Analysing Banking Stocks

As a long-time reader and admirer of the magazine, I found your coverage on banking stocks to be highly interesting. It would help retail investors like us if you could touch upon the key characteristics or fundamentals one must take into consideration while analysing private banks as well.

- Prashant Nandi

Editor Responds: Thank you for your appreciation. The banking business is different from other businesses. Therefore we need to look at different parameters. One should look at the growth in net interest income, which is simply the difference between interest earned from a bank’s lending activities to its customers and the interest paid to account holders. A bank’s primary earning comes from advances, which are loans given out to customers. These are the assets and its rate of rising will tell us how the bank is growing its business. Along with this, one should look at the level of gross and net non-performing assets (NPAs) on the books. Other ratios such as the CASA ratio, provision coverage ratio (PCR) and capital adequacy ratio will give retail investors vital information. We hope this helps! Please do keep writing to us with your queries.