How to Analyse a
Bank’s Performance

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.

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?

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.

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

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.

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]

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.

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.

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.

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.

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.

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.

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]

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.

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]

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

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

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%.

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]

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.

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]

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.

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.

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]

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]

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.

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

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.

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

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?

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.

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.

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%:

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]

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:

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.

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.

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]

↓ 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.

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.

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.