Banking-Specific Metrics Explained
After Leverage & Coverage Ratios Explained, the next interview jump is banking: banks require a separate set of metrics due to their unique business model - they intermediate between depositors and borrowers, making traditional profitability ratios insufficient. In interviews, these metrics help you judge spread, funding quality, asset quality, profitability, and capital strength across major Indian banks like HDFC Bank, SBI, and ICICI Bank.
- NIM is Net Interest Income / Avg Earning Assets; higher NIM = better spread between lending and deposit rates.
- CASA Ratio is (Current + Savings Deposits) / Total Deposits; higher CASA = cheaper funding; CASA deposits are near-zero cost.
- GNPA% is Gross NPAs / Gross Advances × 100; lower is better, and SFBs/MFIs may have 3-5%.
- NNPA% is Net NPAs / Net Advances × 100; it is net of provisions and a cleaner measure of actual credit quality.
- PCR is Provisions / Gross NPAs × 100; Provision Coverage Ratio - higher = more conservative provisioning.
- ROA above 1.5% is healthy, while PSU banks typically lower.
- CAR / CRAR is Capital / Risk-Weighted Assets; RBI minimum 11.5% incl. CCB, and higher = safer buffer.
Banking Metrics: The Big Picture
Banking metrics should be read as a practical toolkit, not as isolated ratios. NIM and CASA explain spread and funding quality; GNPA%, NNPA%, PCR, and Credit Cost explain asset quality and provisioning; ROA and ROE explain profitability; CAR / CRAR explains capital strength.
Spread and Funding Quality
NIM stands for Net Interest Margin. It is calculated as Net Interest Income / Avg Earning Assets. Higher NIM = better spread between lending and deposit rates.
CASA means Current Account + Savings Account. CASA Ratio is calculated as (Current + Savings Deposits) / Total Deposits. Higher CASA = cheaper funding; CASA deposits are near-zero cost.
In the comparison, HDFC Bank has NIM of 4.2% and CASA Ratio of 45%+, SBI has NIM of 3.0% and CASA Ratio of 42%, and ICICI Bank has NIM of 4.5% and CASA Ratio of 46%.
Asset Quality and Provisioning
NPA means Non-Performing Asset, a loan overdue for more than 90 days; it is a stressed asset. GNPA% is Gross NPAs / Gross Advances × 100, and lower is better. SFBs/MFIs may have 3-5%.
NNPA% is Net NPAs / Net Advances × 100. It is net of provisions and is a cleaner measure of actual credit quality.
PCR stands for Provision Coverage Ratio. It is calculated as Provisions / Gross NPAs × 100; higher = more conservative provisioning.
Credit Cost is Provisions / Avg Advances × 100. It is the annual credit loss rate and a key driver of net profit for banks.
Profitability and Capital Strength
ROA is PAT / Avg Total Assets × 100. In banking, > 1.5% = healthy, while PSU banks typically lower.
ROE is PAT / Avg Equity × 100. Banks need to cover cost of equity of 12-15%.
CAR / CRAR is Capital / Risk-Weighted Assets. RBI minimum is 11.5% incl. CCB, and higher = safer buffer.
Reading HDFC Bank, SBI and ICICI Bank Together
HDFC Bank shows NIM of 4.2%, CASA Ratio of 45%+, GNPA% of 1.3%, NNPA% of 0.3%, PCR of 70%+, Credit Cost of 0.4-0.6%, ROA of 1.9-2.0%, ROE of 16-18%, and CAR / CRAR of 18%+.
SBI shows NIM of 3.0%, CASA Ratio of 42%, GNPA% of 2.2%, NNPA% of 0.6%, PCR of 75%+, Credit Cost of 0.8-1.2%, ROA of 0.8-1.0%, ROE of 14-16%, and CAR / CRAR of 13%+.
ICICI Bank shows NIM of 4.5%, CASA Ratio of 46%, GNPA% of 2.2%, NNPA% of 0.4%, PCR of 80%+, Credit Cost of 0.4-0.6%, ROA of 2.0-2.2%, ROE of 16-18%, and CAR / CRAR of 17%+.
Structuring a Banking Interview Answer
"How would you compare HDFC Bank, SBI and ICICI Bank using banking-specific metrics?"
Always quote a range, not a single number - it signals you understand that metrics vary by bank type, size, and credit cycle. Anchoring to HDFC Bank and SBI as reference points is always well-received.
The most frequent error is judging a bank only with traditional profitability ratios. Banks require a separate set of metrics because spread, funding quality, asset quality, provisioning, profitability, and capital strength all matter together.
Conclusion
Banking-specific metrics give a sharper way to compare banks like HDFC Bank, SBI, and ICICI Bank. Use NIM, CASA, GNPA%, NNPA%, PCR, Credit Cost, ROA, ROE, and CAR / CRAR as a connected toolkit rather than separate ratios.