CASA RATIO
Current Account and Saving Account Percentage in Total Funds.
The banks are required to pay very little interest on savings accounts. So Much More The CASA Ratio shows a positive investment signal.
If the CASA ratios less it indicates that bank has to pay more in the form of interest from its profit raised.
NET NPA PERCENTAGE
NPA: NON-PERFORMING ASSETS
After deducting provisions, net NPAs provide a more accurate view of a bank's real bad debt load. It serves as a significant barometer for the soundness of banks' and other financial institutions' finances and risk management procedures.
The stock with lesser net npa wins during the peer group comparison of the Bank stocks.
C.O.L
Cost of Liabilities
It is the average rate of interest that a bank must pay on the funds that it holds.A lower value seems favorable since it will help the specific bank keep more of its profit.
Advances Growth
The term "advance growth" describes the rate of increase in loans and advances (credit given by banks or other financial institutions) over a given time frame. This rate is usually expressed as a percentage either quarterly or annually.
Advances-Growth is a crucial sign of a bank or other financial institution's lending activity and profitability. Increased Advances-Growth indicates that the bank is using its resources wisely and making interest.
C.A.R.
Capital Adequacy Ratio
A bank's capacity to withstand losses without endangering its solvency or liquidity is indicated by its CAR.
It is expressed as a percentage of a bank's risk-weighted credit exposures to its total capital.
Components of Capital Adequacy Ratio:
- Tier 1 Capital: Core capital that includes common equity and retained earnings, representing the highest quality of capital.
- Tier 2 Capital: Supplementary capital that includes subordinated debt and other less permanent forms of capital.
- Risk-weighted Assets: Assets adjusted for credit, market, and operational risks based on regulatory guidelines. Riskier assets carry higher weights, requiring more capital to cover potential losses.
Significance:
- Higher CAR implies greater financial stability and resilience during economic downturns or unexpected losses.
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A strong CAR enhances a bank’s reputation and creditworthiness in the market. It conveys to counterparties and investors that the bank has enough capital to sustain business operations and meet commitments.
N.I.M
NET INCOME MARGIN
A key financial indicator that sheds light on a company's profitability and operational effectiveness is net income margin (NIM).It is calculated by dividing the net income (after deducting all expenses, including taxes and interest) by the total revenue or sales generated during a specific period.
Significance:
- NIM directly reflects how effectively a company is converting its revenue into profit. A higher NIM indicates that the Bank is efficient in controlling its costs and managing its operations to generate profit from each unit of sales.
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NIM is an essential indicator for assessing the stability and health of a Bank's finances. Strong NIMs over an extended period of time indicate a reliable and successful Bank, which appeals to creditors and investors.
R.O.A
RETURN ON ASSETS
- An easy way to assess a bank's efficiency in turning a profit is to look at its return on assets (ROA). A higher ROA means the bank is using its assets more profitably.
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A value close to 2% suggests that investing in that bank is a good idea. When the ROA falls below 1.5%, it is a bad indication to invest.
LIABILITIES AND LOAN
It should be granular and diversified.
Diversification and granularity support in distributing risk among various borrowers, industries, and sectors. This improves overall risk management by lowering the bank's exposure to any one borrower or industry. The impact on the bank is lessened if one area of the economy or one borrower group experiences difficulty because other assets in the portfolio can continue to perform well.
Although risk management is crucial, profitability can also be increased by having a diversified portfolio. Banks can tailor their loan offerings and liabilities to suit their willingness to assume varying degrees of risk, thereby optimizing their returns. For sustained profitability, there must be a balance between risk and reward.