The Banking Playbook: NIM, NPAs & CASA

intermediate8 min read

A bank is a spread business wearing a balance sheet — five numbers tell you if the spread is real and the book is honest.

A bank borrows at one rate (your savings account), lends at a higher one (someone’s home loan), and lives on the difference. Everything in bank analysis flows from two questions: *how fat is the spread? and will the loans come back?* Five metrics answer them.

NIM (net interest margin) — the spread as a % of interest-earning assets: ~3-4% is strong for Indian banks; rising NIM = pricing power or cheaper deposits.
GNPA / NNPA — gross and net non-performing assets, the % of the loan book gone bad: the honesty meter. Watch the TREND and the restructured book, not just the level.
CASA ratio — current + savings accounts as a share of deposits: 40%+ means cheap, sticky funding that fattens NIM through every cycle.
PCR (provision coverage) — how much of the bad book is already provided for: 70%+ means past sins are largely paid; low PCR means pain is still coming.
Credit growth vs deposit growth — loans can only outgrow deposits so long before funding costs (or risk) rise.

The trap in bank analysis is that growth and quality print on different clocks. Loans book as income TODAY; the bad ones surface as NPAs 2-4 years LATER. A bank growing its book 30% a year looks brilliant on every current-period number — the reckoning arrives in the next downturn, which is why the market prices banks on price-to-adjusted-book (book value minus net NPAs) with an ROA overlay (1%+ is world-class for Indian banks), not on P/E. When a bank trades far below book, the market is calling the book a lie; far above book, it is paying for underwriting culture — the one thing that compounds.

ExampleTwo banks, both at “12× earnings”. Bank A: NIM 4.1%, CASA 42%, GNPA 2.1% falling, PCR 78%, ROA 1.9% — the market pays 2.5× book for that machine. Bank B: NIM 2.8%, CASA 28%, GNPA 4.9% with a growing restructured book, PCR 55% — it trades at 0.6× book because the E in its P/E is not yet net of tomorrow’s provisions. Same P/E, opposite businesses.

Test yourselfA bank reports record profit growth while its PCR falls from 75% to 58%. What might be happening?

Some of the “profit growth” may be under-provisioning — booking less against bad loans flatters today’s P&L and pushes the pain forward. Falling coverage alongside rising profits is a classic quality red flag: check GNPA trends, slippages, and whether the restructured book is growing.

✓ You learnedGrade banks on the spread (NIM, powered by CASA) and the book’s honesty (GNPA/NNPA trend, PCR), value them on adjusted price-to-book with ROA, and stay suspicious of loan growth that vastly outruns deposits — bank blow-ups are born in the boom years and merely announced in the busts.

FAQs

Do the same metrics work for NBFCs?

Mostly, with two twists: NBFCs have no CASA (they borrow wholesale), so their funding cost and ALM (asset-liability mismatch) replace the CASA line — a liquidity squeeze can kill an NBFC whose loan book is fine. And their NIM runs higher to compensate for riskier segments. Spread + asset quality still rule; funding stability becomes the third pillar.