current And Saving Accounts(CASA) Ratio of a
bank is the ratio of deposits in current and saving
accounts to total deposits in the bank.
 Higher CASA ratio means cheaper source of funds
for the bank.
 It means better the net interest margin, which
means better operating efficiency of the bank.
 Formula: (Total deposits in current and savings
accounts/ Total deposits) X 100

11.  NIM is the difference between the interest
income generated by banks and the amount of
interest paid out to their lenders.
 High NIM and low NPA is a good combination.
 Formula: ((Interest received – interest paid)/
Average interest earning assets) X 100

12.  Non interest income is income from all other
sources of the bank except interest income.
 Income from services provided by the bank
comes under Non interest income.
 Formula: (Non-interest Income/ Average total
funds) X 100

13.  In general terms ROA is the ratio between net
income reported for a period and total assets.
 It is an important performance indicator for
measuring the performance of the banks.
 It also gives an idea as how efficiently the
management is using its assets to generate
earnings.
 Formula : (Net Income/ Average total assets) X
100

14.  Thanks folks !!
 Courtesy :- Google