How banks report results: NII, NIM, provisions and NPAs explained

For most companies, interest is a cost. For a bank, it is the business: the bank borrows from depositors and lends to borrowers, and the gap between what it earns and what it pays is its main income. So a bank’s results use different lines and different ratios. This guide explains the ones that appear in almost every bank result.

The income side

• Interest earned: interest on loans (advances) and on investments.
• Interest expended: interest paid on deposits and borrowings.
• Net interest income (NII): interest earned minus interest expended. It is the bank’s core income.
• Other income: fees, commissions, trading gains and recoveries.
• Operating expenses: staff and other running costs.
• Operating profit: NII plus other income minus operating expenses. This is before provisions and tax.

An illustrative example

A fictional bank, in ₹ crore, for one quarter:

	This year	Last year
Interest earned	900	n/a
Interest expended	550	n/a
Net interest income	350	n/a
Other income	120	n/a
Operating expenses	300	n/a
Operating profit	170	190
Provisions	credit of 25	charge of 60
Profit before tax	195	130
Tax	49	33
Profit after tax	146	97

Notice what happened. Operating profit fell (170 against 190, about −10.5%), while profit after tax rose (146 against 97, about +50.5%). The difference is the provisions line: this year it was a credit, and last year a charge. Reading only one line would give a misleading picture, which is why a bank’s provisions are always worth reading.

Provisions

A provision is money a bank sets aside against loans that may not be repaid. When the bank sets aside more, it is a charge that reduces profit. When loans recover and earlier provisions are no longer needed, the bank can release them, which appears as a credit and adds to profit.

Net interest margin (NIM)

NIM shows how profitable the lending and borrowing is, relative to the size of the balance sheet. It is commonly calculated as annualised NII divided by the bank’s average interest-earning assets. In the example, 350 for the quarter is 1,400 for a year; with average interest-earning assets of 40,000, NIM is 1,400 ÷ 40,000 = 3.5%.

Banks define it slightly differently. Some also report a “core” NIM that excludes certain items, and the presentation of one bank explains exactly which. Read the definition before comparing banks.

Asset quality

• Non-performing asset (NPA): a loan on which the borrower has stopped paying. Under the Reserve Bank of India’s rules, a loan generally becomes an NPA when interest or principal is overdue for more than 90 days.
• Gross NPA (GNPA) ratio: gross NPAs as a share of gross advances. If a bank has 900 in NPAs on 30,000 of advances, the ratio is 3.0%.
• Provision coverage ratio (PCR): provisions held against NPAs divided by gross NPAs. With 630 set aside against 900, PCR is 70%.
• Net NPA (NNPA): gross NPAs minus provisions (900 − 630 = 270), and the net NPA ratio divides that by advances net of provisions: 270 ÷ 29,370 ≈ 0.92%.

Funding and growth

• Deposits and advances growth: how fast the bank’s deposits and loans grew, usually year on year.
• CASA ratio: current and savings account deposits as a share of total deposits. They usually cost the bank less than fixed deposits. If 12,000 of 30,000 in deposits are CASA, the ratio is 40%.

Capital and returns

• Capital adequacy ratio (CRAR): the bank’s capital as a share of its risk-weighted assets. Regulators set a minimum.
• Return on assets (ROA) and return on equity (ROE): profit relative to assets and to shareholders’ equity.

Non-banks

Non-bank lenders (NBFCs) look similar but fund themselves differently, often through borrowings rather than deposits, and they report measures such as assets under management. Insurers use different measures again. Each has its own template.

Related: year on year vs quarter on quarter and the complete guide.