As India’s banking sector continues to evolve, understanding the intricacies of banking terminology has become essential for individuals and businesses alike. From NIM to NPA, and CRR to CASA, the world of banking is filled with acronyms and jargon that can leave even the most financially savvy individuals scratching their heads.
However, grasping these key terms is crucial for making informed decisions about your money, whether it’s choosing the right savings account, applying for a loan, or simply understanding the health of the banking sector.
In this article, ETBFSI breaks down the most common banking terminologies in India, providing clarity and insight into the complex world of banking and finance.
Here’s a list of commonly used banking terminologies in India and what they mean:
NIM (Net Interest Margin)
NIM is the difference between the interest earned on loans and advances, and interest paid on deposits. It represents the bank’s profitability from its core lending and borrowing activities. A higher NIM indicates a bank’s ability to generate more revenue from its interest-earning assets.
NII (Net Interest Income)
NII is the difference between interest earned on loans and advances, and interest paid on deposits. It’s a key component of a bank’s revenue and profitability. NII is influenced by factors like lending rates, deposit rates, and the volume of loans and deposits.
NPA (Non-Performing Asset)
An NPA is a loan or advance that has not generated interest or principal payments for 90 days. NPAs are a critical indicator of a bank’s asset quality and credit risk management. High NPAs can erode a bank’s profitability and capital.
GNPA (Gross Non-Performing Asset)
GNPA is the total amount of NPAs before provisioning. It represents the total value of non-performing loans and advances. GNPA is an important metric for assessing a bank’s asset quality and credit risk.
RoA (Return on Assets)
RoA is net profit expressed as a percentage of total assets. It measures a bank’s ability to generate profits from its assets. A higher RoA indicates a bank’s efficiency in utilizing its assets to generate revenue.
Deposits
Deposits are funds placed with a bank for safekeeping, such as savings, current, and fixed deposits. Deposits are a key source of funding for banks and are used to make loans and investments.
CASA (Current Account Savings Account)
CASA deposits are funds in current and savings accounts. CASA is an important metric for banks, as it represents low-cost funding sources.
CD Ratio (Credit-Deposit Ratio)
The CD Ratio is the ratio of total credit to total deposits. It measures a bank’s ability to generate loans from its deposits. A higher CD Ratio indicates a bank’s ability to generate more credit from its deposits.
CRAR (Capital to Risk-Weighted Assets Ratio)
CRAR is a measure of a bank’s capital adequacy. It represents the ratio of a bank’s capital to its risk-weighted assets. CRAR ensures that banks maintain sufficient capital to absorb potential losses.
SLR (Statutory Liquidity Ratio)
SLR is the minimum percentage of deposits that banks must invest in government securities. SLR ensures that banks maintain liquidity and invest in government securities.
CRR (Cash Reserve Ratio)
CRR is the minimum percentage of deposits that banks must hold in cash. CRR ensures that banks maintain sufficient liquidity to meet depositor demands.
PCR (Provisioning Coverage Ratio)
PCR is the ratio of provisions to NPAs. It measures a bank’s ability to absorb potential losses from NPAs. A higher PCR indicates a bank’s preparedness to handle NPAs.
RoE (Return on Equity)
RoE is net profit expressed as a percentage of shareholder equity. RoE measures a bank’s ability to generate profits from shareholder capital.
Yield on Advances
Yield on advances is the interest earned on loans and advances. It measures the return on a bank’s lending activities.
Cost of Funds
Cost of funds is the interest paid on deposits and borrowings. It measures the cost of a bank’s funding sources.
Net Worth
Net worth is a bank’s total assets minus total liabilities. Net worth represents a bank’s overall financial health and stability.
Tier 1 Capital
Tier 1 capital is a bank’s core capital, including equity and reserves. Tier 1 capital is the highest quality capital that can absorb losses.
Tier 2 Capital
Tier 2 capital is a bank’s supplementary capital, including subordinated debt and hybrid instruments. Tier 2 capital provides additional support to a bank’s capital base.
Risk-Weighted Assets
Risk-weighted assets are assets weighted according to their credit risk. Risk-weighted assets are used to calculate a bank’s capital requirements.
Basel III
Basel III is an international regulatory framework for banks, focusing on capital adequacy, liquidity, and risk management. Basel III aims to strengthen banks’ financial resilience.
