The banking institutions absolutely shows the health of the economy. A bank must maintain a balance between growth and gamble. Analysis of banking inventories is not like analyzing stocks of any other business. Banks get funding through monies or pay in order to be allowed to to have liquidity to extend as credits and to invest to generate treasury income.Before jump-start in to understand how to analyze bank capitals, one needs to understand the business model of banks and how they make money. Banks mostly make money through a combination of spread income and fee income. One should ever look at the core business of the bank, both retail and corporate bank. The proportions of these two in the bank’s total revenue should ever be very healthy. A bank’s presence across the market should be also evenly balanced.As banks have unique properties, sure-fire monetary fractions provide useful insights, more so than the others. One needs to look at different constants such as cyberspace interest income( NII ), net interest margin( NIM ), provisioning coverage ratio( PCR ), asset suitability rate( Vehicle ), Current Account-Savings Account( CASA) ratio , non-performing assets( NPA ), gross non-performing asset( GNPA) and slippages. A bank has to pay interest on the acquired fund, and deserves interest on the money it has given. So, investors should analyse the difference between the interest earned by the bank and interest paid, which grants the net interest income( NII ). Investors should also minutely look at total accumulations, total improvements and net interest margin. A bank that maintains a low-grade ADR( Advance-Deposit Ratio) is considered safe. Eventually, investors should analyze the capital adequacy ratio( CAR ). Higher the capital adequacy ratio( CAR ), the more the chances of the bank being on the safer side, making thereby, that the bank is strengthening its capital modesties and financial growth.Another important constant is egregious NPA and net NPA. Basically , non-performing assets( NPAs) are recorded on a bank’s balance sheet after a prolonged period of non-payment by the borrower. One should always look out for these crowds and how they modify with time. In case of higher NPA, the borrowings get riskier and the bank would need to focus on recovery of the borrowing amounts. Commonly, if a bank is into retail borrowing business, then probably the NPA may be lower, whereas, in corporate bank, the NPA grades are generally higher, because if any corporation defaults, the NPA number shoots up. Another cause to watch is the provision coverage rate( PCR ), which indicates the extent to which a bank provided for under the weaker part of its lend portfolio. A high-pitched PCR suggests the bank may further provisions in the coming years would be relatively low, unless the GNPAs rise at a faster excerpt. Investors should also consider the slippage ratio, as a sharp rise in slippage can have a major impact on provisioning and net profits. Low slippage, or no slippage, reflects good quality of resources. Another important factor is the Casa ratio. It would indicate that much accumulation a bank has in the form of the share of current and saving account accumulations in total deposits. Investors was necessary to look at the Casa ratio to understand a bank’s business health. Higher the Casa ratio, better is its controlling efficiency. NIM is yet another factor to look at, as it appraises the effectiveness of a company’s investment decision. A positive net interest margin have pointed out that the bank is efficiently investing, whereas a negative net interest margin implies inefficient investing.Most importantly, a bank management’s forward guidance is an equally important event to watch before coming making an investment decision. Instead of looking at just the current counts, fractions should also be compared with their historical numerals. This will give an understanding as to whether those lists have improved or not. Moreover, these ratios should be compared with peer banks and the industry average to decide the position of a bank with respect to its contestants and whether one should invest in that special banking asset or not .( DK Aggarwal is the CMD of SMC Investment and Advisors)

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