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The Mountain Path Academy
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BANKING EXPLAINED · A QUESTION-AND-ANSWER LEARNING GUIDE

How to Analyse a
Bank’s Performance

A plain-language guide for anyone — student, investor or working professional — to reading a bank’s quarterly results. No prior banking knowledge needed: every term is explained, every formula is worked through with real numbers from HDFC Bank, ICICI Bank and Axis Bank.

By Prof. V. Ravichandran · The Mountain Path Academy
Updated 18 October 2026 · 38 questions · 43 abbreviations explained · 45–50 minute learning guide · beginner-friendly

THE MOUNTAIN PATH ACADEMY

BANK PERFORMANCE at a Glance

HDFC Bank, ICICI Bank and Axis Bank · Q2 FY27 results (quarter ended 30 September 2026), announced 17 October 2026.

Jump to the full case study ↓
INDIA’S LARGEST PRIVATE BANK

HDFC Bank

Net profit
₹19,510 cr
Profit growth (YoY)
+4.7%
NII · growth
₹34,619 cr · +9.7%
NIM (interest-earning assets)
3.32%
Cost-to-income
39.1%
Gross / net NPA
1.11% / 0.37%
Provision coverage
~67%
CASA ratio
31.6%
CRAR / CET1
18.9% / 17.1%
Price · P/B
₹728.85 · 1.86×
Verdict: the strongest capital of the three; margins and the funding mix are the pressure points.
INDIA’S SECOND-LARGEST PRIVATE BANK

ICICI Bank

Net profit
₹14,843 cr
Profit growth (YoY)
+20.1% (core)
NII · growth
₹25,339 cr · +17.7%
NIM (interest-earning assets)
4.18%
Cost-to-income
38.4%
Gross / net NPA
1.20% / 0.30%
Provision coverage
75%
CASA ratio (average)
35.8%
CRAR / CET1
16.68% / 16.01%
Price · P/B
₹1,397 · 2.59×
Verdict: the strongest operating quarter; 30% loan growth and a very low credit cost to watch.
INDIA’S THIRD-LARGEST PRIVATE BANK

Axis Bank

Net profit
₹7,003 cr
Profit growth (YoY)
+37.6% (low base)
NII · growth
₹15,371 cr · +11.8%
NIM (interest-earning assets)
3.36%
Cost-to-income
~49.4%
Gross / net NPA
1.16% / 0.35%
Provision coverage
70%
CASA ratio
36%
CRAR / CET1
16.27% / 14.61%
Price · P/B
₹1,290 · 1.75×
Verdict: headline profit flattered by last year’s one-off provision; falling slippages are the real positive.

Gold = best of the three on that line. Profit, NII and asset quality are standalone; book value is consolidated.

WHO LEADS ON EACH LENS

4.18%Highest net interest margin
ICICI · Axis 3.36% · HDFC 3.32%
+20.1%Best core profit growth
ICICI · Axis +37.6% on a low base
0.30%Lowest net NPA
ICICI · Axis 0.35% · HDFC 0.37%
18.9%Strongest capital (CRAR)
HDFC · ICICI 16.68% · Axis 16.27%
36%Highest CASA ratio
Axis · ICICI 35.8% · HDFC 31.6%
1.75×Cheapest price-to-book
Axis · HDFC 1.86× · ICICI 2.59×

THE KEY DISTINCTION

A falling NPA ratio is not the same as fewer bad loans. All three ratios fell this quarter, but almost entirely because loan books grew fast (see Q17).

THE 2026 FCNR(B) WINDOW

The Reserve Bank of India’s (RBI) swap facility and exemption from the cash reserve ratio (CRR) and statutory liquidity ratio (SLR) for Foreign Currency Non-Resident (Bank) — FCNR(B) — deposits (8 June–30 September 2026) inflated deposits, diluted CASA ratios and compressed NIMs at all three banks.

Latest data as of 18 October 2026 · Results: quarter ended 30 September 2026, announced Saturday 17 October 2026 · Share prices: NSE closing prices on Friday 16 October 2026, the last trading session before the results; prices will move when markets reopen on Monday 19 October · HDFC Bank · ICICI Bank · Axis Bank · Prices and book values

LEARNING PATH · 01

Start here: how does a bank make money?

New to banking? Read this guide in three passes.

First pass: read only the shaded “In plain words” box at the start of each learning path — together they tell the whole story in everyday language. Second pass: read the questions and worked examples; skip any formula that feels heavy. Third pass: try the practice questions in Learning Path 09 before revealing the answers. If you meet an unfamiliar term, the abbreviations table at the end of the guide explains it. Calculation boxes come in two colours: teal “Illustration · Sample Bank” boxes use simple round numbers to show the idea; gold boxes apply the same steps to the real banks.

Q01 What is a bank’s business model, in one paragraph?

A bank borrows money cheaply — mostly from depositors — and lends it at a higher rate. The difference is its spread — its profit margin on money. It adds fees for services such as payments, cards, wealth management and loan processing. It pays salaries and runs branches and technology. It sets aside provisions for loans that may not be repaid. Whatever remains, after tax, belongs to shareholders, whose capital is the cushion that absorbs unexpected losses.

A simple bank of ₹100Where the money comes from (liabilities and equity)Where the money goes (assets)
Main itemDeposits from customers: ₹80Loans to customers (“advances”): ₹70
Second itemBorrowings from other lenders: ₹10Investments, mainly government bonds: ₹22
Third itemShareholders’ own money (equity, or “book value”): ₹10Cash, reserves with the RBI, buildings: ₹8

Notice two things. First, only ₹10 of every ₹100 belongs to the owners; the rest is other people’s money. That is why a bank must be careful: if loans worth more than ₹10 go bad, the owners’ money is wiped out. Second, in Indian bank reports, “advances” simply means loans, and “provisions” means money set aside from profit to cover loans that may not be repaid.

So every bank analysis comes back to four questions: How wide is the spread? How efficient is the operation? How safe is the loan book? How strong is the capital?

Q02 How is a bank’s profit and loss account structured?

A bank’s profit and loss (P&L) account has a simple waterfall. Learn this sequence once and every results press release becomes readable. Each line is either reported by the bank or calculated from the lines above it.

HDFC Bank’s profit waterfall, Q2 FY27 (₹ crore)
StepWhat we calculateCalculationResult
1Net interest income (NII)Reported by the bank34,619
2+ Other incomeReported by the bank13,830
3= Net revenue34,619 + 13,830 = 48,44948,450 (reported)
4− Operating expensesReported by the bank18,970
5= Pre-provision operating profit (PPOP)48,450 − 18,97029,480
6− Provisions and contingenciesReported by the bank3,574
7= Profit before tax (PBT)29,480 − 3,57425,906
8− Tax25,906 − 19,510 = 6,396
6,396 ÷ 25,906 × 100 = 24.7%
6,396 (24.7% rate)
9= Profit after tax (PAT)Reported by the bank19,510

Steps 3, 5, 7 and 8 are calculated from the reported lines. Net revenue differs from 34,619 + 13,830 by ₹1 crore because of rounding in the published figures.

PPOP and PBT are derived from the reported lines. [Source] [Source]

Q03 Why can’t we analyse a bank like a manufacturing company?

For a manufacturer, debt finances the business. For a bank, debt is the raw material: deposits and borrowings are what it “processes” into loans. Interest expense is therefore a cost of goods sold, not a financing cost.

That is why EBITDA, EV/EBITDA, interest coverage and debt-to-equity are not meaningful for banks. Analysts use spread-based measures (NIM), risk measures (NPAs, credit cost), regulatory capital ratios (CRAR) and book-value-based valuation (P/B) instead.

LEARNING PATH · 02

The earnings lens: NII, NIM, fees and costs

In plain words · Earnings

Think of a shopkeeper who buys rice at ₹40 and sells it at ₹50. The ₹10 difference is the margin. A bank “buys” money from depositors (paying them interest) and “sells” it to borrowers (charging them interest). The difference is net interest income; that difference as a percentage of the money lent is the net interest margin. Add fees, subtract salaries and rent, and you have the bank’s operating profit.

Q04 What is net interest income (NII), and what drives its growth?

NII = Interest earned − Interest expended
NII growth ≈ Growth in interest-earning assets + Change in margin

NII grows when the balance sheet grows (more loans) or when the margin widens (better pricing, cheaper funding). In Q2 FY27, ICICI Bank’s NII grew 17.7% to ₹25,339 crore, HDFC Bank’s 9.7% to ₹34,619 crore and Axis Bank’s 11.8% to ₹15,371 crore. All three grew loans faster than NII — the arithmetic signature of a compressing margin. [Source]

Illustration · Sample Bank Net interest income and why it grows (₹ crore, one year)
StepWhat we calculateCalculationResult
1Interest earnedLoans 900 + investments 2001,100
2Interest paidDeposits 600 + borrowings 50650
3Net interest income (NII)1,100 − 650450
4Next year: assets grow 15%, NIM slips from 3.0% to 2.9%NII growth ≈ 1.15 × (2.9 ÷ 3.0) − 1
= 1.15 × 0.9667 − 1
≈ 11.2%

Loans grew 15% but NII grew only about 11% — the gap is the margin squeeze. This is exactly the pattern in the three real banks above.

Q05 What is net interest margin (NIM), and how is it calculated?

NIM (annualised) = (Quarterly NII × 4) ÷ Average interest-earning assets × 100
Illustration · Sample Bank Net interest margin (₹ crore)
StepWhat we calculateCalculationResult
1Quarterly NIIGiven30
2Annualise30 × 4120
3Average interest-earning assetsGiven3,000
4NIM120 ÷ 3,000 × 1004.0%

Read it as: for every ₹100 the bank lends or invests, it keeps ₹4 a year after paying for its funds.

NIM is the single most important earnings ratio for a bank. It tells you how much the bank earns, net of funding cost, on each rupee it deploys. Always check the denominator: some banks report NIM on total assets, others on interest-earning assets (IEA). The IEA figure is always higher.

Working backwards from NIM — HDFC Bank, Q2 FY27
StepWhat we calculateCalculationResult
1Annualise the quarterly NII34,619 × 4₹1,38,476 crore
2Average interest-earning assets (IEA)
NIM on IEA = 3.32%
1,38,476 ÷ 0.0332₹41,70,964 crore
≈ ₹41.7 lakh crore
3Average total assets
NIM on total assets = 3.16%
1,38,476 ÷ 0.0316₹43,82,152 crore
≈ ₹43.8 lakh crore
4Non-earning assets43,82,152 − 41,70,964₹2,11,188 crore
5Share of non-earning assets2,11,188 ÷ 43,82,152 × 100≈ 4.8% of total assets

Why divide by 0.0332? Because NIM = NII ÷ IEA, so IEA = NII ÷ NIM; and 3.32% written as a decimal is 0.0332. Non-earning assets are cash, CRR balances with the RBI, buildings and other assets that earn no interest. Units: 1 lakh crore = 1,00,000 crore. [Source]

Net interest margin · Q2 FY27 Net interest margin · Q2 FY27 (%) ICICI Bank · on IEA 4.18% Axis Bank · on IEA 3.36% HDFC Bank · on IEA 3.32%
All three on interest-earning assets for comparability (HDFC Bank on total assets: 3.16%). Previous quarter: ICICI 4.36%, HDFC 3.26% (total assets). Year-ago: Axis 3.55%. Sources: bank results releases, 17 October 2026.

Q06 What moves NIM up or down?

DriverNIM rises when…NIM falls when…
Yield on advancesHigher-yield retail, micro, small and medium enterprise (MSME) loans, cards, personal loans growCorporate and mortgage share rises; rate cuts reprice external benchmark-linked lending rate (EBLR) loans
Cost of fundsCASA share rises; term deposits reprice downExpensive term deposits and borrowings replace CASA
Asset mixMore loans, fewer low-yield investmentsExcess liquidity parked in low-yield assets
Rate cycle timingAssets reprice faster than liabilities in a hiking cycleAssets reprice faster than liabilities in an easing cycle

Indian banks with a large share of EBLR loans see loan yields fall immediately after a repo cut, while deposit costs reprice only as fixed deposits mature. This repricing lag is why margins typically compress for several quarters after the RBI eases.

Illustration · Sample Bank The repricing lag after a 0.50% repo-rate cut (₹ crore)
StepWhat we calculateCalculationResult
1Before the cutLoans 100 at 9.0% = 9.0 income
Deposits 90 at 6.0% = 5.4 cost
NII = 9.0 − 5.4
NII 3.6 · NIM 3.6%
2Immediately after: loans reprice, deposits do notLoans 100 at 8.5% = 8.5
Deposits still 90 at 6.0% = 5.4
NII = 8.5 − 5.4
NII 3.1 · NIM 3.1%
3Months later: fixed deposits renew at 5.5%Loans 100 at 8.5% = 8.5
Deposits 90 at 5.5% = 4.95
NII = 8.5 − 4.95
NII 3.55 · NIM 3.55%

Margin first falls by 50 bps, then recovers most of the loss as deposits reprice. NIM here is NII ÷ loans of 100.

Q07 Why must we separate fee income from treasury income?

Fee income is recurring and franchise-driven. Treasury income — gains on bonds and investments — depends on interest-rate movements and is volatile. Analysts therefore track core operating profit, which excludes treasury.

Illustration · Sample Bank Headline growth versus core growth (₹ crore)
StepWhat we calculateCalculationResult
1Last yearCore profit 80 + treasury gains 20100
2This yearCore profit 99 + treasury gains 5104
3Headline growth104 ÷ 100 − 1+4%
4Core growth99 ÷ 80 − 1+23.75%

The business improved strongly, but a fall in bond-market gains hid it. HDFC Bank’s quarter shows a milder version of this.

Same quarter, different story (₹ crore)
StepWhat we calculateCalculationResult
1HDFC Bank: fall in treasury gains2,390 (Q2 FY26) − 780 (Q2 FY27)1,610 lower
2HDFC Bank: profit growthHeadline vs excluding treasury (reported by the bank)+4.7% vs ≈ +12.6%
3ICICI Bank: core operating profitNII 25,339 + non-interest income excl. treasury 8,277 − opex 12,81120,805 (+21.8% YoY)
4ICICI Bank: operating profit incl. treasury20,805 + treasury (−230)20,575

Read the core number first: it strips out the volatile treasury line. [Source] [Source]

Q08 What are the cost-to-income ratio and operating jaws?

Cost-to-income (%) = Operating expenses ÷ (NII + Other income) × 100
Operating jaws = Revenue growth (%) − Cost growth (%)
Illustration · Sample Bank Cost-to-income and operating jaws (₹ crore)
StepWhat we calculateCalculationResult
1Year 1 cost-to-incomeCosts 40 ÷ revenue 100 × 10040.0%
2Year 2 revenue and cost growthRevenue 112 (+12%), costs 44 (+10%)—
3Year 2 cost-to-income44 ÷ 112 × 10039.3%
4Operating jaws12% − 10%+2 percentage points

Positive jaws push the cost-to-income ratio down: the bank keeps a bigger share of every rupee it earns.

A lower cost-to-income ratio means more of each rupee of revenue reaches PPOP. Positive jaws — revenue growing faster than costs — signal improving efficiency.

Cost-to-income and operating jaws, Q2 FY27 (₹ crore)
StepWhat we calculateCalculationResult
1HDFC Bank cost-to-income18,970 ÷ 48,450 × 10039.2% (bank: 39.1%)
2ICICI Bank cost-to-income12,811 ÷ (25,339 + 8,277 − 230)
= 12,811 ÷ 33,386 × 100
38.4%
3Axis Bank operating expenses (derived)NII 15,371 + other income 6,531 − operating profit 11,08310,819
4Axis Bank cost-to-income10,819 ÷ (15,371 + 6,531)
= 10,819 ÷ 21,902 × 100
49.4%
5HDFC Bank jawsRevenue: 48,450 ÷ 45,900 − 1 = 5.6%
Cost: 18,970 ÷ 17,980 − 1 = 5.5%
5.6 − 5.5
+0.1 pt (flat)
6ICICI Bank jawsCore revenue: 33,616 ÷ 28,885 − 1 = 16.4%
Cost: +8.5% (reported)
16.4 − 8.5
+7.9 pts
7Axis Bank jawsRevenue: 21,902 ÷ 20,370 − 1 = 7.5%
Cost: 10,819 ÷ 9,957 − 1 = 8.7%
7.5 − 8.7
−1.2 pts

ICICI core revenue = NII + non-interest income excluding treasury: 25,339 + 8,277 = 33,616 this year; 21,529 + 7,356 = 28,885 a year ago. Axis Bank’s year-ago revenue = operating profit 10,413 + opex 9,957 = 20,370. [Source] [Source]

Q09 What does pre-provision operating profit (PPOP) tell us that net profit does not?

Pre-provision operating profit is the bank’s loss-absorbing earnings capacity. Before a single rupee of capital is touched, credit losses are first absorbed by PPOP. In other words: how much of this quarter’s earnings did bad loans eat up? A useful stress ratio is Provisions ÷ PPOP: in Q2 FY27 it was about 4% for ICICI Bank, 12% for HDFC Bank and 15% for Axis Bank. Low numbers mean the bank can withstand a large rise in credit cost without making a loss.

Illustration · Sample Bank How PPOP absorbs a rise in bad loans (₹ crore)
StepWhat we calculateCalculationResult
1Normal yearPPOP 100 − provisions 15PBT 85
2Credit cost triplesPPOP 100 − provisions 45PBT 55
3Break-even provisionsProvisions = PPOP100
4Cushion before a loss100 ÷ 15≈ 6.7× normal provisions

Only when provisions exceed PPOP does the bank make a loss and start eating into capital.

Provisions as a share of PPOP, Q2 FY27 (₹ crore)
StepWhat we calculateCalculationResult
1HDFC Bank3,574 ÷ 29,480 × 10012.1%
2ICICI Bank: PPOP incl. treasury20,805 − 23020,575
3ICICI Bank851 ÷ 20,575 × 1004.1%
4Axis Bank1,694 ÷ 11,083 × 10015.3%

HDFC Bank’s PPOP of 29,480 comes from the waterfall in Q02.

LEARNING PATH · 03

The funding lens: deposits, CASA and the CD ratio

In plain words · Funding

If you could borrow from a friend at 2% instead of a moneylender at 7%, your business would be far more profitable. Savings and current accounts are a bank’s “friendly” money — cheap and steady. Fixed deposits are the expensive money. The more cheap money a bank attracts, the wider its margin.

Q10 What is the CASA ratio, and why do analysts care so much about it?

CASA ratio (%) = (Current account + Savings account deposits) ÷ Total deposits × 100

Current accounts pay almost no interest, and savings accounts pay much less than fixed deposits. A high CASA share is therefore a structural cost advantage — and a sign of a strong retail franchise, because customers keep transaction balances only with banks they trust and use daily.

How CASA moves the cost of deposits (illustrative rates: CASA 2.5%, term deposits 7.0%)
StepWhat we calculateCalculationResult
1Bank A, 40% CASA: CASA part0.40 × 2.5%1.00%
2Bank A: term-deposit part0.60 × 7.0%4.20%
3Bank A: cost of deposits1.00% + 4.20%5.20%
4Bank B, 32% CASA: CASA part0.32 × 2.5%0.80%
5Bank B: term-deposit part0.68 × 7.0%4.76%
6Bank B: cost of deposits0.80% + 4.76%5.56%
7Extra cost for Bank B5.56% − 5.20% = 0.36%36 basis points

An eight-point fall in the CASA ratio adds 36 basis points to the cost of deposits — enough to explain most of a quarter’s margin compression. (1 basis point = 0.01%.)

In Q2 FY27, HDFC Bank’s CASA ratio was 31.6% (33.9% a year earlier), ICICI Bank’s average CASA ratio 35.8% and Axis Bank’s 36% (40% a year earlier). [Source] [Source]

Q11 What is the credit-deposit (CD) ratio?

CD ratio (%) = Advances ÷ Deposits × 100

The CD ratio shows how much of the deposit base has been lent out. A very high ratio means the bank is relying on borrowings, or has little room to grow loans without raising deposits aggressively — usually at a higher cost.

Illustration · Sample Bank Credit-deposit ratio (₹ crore)
StepWhat we calculateCalculationResult
1Loans (advances)Given70
2DepositsGiven80
3CD ratio70 ÷ 80 × 10087.5%
4Room to lend before reaching 95%0.95 × 80 − 70₹6 crore more loans

Above roughly 95–100%, every extra loan has to be funded by new deposits or borrowings.

Credit-deposit ratio, 30 September 2026 (₹ crore)
StepWhat we calculateCalculationResult
1HDFC Bank32,19,500 ÷ 33,27,400 × 10096.8%
2ICICI Bank18,32,000 ÷ 20,50,000 × 10089.4%
3Axis Bank13,73,727 ÷ 14,52,066 × 10094.6%

Advances ÷ period-end deposits, calculated from the reported figures. ICICI Bank’s ratio is temporarily lower because of FCNR(B) deposit inflows (Q12).

Q12 What was the 2026 Foreign Currency Non-Resident (Bank) — FCNR(B) — window, and how did it distort Q2 FY27 numbers?

In June 2026 the Reserve Bank of India (RBI) introduced a US dollar–rupee swap facility for fresh FCNR(B) deposits. Fresh FCNR(B) deposits of three to five years mobilised between 8 June and 30 September 2026 were exempted from the cash reserve ratio (CRR) and statutory liquidity ratio (SLR). Banks raised large amounts: ICICI Bank about $18 billion, Axis Bank ₹1.02 lakh crore ($10.62 billion). [Source] [Source]

MetricEffect of the FCNR(B) inflow
Deposit growthInflated — ICICI’s +27.1% falls to +17% excluding FCNR(B)
CASA ratioDiluted — term deposits rise, CASA does not
NIMCompressed — new funds earn little until deployed
CD ratioTemporarily lower

Analyst’s rule: whenever a one-off funding event occurs, restate growth and ratios excluding it before comparing banks or quarters.

Illustration · Sample Bank Restating deposit growth without a one-off inflow (deposits a year ago = 100)
StepWhat we calculateCalculationResult
1Reported deposits today100 × 1.271127.1
2Deposits today excluding FCNR(B)100 × 1.17117.0
3Implied FCNR(B) deposits127.1 − 117.010.1
4FCNR(B) share of today’s deposits10.1 ÷ 127.1 × 100≈ 8%

Uses ICICI Bank’s reported growth rates (+27.1% reported, +17% excluding FCNR(B)) applied to an index of 100.

LEARNING PATH · 04

The risk lens: NPAs, provisions and credit cost

In plain words · Risk

Lending is only profitable if borrowers repay. When a borrower stops paying for 90 days, the loan is labelled a non-performing asset — a bad loan. A prudent bank sets aside money (a provision) for each bad loan, just as a careful household keeps an emergency fund. We ask: how many loans have gone bad, how many new ones are going bad, and how much has already been set aside?

Q13 What are Gross NPA (GNPA) and Net NPA (NNPA)?

A loan becomes a non-performing asset when interest or principal is overdue for more than 90 days.

Gross NPA ratio (%) = Gross NPAs ÷ Gross advances × 100
Net NPA ratio (%) = (Gross NPAs − NPA provisions) ÷ Net advances × 100

Gross NPA shows how much of the book has gone bad. Net NPA shows the exposure still unprovided — the amount that could still hit profit or capital. Q2 FY27: HDFC Bank GNPA 1.11% / NNPA 0.37%; ICICI Bank 1.20% / 0.30%; Axis Bank 1.16% / 0.35%.

Illustration · Sample Bank Gross NPA, net NPA and coverage (₹ crore)
StepWhat we calculateCalculationResult
1Gross advancesGiven1,000
2Loans overdue more than 90 days (gross NPAs)Given20
3Gross NPA ratio20 ÷ 1,000 × 1002.0%
4Provisions set aside for these NPAsGiven14
5Net NPAs20 − 146
6Net advances1,000 − 14986
7Net NPA ratio6 ÷ 986 × 1000.61%
8Provision coverage ratio (PCR)14 ÷ 20 × 10070%

Gross NPA = how much has gone bad (2%). Net NPA = how much is still unprovided (0.61%). PCR = how much of the bad loans is already covered (70%).

Q14 What is the provision coverage ratio (PCR)?

PCR (%) = NPA provisions ÷ Gross NPAs × 100 ≈ (GNPA − NNPA) ÷ GNPA × 100

PCR measures how much of the bad-loan stock has already been charged to profit. A higher PCR means less future pain. ICICI Bank reported PCR of 75% and Axis Bank 70% (164% on an aggregate basis including standard and additional provisions). HDFC Bank’s approximate PCR, from its ratios, is about 67% (see the calculation below). [Source] [Source]

Provision coverage ratio, Q2 FY27
StepWhat we calculateCalculationResult
1ICICI BankReported by the bank75%
2Axis BankReported by the bank70%
3HDFC Bank (approximation)(GNPA − NNPA) ÷ GNPA × 100
= (1.11 − 0.37) ÷ 1.11 × 100
= 0.74 ÷ 1.11 × 100
≈ 66.7%

The approximation uses ratios rather than rupee amounts. It is close but not exact, because gross NPA is measured on gross advances and net NPA on net advances.

Q15 Why are slippages more important than the NPA ratio?

The NPA ratio is a stock. Slippages — fresh NPAs during the quarter — are a flow. The flow tells you what is happening in the loan book now.

Closing GNPA = Opening GNPA + Gross slippages − Recoveries & upgrades − Write-offs − Sales
ICICI Bank’s gross NPA movement, Q2 FY27 (₹ crore)
StepWhat we calculateCalculationResult
1Gross additions (slippages)Reported by the bank4,833
2− Recoveries and upgradesReported by the bank3,620
3= Net additions4,833 − 3,6201,213
4− Write-offsReported by the bank1,592
5= Change in gross NPA stock (before sales)1,213 − 1,592−379 (stock fell)
6Check: where the additions came fromRetail & rural 3,709 + corporate & business banking 1,1244,833 ✓

[Source]

Axis Bank’s gross slippages fell to ₹4,762 crore from ₹5,566 crore in Q1, and its net slippage ratio fell to 0.75%. [Source]

Q16 What is credit cost?

Credit cost (%, annualised) = (Quarterly provisions × 4) ÷ Average advances × 100

In everyday terms, credit cost is the share of the loan book the bank expects to lose this year. Credit cost converts provisions into a rate comparable with NIM. A bank with NIM of 4% and credit cost of 2% has given half its spread to bad loans. Q2 FY27: HDFC Bank reported 0.44%; ICICI Bank about 0.19% and Axis Bank about 0.49% (derived). ICICI’s management guides to a normalised level of up to 50 bps — so its unusually low credit cost is likely to rise.

Illustration · Sample Bank Credit cost compared with the margin (₹ crore)
StepWhat we calculateCalculationResult
1Quarterly provisionsGiven2.5
2Annualise2.5 × 410
3Average advancesGiven1,000
4Credit cost10 ÷ 1,000 × 1001.0%
5Share of the margin lost to bad loans (NIM 3.0%)1.0 ÷ 3.0 × 100≈ 33%

One-third of everything the bank earns on its spread goes to cover bad loans.

Credit cost, Q2 FY27 (annualised)
StepWhat we calculateCalculationResult
1HDFC BankReported by the bank0.44%
2ICICI Bank: annual provisions851 × 4₹3,404 crore
3ICICI Bank: credit cost3,404 ÷ 18,32,000 × 1000.19%
4Axis Bank: annual provisions1,694 × 4₹6,776 crore
5Axis Bank: credit cost6,776 ÷ 13,73,727 × 1000.49%

For simplicity, period-end advances are used in place of average advances. Total provisions are used; banks often report credit cost on loan-loss provisions only, so their own figures can differ slightly.

Q17 What is the denominator effect, and how do we test for it?

An analogy: if a class of 40 has 4 students absent, 10% are absent. If 40 new students join and the same 4 are still absent, only 5% are absent — but attendance has not improved. When loans grow quickly, the NPA ratio falls even if the NPA amount does not. To separate genuine improvement from dilution, hold last quarter’s NPA amount constant and grow only the loan book.

Implied GNPA ratio = Last quarter’s GNPA ratio ÷ (1 + QoQ loan growth)
Genuine improvement = Implied ratio − Actual ratio
The denominator test, Q2 FY27
BankQ1 GNPAQoQ loan growthImplied ratio (dilution only)Actual Q2 GNPAGenuine improvement
HDFC Bank1.17%5.2%1.17 ÷ 1.052 = 1.11%1.11%1.11 − 1.11 ≈ 0 bps
ICICI Bank1.38%12.3%1.38 ÷ 1.123 = 1.23%1.20%1.229 − 1.20 ≈ 3 bps
Axis Bank1.28%9%1.28 ÷ 1.09 = 1.17%1.16%1.174 − 1.16 ≈ 1 bp

Read each row left to right: divide last quarter’s ratio by (1 + loan growth) to see where the ratio would be if no loan had improved or worsened. The difference from the actual ratio is the genuine improvement.

HDFC Bank confirms it directly: GNPAs were ₹35,810 crore against ₹35,846 crore in the previous quarter — virtually unchanged. Nearly all the ratio improvement at all three banks came from loan growth. [Source]

Gross NPA ratio · Q1 vs Q2 FY27 Gross NPA ratio · Q1 FY27 vs Q2 FY27 (%) HDFC Bank · Q1 1.17% HDFC Bank · Q2 1.11% ICICI Bank · Q1 1.38% ICICI Bank · Q2 1.20% Axis Bank · Q1 1.28% Axis Bank · Q2 1.16% Q1 FY27 (June 2026) Q2 FY27 (September 2026)
Ratios improved at all three banks, but the denominator test (Q17) shows the improvement came almost entirely from loan growth, not from a smaller stock of bad loans.

Q18 What are contingency and buffer provisions?

Some banks hold provisions over and above NPA provisioning — for example, ICICI Bank’s ₹13,100 crore contingency provision and Axis Bank’s ₹8,006 crore of additional provisions (about 49 bps of capital). These do not appear in PCR but act as a first line of defence in a downturn. HDFC Bank reports a total provision stock of about ₹73,500 crore. [Source] [Source]

Illustration · Sample Bank Specific versus aggregate provision coverage (₹ crore)
StepWhat we calculateCalculationResult
1Gross NPAsGiven20
2Specific provisions on NPAsGiven14
3PCR (specific only)14 ÷ 20 × 10070%
4Add contingency and standard-asset provisions14 + contingency 10 + standard 428
5Aggregate coverage28 ÷ 20 × 100140%

Aggregate coverage above 100% means the bank has already set aside more than its entire stock of bad loans. Axis Bank reports this figure as 164%.

LEARNING PATH · 05

The capital lens: CRAR, CET1 and growth capacity

In plain words · Capital

Capital is the owners’ own money in the bank — the cushion that absorbs losses before depositors are hurt. It is like the down payment on a house: the bigger it is, the more a fall in value can be absorbed. Regulators insist on a minimum cushion, measured against how risky the bank’s loans are.

Q19 What is the capital to risk-weighted assets ratio (CRAR), and what is Common Equity Tier 1 (CET1)?

CRAR (%) = (Tier 1 + Tier 2 capital) ÷ Risk-weighted assets × 100
CET1 ratio (%) = Common Equity Tier 1 capital ÷ Risk-weighted assets × 100

CET1 — paid-up equity and retained earnings — is the highest-quality, fully loss-absorbing capital. CRAR (the capital adequacy ratio) adds Additional Tier 1 (AT1) bonds and Tier 2 instruments. The denominator, risk-weighted assets, scales each exposure by its riskiness: a home loan carries a lower weight than an unsecured personal loan. For the full Basel III structure, see the Basel I, II and III guide.

Illustration · Sample Bank From assets to risk-weighted assets to CRAR (₹ crore, illustrative risk weights)
StepWhat we calculateCalculationResult
1Home loans400 × 35%RWA 140
2Corporate loans300 × 100%RWA 300
3Unsecured personal loans200 × 125%RWA 250
4Government bonds100 × 0%RWA 0
5Add operational and market riskGivenRWA 60
6Total risk-weighted assets140 + 300 + 250 + 0 + 60750
7CET1 ratio (CET1 capital = 90)90 ÷ 750 × 10012.0%
8Tier 1 ratio (CET1 90 + AT1 10)100 ÷ 750 × 10013.3%
9CRAR (Tier 1 100 + Tier 2 20)120 ÷ 750 × 10016.0%

Total assets are 1,000 but risk-weighted assets are only 750, because safe assets carry low weights. Risk weights shown are simplified for learning; actual RBI weights depend on the borrower, rating and loan-to-value ratio.

Q2 FY27HDFC BankICICI BankAxis Bank
CRAR18.9%16.68%16.27%
CET117.1%16.01%14.61%
Regulatory CRAR minimum11.9%11.70%~11.5%
CRAR headroom
CRAR − minimum
18.9 − 11.9 = 7.0 pts
≈ 700 bps
16.68 − 11.70 = 4.98 pts
≈ 500 bps
16.27 − 11.5 = 4.77 pts
≈ 480 bps

Minimums are higher for HDFC Bank and ICICI Bank because, as domestic systemically important banks (D-SIBs), they carry an additional surcharge. [Source] [Source]

Q20 How fast can a bank grow without raising fresh equity?

Internal capital generation ≈ ROE × (1 − Dividend payout)
New CET1 ratio ≈ Old CET1 × (1 + Capital growth) ÷ (1 + RWA growth)
Growth versus capital (illustrative bank)
StepWhat we calculateCalculationResult
1Starting CET1 ratioGiven16%
2Internal capital generationROE × (1 − payout) = 16% × (1 − 0.15)13.6% a year
3Growth factors for one yearCapital: 1 + 0.136 = 1.136
Risk-weighted assets: 1 + 0.30 = 1.30
—
4New CET1 ratio16 × 1.136 ÷ 1.30 = 18.18 ÷ 1.30≈ 14.0%
5Capital consumed by growth16.0 − 14.0≈ 2 percentage points

Repeat that for three years and the bank needs to raise equity. Fast loan growth must always be read alongside capital headroom.

LEARNING PATH · 06

Putting it together: return on assets (ROA), return on equity (ROE) and the bank DuPont analysis

In plain words · Returns

Return on assets asks: for every ₹100 the bank has lent and invested, how many rupees of profit did it make in a year? Usually only ₹1 to ₹2. Return on equity asks the owners’ question: for every ₹100 of their own money, how much profit? Because banks run mostly on borrowed money, a ₹1.8 return on assets can become a ₹14 return on the owners’ money.

Q21 How do we decompose a bank’s return on assets?

ROA = NII/Assets + Other income/Assets − Opex/Assets − Provisions/Assets − Tax/Assets
ROE = ROA × Leverage (Average assets ÷ Average equity)
Illustration · Sample Bank From ROA to ROE (₹ crore, one year)
StepWhat we calculateCalculationResult
1Average total assetsGiven10,000
2Net profitGiven150
3Return on assets (ROA)150 ÷ 10,000 × 1001.5%
4Shareholders’ equityGiven1,000
5Leverage10,000 ÷ 1,00010×
6Return on equity (ROE)ROA × leverage = 1.5% × 10
(check: 150 ÷ 1,000 × 100)
15.0%

A small return on a large balance sheet becomes a healthy return for owners — but leverage also magnifies losses in the same way.

HDFC Bank’s ROA tree, Q2 FY27 — every line divided by average total assets of ₹43,82,152 crore (from Q05)
StepWhat we calculateCalculationResult
1NII ÷ assets34,619 × 4 = 1,38,476
1,38,476 ÷ 43,82,152 × 100
3.16%
2+ Other income ÷ assets13,830 × 4 = 55,320
55,320 ÷ 43,82,152 × 100
1.26%
3− Operating expenses ÷ assets18,970 × 4 = 75,880
75,880 ÷ 43,82,152 × 100
1.73%
4− Provisions ÷ assets3,574 × 4 = 14,296
14,296 ÷ 43,82,152 × 100
0.33%
5= Profit before tax ÷ assets3.16 + 1.26 − 1.73 − 0.332.36%
6− Tax ÷ assets2.36 × 24.7% (tax rate from Q02)0.58%
7= Return on assets (ROA)2.36 − 0.581.78%
8Check ROA directly19,510 × 4 = 78,040
78,040 ÷ 43,82,152 × 100
1.78% ✓
9Implied leverageROE ÷ ROA = 13.6 ÷ 1.78≈ 7.6×

Leverage is approximate because the 13.6% ROE is a trailing, consolidated figure while the ROA here is for one quarter, standalone.

The tree shows exactly where returns come from — and which line to watch. A 20 bps fall in NIM costs as much ROA as a 20 bps rise in credit cost.

Q22 How can we compare returns when banks report NIM on different bases?

Back out the average interest-earning assets from NII and NIM (Q05), then compute PAT ÷ average IEA. It is a consistent, comparable return measure.

Comparable return on interest-earning assets, Q2 FY27 (₹ crore)
BankStep 1 · Average IEA = annual NII ÷ NIMStep 2 · Annual PAT ÷ average IEAStep 3 · Provisions ÷ PPOP
HDFC Bank34,619 × 4 ÷ 0.0332
= 41,70,964
19,510 × 4 = 78,040
78,040 ÷ 41,70,964 × 100 = 1.87%
3,574 ÷ 29,480 = 12.1%
ICICI Bank25,339 × 4 ÷ 0.0418
= 24,24,785
14,843 × 4 = 59,372
59,372 ÷ 24,24,785 × 100 = 2.45%
851 ÷ 20,575 = 4.1%
Axis Bank15,371 × 4 ÷ 0.0336
= 18,29,881
7,003 × 4 = 28,012
28,012 ÷ 18,29,881 × 100 = 1.53%
1,694 ÷ 11,083 = 15.3%

NIM on interest-earning assets: HDFC Bank 3.32%, ICICI Bank 4.18%, Axis Bank 3.36%. ICICI Bank earns noticeably more on each rupee of earning assets than the other two.

LEARNING PATH · 07

Valuing a bank: P/B, P/ABV and justified multiples

In plain words · Valuation

Book value is roughly what the owners would get if the bank stopped today, sold everything and repaid everyone. If the share price is twice the book value (a price-to-book of 2×), investors are paying ₹2 for every ₹1 the bank owns — because they believe the bank will keep earning good returns on that money. A bank that earns more on its capital deserves a higher multiple.

Q23 Why do analysts value banks on price-to-book?

A bank’s assets and liabilities are mostly financial and close to market value, so book value is a meaningful measure of what the bank owns. Book value is also the regulatory capital base that limits growth. P/B therefore answers a clear question: how much is the market paying for each rupee of the bank’s capital?

Illustration · Sample Bank Price-to-book (₹)
StepWhat we calculateCalculationResult
1Shareholders’ equity (book value)Given₹1,000 crore
2Shares outstandingGiven100 crore
3Book value per share1,000 ÷ 100₹10
4Share priceGiven₹25
5Price-to-book25 ÷ 102.5×
6Same thing in totalsMarket value 25 × 100 = ₹2,500 crore ÷ book ₹1,000 crore2.5×

Investors are paying ₹2.50 for every ₹1 of the bank’s capital, because they expect it to earn well above its cost of equity.

P/B = Market price per share ÷ Book value per share

Q24 What is price-to-adjusted-book-value (P/ABV)?

Adjusted book value per share = Book value per share − (Net NPAs ÷ Shares outstanding)
P/ABV = Price ÷ Adjusted book value per share

P/ABV assumes the unprovided bad loans are worth nothing and deducts them from book value. For banks with large net NPAs the adjustment is material. For HDFC Bank, ICICI Bank and Axis Bank in 2026, it barely moves the multiple: 1.86× → 1.90×, 2.59× → 2.62× and 1.75× → 1.78× respectively.

Illustration · Sample Bank Adjusting book value for bad loans (₹ per share)
StepWhat we calculateCalculationResult
1Book value per shareGiven100
2Net NPAs per shareGiven5
3Adjusted book value100 − 595
4Share priceGiven190
5P/B versus P/ABV190 ÷ 100 = 1.90×
190 ÷ 95 = 2.00×
1.90× → 2.00×

The larger the unprovided bad loans, the bigger the gap between P/B and P/ABV.

Price-to-adjusted-book-value, step by step
StepWhat we calculateHDFC BankICICI BankAxis Bank
1Shares outstanding (crore)
market cap ÷ price
11,23,784 ÷ 728.85
= 1,542
10,03,031 ÷ 1,397
= 718
4,01,689 ÷ 1,290
= 311.4
2Net NPA amount (₹ crore)
NNPA ratio × net advances*
0.37% × 31,87,305
= 11,793
0.30% × 18,13,680
= 5,441
0.35% × 13,59,990
= 4,760
3Net NPA per share (₹)11,793 ÷ 1,542
= 7.6
5,441 ÷ 718
= 7.6
4,760 ÷ 311.4
= 15.3
4Adjusted book value (₹)
book value − step 3
391 − 7.6
= 383.4
540 − 7.6
= 532.4
738 − 15.3
= 722.7
5P/ABV
price ÷ step 4
728.85 ÷ 383.4
= 1.90×
1,397 ÷ 532.4
= 2.62×
1,290 ÷ 722.7
= 1.78×
6Compare: plain P/B
price ÷ book value
728.85 ÷ 391
= 1.86×
1,397 ÷ 540
= 2.59×
1,290 ÷ 738
= 1.75×

*Net advances are approximated as 99% of gross advances (gross loans less provisions): 32,19,500 × 0.99 = 31,87,305; 18,32,000 × 0.99 = 18,13,680; 13,73,727 × 0.99 = 13,59,990. Prices are 16 October 2026 closes; book value is consolidated. This is a learning approximation.

Q25 What P/B is justified by a bank’s ROE?

The intuition: if shareholders want 12% a year (their cost of equity) and the bank earns 16% on their money, each rupee of book value is worth more than a rupee. If the bank earns only 12%, it is worth exactly one rupee.

Justified P/B = (ROE − g) ÷ (COE − g)

This is the Gordon growth model rewritten in terms of book value. A bank that earns exactly its cost of equity deserves P/B = 1. Each point of ROE above the cost of equity (COE) adds value. Assume COE = 12% and long-run growth g = 8%:

Justified P/B and market-implied cost of equity (COE 12%, g 8%)
StepWhat we calculateHDFC BankICICI BankAxis Bank
1Inputs: price (₹) · book value (₹) · ROE728.85 · 391 · 13.6%1,397 · 540 · 15.9%1,290 · 738 · 13.1%
2Actual P/B
price ÷ book value
728.85 ÷ 391
= 1.86×
1,397 ÷ 540
= 2.59×
1,290 ÷ 738
= 1.75×
3Justified P/B
(ROE − g) ÷ (COE − g)
(13.6 − 8) ÷ (12 − 8)
= 5.6 ÷ 4 = 1.40×
(15.9 − 8) ÷ (12 − 8)
= 7.9 ÷ 4 = 1.98×
(13.1 − 8) ÷ (12 − 8)
= 5.1 ÷ 4 = 1.28×
4Market-implied COE
g + (ROE − g) ÷ actual P/B
8 + 5.6 ÷ 1.864
= 8 + 3.00 = 11.0%
8 + 7.9 ÷ 2.587
= 8 + 3.05 = 11.1%
8 + 5.1 ÷ 1.748
= 8 + 2.92 = 10.9%
5P/B per unit of ROE
actual P/B ÷ ROE (lower = cheaper)
1.864 ÷ 13.6
= 0.137
2.587 ÷ 15.9
= 0.163
1.748 ÷ 13.1
= 0.133

Step 4 rearranges the justified P/B formula: if P/B = (ROE − g) ÷ (COE − g), then COE = g + (ROE − g) ÷ P/B. It answers: “what cost of equity is the market using at today’s price?”

The market prices all three banks at nearly the same implied cost of equity, about 11%. The P/B gap between them is explained almost entirely by the ROE gap: ICICI Bank’s premium is earned. Prices are Friday 16 October closes, before the Saturday results. [Source] [Source] [Source]

Price-to-book and ROE · 16 October 2026 Price-to-book (×) · with trailing ROE ICICI Bank · ROE 15.9% 2.59× HDFC Bank · ROE 13.6% 1.86× Axis Bank · ROE 13.1% 1.75×
Consolidated book value and ROE. Higher ROE commands a higher multiple; the ranking of P/B mirrors the ranking of ROE. Source: screener.in, 16 October 2026 close.

Q26 How does excess capital distort P/B and ROE?

Surplus Common Equity Tier 1 (CET1) capital sits in book value but earns little, depressing reported ROE and P/B. Strip out CET1 above a working target (here 13%) to see the core business:

Removing excess capital (CET1 above a 13% working target)
StepWhat we calculateHDFC BankICICI BankAxis Bank
1Share of capital that is excess
(CET1 − 13) ÷ CET1
(17.1 − 13) ÷ 17.1
= 24.0%
(16.01 − 13) ÷ 16.01
= 18.8%
(14.61 − 13) ÷ 14.61
= 11.0%
2Excess capital per share (₹)
step 1 × book value
24.0% × 391
= 93.7
18.8% × 540
= 101.5
11.0% × 738
= 81.3
3Core book value (₹)
book value − step 2
391 − 93.7
= 297.3
540 − 101.5
= 438.5
738 − 81.3
= 656.7
4Core price (₹)
price − step 2
728.85 − 93.7
= 635.1
1,397 − 101.5
= 1,295.5
1,290 − 81.3
= 1,208.7
5Core P/B
step 4 ÷ step 3
635.1 ÷ 297.3
= 2.14×
1,295.5 ÷ 438.5
= 2.95×
1,208.7 ÷ 656.7
= 1.84×
6Core ROE
ROE × book value ÷ core book value
13.6 × 391 ÷ 297.3
= 17.9%
15.9 × 540 ÷ 438.5
= 19.6%
13.1 × 738 ÷ 656.7
= 14.7%

Simplifying assumptions: CET1 capital is treated as equal to book value, and the excess capital is assumed to earn almost nothing, so removing it leaves profit unchanged. The 13% target is an analyst’s choice, not a regulatory number.

HDFC Bank’s reported ROE of 13.6% understates its core earning power of about 17.9%: its 18.9% CRAR is a lever not yet pulled. Axis Bank looks cheapest, but it also has the lowest core ROE and the thinnest CET1.

Q27 What are the limits of P/B analysis?

Consolidated book value includes subsidiaries (insurance, asset management companies (AMCs), non-banking financial companies (NBFCs)). A sum-of-the-parts valuation values these separately and applies P/B only to the standalone bank. Justified P/B is also very sensitive to COE: moving COE by one percentage point shifts the justified multiple by roughly 30%. Treat it as a framework for comparison, not a price target.

LEARNING PATH · 08

Case study: HDFC, ICICI and Axis in Q2 FY27

In plain words · How to read a results release

When a bank announces results, read in this order: (1) profit and its growth — but check for one-offs; (2) net interest income and margin; (3) costs; (4) bad loans and provisions; (5) capital; (6) only then, the share price. The tables below follow the same order for three of India’s largest private banks.

Q28 How did the three banks compare on earnings?

₹ crore · Q2 FY27HDFC BankICICI BankAxis Bank
Net profit (YoY)19,510 (+4.7%)14,843 (+20.1%)7,003 (+37.6%)
NII (YoY)34,619 (+9.7%)25,339 (+17.7%)15,371 (+11.8%)
NIM3.16% (on total assets) · 3.32% (on interest-earning assets)4.18%3.36%
Fee income9,6907,795 (+20.1%)6,381 (+6%)
Treasury780 (vs 2,390)−230 (vs +220)small
Cost-to-income39.1%38.4%~49%
Provisions (YoY)3,574 (+2.1%)851 (−7%)1,694 (−52%)

Q29 Whose profit growth is highest quality?

ICICI Bank: cleanest — core operating profit +21.8% despite a treasury loss. HDFC Bank: headline growth weak because of a ₹1,610 crore treasury swing; profit excluding treasury grew about 12.6%. Axis Bank: the 37.6% jump is mainly a base effect — the year-ago quarter carried a one-time ₹1,231 crore standard-asset provision on two discontinued crop-loan variants. Core operating profit grew about 11%. [Source]

Q30 How did the balance sheets and asset quality compare?

Q2 FY27HDFC BankICICI BankAxis Bank
Advances (YoY)₹32.20 lakh cr (+16.3%)₹18.32 lakh cr (+30%)₹13.74 lakh cr (+23%)
Deposits (YoY)₹33.27 lakh cr (+18.8%)₹20.50 lakh cr (+27.1%)₹14.52 lakh cr (+21%)
CASA ratio31.6%35.8% (avg)36%
GNPA / NNPA1.11% / 0.37%1.20% / 0.30%1.16% / 0.35%
PCR~67%75%70%
Credit cost (annualised)0.44%~0.19%~0.49%
CRAR / CET118.9% / 17.1%16.68% / 16.01%16.27% / 14.61%

↓ Download the companion Excel workbook (.xlsx)

The workbook contains every figure and calculation in this guide as live formulas — change any input and all the ratios update. It also includes a Sample Bank sheet, a practice sheet with self-checking answers, and a summary scorecard with charts.

Q31 So, which bank did best?

ParameterBestMiddleWeakest
Core earnings growthICICIAxisHDFC
NIM levelICICIAxisHDFC
Cost efficiencyICICIHDFCAxis
Asset quality (NNPA, PCR)ICICIAxisHDFC
Capital (CET1)HDFCICICIAxis
Growth risk (loan growth)HDFC (16%)Axis (23%)ICICI (30%)

ICICI Bank had the strongest operating quarter, but 30% loan growth with a 0.19% credit cost leaves little room for error. HDFC Bank is steady with the strongest capital; margins and the funding mix are the pressure points. Axis Bank’s headline profit flatters it; falling slippages are the genuinely encouraging signal.

Q32 What should an analyst watch next quarter?

1. The NIM trough — ICICI Bank expects margins to moderate further in Q3 before recovering as the FCNR(B) effect fades. 2. Deployment of FCNR(B) funds — into higher-yield assets, or carried at negative carry? 3. Seasoning — at 16–30% loan growth, watch slippage ratios rather than NPA ratios. 4. Credit-cost normalisation at ICICI Bank toward its 50 bps guidance. 5. Operating jaws at Axis Bank.

LEARNING PATH · 09

Pause, calculate and explain

In plain words · Practice

Try each question on paper first. A calculator is enough. If you get stuck, go back to the formula in the learning path mentioned in brackets.

Q33 A bank earns quarterly NII of ₹1,000 crore on average interest-earning assets of ₹1,00,000 crore. What is its NIM? (Learning Path 02)

Think first, then reveal the worked answer
Worked answer
StepWhat we calculateCalculationResult
1Annualise the quarterly NII1,000 × 4₹4,000 crore
2Divide by average interest-earning assets4,000 ÷ 1,00,000 × 1004.0%

Forgetting to annualise gives 1.0% — the most common mistake in quarterly analysis.

Q34 Gross NPAs are ₹2,000 crore and net NPAs are ₹600 crore. What is the PCR? (Learning Path 04)

Reveal the worked answer
Worked answer
StepWhat we calculateCalculationResult
1Provisions heldGross NPAs − net NPAs = 2,000 − 600₹1,400 crore
2Provision coverage ratio1,400 ÷ 2,000 × 10070%

Q35 GNPA was 1.50%. Loans grew 20% and the GNPA amount did not change. What is the new ratio — and has asset quality improved? (Learning Path 04)

Reveal the worked answer
Worked answer
StepWhat we calculateCalculationResult
1New GNPA ratio1.50 ÷ (1 + 0.20) = 1.50 ÷ 1.201.25%
2Fall in the ratio1.50 − 1.250.25% = 25 bps
3Change in the stock of bad loansGNPA amount unchanged₹0

The ratio improved by 25 bps, but the stock of bad loans is unchanged. This is pure denominator effect, not better underwriting.

Q36 A bank has ROE of 15%, cost of equity 12% and long-run growth 8%. What P/B is justified? (Learning Path 07)

Reveal the worked answer
Worked answer
StepWhat we calculateCalculationResult
1Excess return over growthROE − g = 15 − 87
2Required return over growthCOE − g = 12 − 84
3Justified P/B7 ÷ 41.75×
4Check: if ROE fell to 12%(12 − 8) ÷ (12 − 8) = 4 ÷ 41.00×

A bank that earns exactly its cost of equity is worth exactly its book value.

Q37 CET1 is 15%. ROE is 15% with a 20% payout. RWAs grow 25%. What is CET1 after one year? (Learning Path 05)

Reveal the worked answer
Worked answer
StepWhat we calculateCalculationResult
1Internal capital generation15% × (1 − 0.20)12%
2New CET1 ratio15 × 1.12 ÷ 1.25 = 16.8 ÷ 1.2513.44%
3Capital consumed by growth15.00 − 13.441.56 percentage points

Growth faster than internal capital generation consumes capital.

Q38 What is the most useful takeaway from this guide?

Read the spread, the risk, the capital and the price together — and always ask what one-off is hiding in the headline.

NIM and cost-to-income tell you how well the bank earns. Slippages, PCR and credit cost tell you what it may lose. CET1 tells you how far it can grow. P/B against ROE tells you what the market already expects. A treasury swing, a low base or a funding window can make any single quarter misleading.

LEARNING PATH · 10

Sources and data notes

Research cut-off: 18 October 2026. Results: quarter ended 30 September 2026 (Q2 FY27), announced 17 October 2026. All bank figures are standalone unless stated. Share prices are 16 October 2026 closes; book value and ROE are consolidated.

Derived figures — PPOP, credit cost, CD ratio, implied interest-earning assets, PAT on IEA, HDFC Bank PCR, denominator test, justified and core P/B — are calculations by The Mountain Path Academy from the reported numbers. Cost-of-funds and practice examples are illustrative. The companion Excel workbook reproduces every calculation with live formulas. This guide is for learning, not investment advice. https://themountainpathacademy.com

REFERENCE

Abbreviations used in this guide

Banking results are dense with abbreviations. Every one used in this guide is listed here in plain words; each is also spelled out the first time it appears in the text.

AbbreviationIn fullWhat it measures or means
NIINet interest incomeInterest earned minus interest paid
NIMNet interest marginAnnualised NII as a percentage of average interest-earning assets
IEAInterest-earning assetsLoans, investments and other assets that earn interest
TATotal assetsAll assets on the balance sheet
C/ICost-to-income ratioOperating expenses ÷ total operating income
PPOPPre-provision operating profitRevenue minus operating expenses, before provisions and tax
PBTProfit before taxProfit after provisions, before tax
PATProfit after taxNet profit attributable to shareholders
NPANon-performing assetA loan overdue for more than 90 days
GNPAGross non-performing assetsBad loans before deducting provisions
NNPANet non-performing assetsBad loans after deducting provisions
PCRProvision coverage ratioProvisions held ÷ gross NPAs
CASACurrent account and savings account (deposits)Low-cost deposits; CASA ratio = CASA ÷ total deposits
CD ratioCredit-deposit ratioAdvances ÷ deposits
CRARCapital to risk-weighted assets ratioTotal regulatory capital ÷ risk-weighted assets (capital adequacy ratio)
CET1Common Equity Tier 1Highest-quality capital: equity and retained earnings
AT1Additional Tier 1Perpetual bonds that count as Tier 1 capital
RWARisk-weighted assetsExposures scaled by their regulatory risk weights
D-SIBDomestic systemically important bankA bank whose failure would hurt the financial system; it carries extra capital
ROAReturn on assetsNet profit ÷ average total assets
ROEReturn on equityNet profit ÷ average shareholders’ equity
COECost of equityThe return shareholders require
P/BPrice-to-book ratioShare price ÷ book value per share
P/ABVPrice-to-adjusted-book-value ratioShare price ÷ book value after deducting net NPAs
P/EPrice-to-earnings ratioShare price ÷ earnings per share
RBIReserve Bank of IndiaIndia’s central bank and banking regulator
CRRCash reserve ratioShare of deposits banks must hold as cash with the RBI
SLRStatutory liquidity ratioShare of deposits banks must hold in liquid assets such as government securities
FCNR(B)Foreign Currency Non-Resident (Bank) depositsForeign-currency term deposits from non-resident Indians
EBLRExternal benchmark-linked lending rateLoan rates linked to the repo rate or another external benchmark
MSMEMicro, small and medium enterprisesA lending segment
NBFCNon-banking financial companyA finance company that is not a bank
AMCAsset management companyA mutual fund manager
EBITDAEarnings before interest, taxes, depreciation and amortisationA corporate profit measure not used for banks
EVEnterprise valueMarket value of equity plus net debt; not used for banks
Q1 · Q2 · Q3 · Q4First, second, third and fourth quarterQuarters of the Indian financial year (April–March)
FY26 · FY27Financial year 2025–26 · 2026–27Q2 FY27 = July–September 2026
YoY · QoQYear-on-year · Quarter-on-quarterComparison with the same quarter last year · with the previous quarter
bpsBasis pointsOne hundredth of a percentage point (100 bps = 1%)
HDFC BankOriginally promoted by Housing Development Finance CorporationIndia’s largest private-sector bank
ICICI BankOriginally promoted by Industrial Credit and Investment Corporation of IndiaIndia’s second-largest private-sector bank
USUnited StatesAs in US dollar
PDFPortable Document FormatPrintable file format