Session 12 Bank Performance Measurement & Analysis

BANK PERFORMANCE
MEASUREMENT
&
ANALYSIS
HOW DO YOU MEASURE PERFORMANCE
Broadly performance is measured in terms of:
1.Quantity
a.Growth
i.Absolute and percentage
ii.Under different parameters of business
2.Quality
a.Benchmarking with peers and acceptable levels
b.Trend Analysis
IMPORTANT PARAMETERS
TO BE MEASURED IN BANKS AND TRACKED
1.Profitability
2.Liquidity
3.Leverage
4.Solvency
BROAD MEASUREMENT PARAMETER COVERAGE
A.Capital Funds
B.Asset Quality
C.Earnings
D.Risk Measures
PERFORMANCE OF BANKS AFFECTS WHAT?
1. The earnings
a. Net Interest Income
b. Net Interest Margin
2. The economic value
a. Market Value of Equity
3. The ability to be funded
a. in the deposit market and
b. in the borrowing market (including inter-bank)

PURPOSE OF USING PERFORMANCE MEASUREMENT PARAMETERS
The primary purpose of the measurement parameters is :
to identify/analyse the key measures of returns and risks

(especially credit risk and market risks), assumed by the banks
to demonstrate the relationship of these returns and risks

PURPOSE OF ANALYSIS OF THE FINANCIAL POSITION OF BANKS
The financial position of Banks as disclosed in the balance sheets is to be done in a
systematic manner with a view to :
evaluating the critical parameters of performance and
initiating appropriate corrective measures.
Peer group comparison of performance parameters evaluates:
the operational efficiency,
strengths and weaknesses in performance vis-a-vis competitors

WHAT DOES CAMELS STAND FOR?
C A M E L S
Capital Asset Manag Earning Liquid System
Adequ Quality ement ity s and
acy Control
CAMELS RATING
SIGNIFICANCE OF EACH GRADE
RATING RATING SIGNIFICANCE
A The institution is basically sound in every respect. It gives no cause for Supervisory Concern
B The institution is fundamentally sound and its operations are satisfactory. It does reflect modest
weakness and for which the Supervisory response is limited to minor adjustment.
C The institution exhibits a combination of financial, operational or compliance weaknesses
ranging from moderately sever to unsatisfactory. Failure may only be a remote possibility, but the
institution gives cause for Supervisory Concern and requires more than normal Supervision to
address deficiencies.
D The institution has serious on of financial, operational or managerial weakness and warrants a
definite plan for corrective action. The institution requires Supervisory monitoring and financial
surveillance. IN critical cases that make the probability of failure high in the future, institutions
require urgent aid from its shareholders or financial assistance from other sources to avoid
liquidation or restructuring.
Note: Within the rating of A, B and C, +(Plus) or - signs have been added to reflect the comparative
ranking within the rating category.
ILLUSTRATIVE CAMELS RATING OF A BANK
PARAMETERS YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6
(C)Capital A+ A+ A+ A+ A+ A+
Adequacy
(A) Asset Quality B+ B B- B- C+ C+
(M) Management B+ B+ B+ B+ B+ B-
(E) Earning A+ A- A- C+ A A
(L) Liquidity A- B+ B+ B+ B B+
(S) Systems & B B+ B B B- B-

Control
Overall Rating B+ B+ B+ B B B
IMPORTANT RATIOS USED IN
BALANCE SHEET ANALYSIS OF BANKS
SR MEASUREMENT FORMULA OF THE RATIO
NO OF
1. Capital Adjusted CRAR = Total Capital - Net NPAs / Risk Weighted
Adequacy Assets - Net NPAs
2 Asset Quality Incremental NPAs to opening Gross = New accretion to
NPAs advances during the year /Gross advances at the
beginning of the year
Incremental NPAs to opening Gross = New accretion to
NPAs Standard Assets during the year / Gross standard
advances at the beginning of the year
Net NPAs to total equity = Net NPAs / Total Equity
Credit concentration to NOF = Large Exposures in
excess of 10% of NOF / NOF
3 Management
Overhead Efficiency Ratio = Non Interest Income / Non
Interest Expenses
Break even volume of = Cost per employee, Business per
employee, NII/Business
Net total Income per employee = Net total income / Number
of employees
Asset Utilization = Total Income / Total Assets

4 Earnings 1. Return on Equity = Net Profit / Total Equity at the Beginning of the year + Total Equity at the end of
the year / 2
2. Return on RWAs = Net Profit / RWAs
3. Return on Assets = Net Profit / Average Total Assets
4. Equity Multiplier = Total Assets / Total Equity
5. Accretion to Equity = Retained Earnings / Total Equity at the end of the Previous year
6. Earnings Per Share (EPS) = Net Profit / No. of Equity Shares
7. P/E Ratio = Stock price / EPS
8. Net Interest Income (NII) = Interest Income - Interest Expended
9. Net Interest Margin (NIM) = NII / Total Earning Assets
10.Risk Adjusted NIM = NII - Provision for loan loss and depreciation in investments / Total Earning
Assets
11.Non Interest Margin = Non Interest Income - Non Interest Expenses / Total Assets
12.Profit Margin = Net Profit / Total Income
13.Interest Expense Ratio = Interest Expended / Total Income
14.Non Interest Expense Ratio = Non Interest Expenses / Total Income
15.Provision for Loan Loss Ratio = Provision for loan loss / Total Income
16.Provision for Depreciation in = Provision for Depreciation Investments Ratio in Investments / Total
Income
17.Tax Ratio = Provision for Tax / Total Income
18.Net Total Income = Total Income - Interest Expended
5 Liquidity
Purchased funds to Total Assets = Inter bank and short-term
institutional borrowings + Certificate of Deposits / Total Assets
Mismatches in Cash flows = Mismatch in a bucket / Total outflows in
a bucket
Mismatches in Repricing = Rate Sensitive Assets (RSAs) - Rate
Sensitive Liabilities(RSLs) / Total Equity
Total Return on Investments = Coupon income + Capital gain(+) or
Capital loss (-)+ Reinvestment income

CAPITAL FUNDS
SR RATIO NAME SIGNIFICANCE OF THE RATIO
NO
1. Growth in Risk Any disproportionate increase in RWAs vis-a-vis the growth of total assets
Weighted Assets signifies
(RWA) the banks appetite for assuming more risks for maximising returns.
Such disproportionate growth may also be a conscious policy of the bank
management to change the flow of its resources from investments in Govt.
stocks to loan book in a booming credit market for realising credit spread.
A critical analysis of the composition of risk weighted assets is called for.
2. Adjusted Capital The ratio reckons

to Risk- the unimpaired capital (Net of Net NPAs) available within the bank to mitigate
Weighted Assets potential adverse impacts of credit, market and operational risks.
(Net of Net If the ratio is lower than the prudential level of 8%, the cushion available for
NPAs) Ratio absorbing future loss is limited.
(ACRAR)
ASSET QUALITY
NO
1. NPAs guaranteed The NPAs, guaranteed by State/Central Government are
by Government treated as standard assets and no prudential provision as of now is made even though
(Classified as most of such advances ceased to generate any income to the banks.
standard assets) The exposures of the banks to such assets need to be analysed to gauge the quality of
the loan book.
2 Ratio of Incremental
The ratio on Incremental NPAs to Opening Gross/Standard Advances would basically
NPAs to Opening reveal
Gross/Standard the asset quality of standard advances of banks.
Advances Higher ratio indicates the aggressive loan philosophy or poor asset quality of banks.
3 Gross/Net NPAs
The evaluation of asset quality in India is based on
(including NPAs in Gross/Net NPAs to Gross/Net advances, which reckons only a part of the balance
Investments) to totalsheet items.
Assets The ratio of Gross/Net NPAs (including NPAs in Investments) to total Assets would
reveal the degree of impairment of assets in the balance sheet.
4 Ratio of Net NPAs Ratio of Net NPAs to Total Equity indicates
to Total Equity the equity cover for NPAs.
If the ratio is greater than unity, that particular bank is financing NPAs out of interest
paying liabilities.
This sort of funding pattern would adversely affect the profitability of banks.
ASSET QUALITY
SR RATIO SIGNIFICANCE OF THE RATIO
NO NAME
5 Rating-wise In the context of interest rate deregulation and freedom given to banks to price their
details of assets and liabilities, most of the banks are prescribing spreads (risk premia) over
Standard their Base rate.
Advances The risk premia are being charged on the basis of inherent quality of borrowers as
revealed in their credit ratings.
With the objective of improving the return on advances, banks may dilute their
appraisal standards and let even low quality customers into the balance sheets.
This process leads to Adverse Selection and dilution of portfolio quality.
A larger proportion of borrowers in the higher end of spread over base rate would
boost the current interest income but could be viewed potentially as risk prone.
The rating-wise analysis of standard assets would facilitate
o to evaluate the portfolio quality.
o The migration analysis (movement of borrowers from higher to lower ratings
negative migration or lower to higher ratings positive migration) of borrowers is
now accepted as standard tool for evaluation of portfolio quality.
o The expected and unexpected loan losses are also estimated on the basis of
migration analysis.
ASSET QUALITY
NO NAME
6 Investmen Bonds/debentures are emerging as direct credit
ts in substitutes and most of these instruments are being
bonds/deb placed privately without ratings.
entures The exposure of banks in this segment must be analysed
very closely, as investments in low quality
bonds/debentures would alter the risk profile.
7 NPAs in With large exposures in bonds/debentures, and mostly
Investmen through private placement route, there is an imperative
ts need to assess the quality of investments portfolio quality.
Thus, the data on NPAs in investments and provisions
held against identified losses due to credit risk should be
analysed.
ASSET QUALITY
NO NAME
8 Large At present, banks are not permitted to lend more than
Exposur 25%/40% of their NOF to single and group (infrastructure
es to projects upto 50%) borrowers, respectively.
Nett However, there is no limit on total exposures in excess of a
Owned threshold, say 10% of NOF.
Funds In most of the western countries, the sum total of exposures
in excess of threshold limit of 10% of NOF has been
prescribed to restrict the concentration problem.
The total exposure is generally fixed at 600% to 800% of
NOF.
The ratio of Large Exposures to NOF provides a good
measure of concentration risk.
The ratio is a better pointer of future asset quality problems.
ASSET QUALITY
NO NAME
9 Ratio of With the introduction of prudential regulations, banks are
off- increasingly going in for off-balance sheet products.
balance
sheet Considering the risk profile of these products, unless
items to proper risk management systems are put in place would
total mount.
Assets
When the ratio goes up, specific analysis of the off-
balance sheet products such as the composition,
compliance with prudential limits, portfolio quality, etc.
should be undertaken.
EARNINGS
NO NAME
1. Operating In order to measure the true profitability of banks,
Profits analysis of operating profits - before and after interest
before and income on Recapitalisation Bonds where applicable, is
after required.
income on
Recapitalis In case the adjustment brings out negative operating
ation Bonds profits, it clearly indicates the structural weaknesses of
banks in the profitability front.
This adjustment is specifically relevant in view of the

recommendations of Narasimham Committee on
banking sector reforms.
EARNINGS
NO NAME
2 Adjusted Accounting practices amongst banks were never uniform
ROAs & over the years. This apart, the write- back of provisions
ROE held against depreciation in investments has boosted the
before net profit of some of the banks.
and after
tax Similarly, significant changes/deviations in / from the
established accounting practices often boost profits.
In order to gain uniformity of various return performance

measures, it is required that net profits published may be
suitably modified and the various performance measures
are calculated on the basis of published and adjusted net
profit.
EARNINGS
NO NAME
3 Return on The ratio of Return on Assets basically focuses only balance sheet
Risk- items.
Weighted The disintermediation process has transformed the balance sheet
Assets profile and most of the banks are scouting for off-balance sheet
items for fee-based income.
This process has significantly altered the risk profile of banks.
Thus, the measure of Return on Risk Weighted Assets, which
captures the off-balance sheet activities of the bank as well reveal
the relationship between the risks and returns.
In case the ratio has consistently been decreasing, it indicates that
the bank has not been adequately compensated for the additional
risks assumed.
This ratio also recognises the growing role of fee income or the
differing expense levels in connection with various lines of business.
EARNINGS
NO NAME
4 Equity A banks EM compares assets with equity and large values
Multiplier indicate a large amount of debt financing relative to equity.
(EM) EM thus measures financial leverage and represents both a profit
and risk measurement.
EM affects a banks profit because it has a multiplier impact on
Return on Assets (ROA) to determine a banks Return on Equity
(ROE).
EM is also a risk measure because it reflects how many assets
can go into default before a bank becomes insolvent.
It is true that the Risk Weighted Capital Adequacy standards
prescribes the minimum equity support, but it lacks much of its
leverage due to preponderance of its focus on credit risk.
A critical scrutiny of EM helps us to evaluate whether capital
support is proportionate to the risks assumed in the balance
sheet.
EARNINGS
NO NAME
5 Earnings The EPS and P/E ratios indicate
Per othe ability of the bank to access the
Share capital market and
(EPS) othe appetite of the banks scrip in the
/P/E market.
Ratio
The capital market looks at these ratios
very closely.
EARNINGS
NO NAME
6. Net Interest NII and NIM are a summary of measure of a banks net
Income interest return on income producing assets.
(NII) & Net
Interest These two measures are extremely important in
Margin evaluating a banks ability to manage interest rate risk.
(NIM) The higher amount / ratio shows the financial strength of
the bank.
Any decline in the amount / ratio may be adduced to
large non-performing assets or
the bank is not strategically placed to take
advantage of the movements in market interest
rates.
EARNINGS
NO NAME
7 Return ROA is the financial indicator of the efficiency of banks.
on A lower ROA signifies
Assets poor return on assets or
(ROA) high operating expenses or
losses in loans or
losses in investment portfolios.
The analysis of ROA may be extended to Profit Margin
(PM) and Asset Utilisation (AU) Ratios to identify the real
reason/s for high/poor ROA.
High ROA may be due to excessive risk appetite or trading
positions.
Thus, detailed scrutiny of asset quality, ALM mismatches
and even accounting practices should be undertaken
EARNINGS
NO NAME
8 Risk Normally, RANIM is a refinement of NIM which factors
Adjusted into provisions made against loan losses.
Net Interest RANIM represents NII, net of provisions for probable
Margin loan losses as a percentage to total earning assets.
(RANIM) It may, however, be noted that depreciation in
investment portfolio on account of market risks has been
significant of late and as such the provisions made
against investments which are impaired due to adverse
movements in YTM may also be deducted from NII.
With this extension, the analysis throws open not only
the impact of credit risk but also market risks on the
profitability of banks.
EARNINGS
NO NAME
9 Total Total return on investments, inter alia, takes into
Return on account the coupon yield, capital gain/(loss) and
Investmen reinvestment income.
ts
This measure gives the actual return on
investment unlike the conventional measure of
average yield on investments.
The total return concept recognises the impact of

market interest rate movements on portfolio
values.
EARNINGS
NO NAME
10 Efficiency Efficiency (cost - income) ratio and Overhead
(Cost- Efficiency (burden) ratio, which represents
Income) operating cost (non-interest expenses) as a
Ratio/Ove percentage of Net Total Income (total income
rhead minus interest expenses) and Non-Interest
Efficiency Income as a percentage of Non-Interest
(burden) Expenses, reveal the cost efficiency and the
Ratio cross subsidisation of various bank products.
Higher the ratios, the lower are the profitability of
banks.
Ideally, the cost-income ratio should not exceed
EARNINGS
NO NAME
11 Profit Margin PM measures a banks ability to control expenses and reduce
(PM) taxes.
The greater the PM, the most efficient is a bank in reducing
expenses or taxes or both.
Five additional ratios like

Interest expense ratio (Interest Expenses to Total Income),
Non-interest expenses ratio (Non-Interest Expenses to Total
Income),
Provision for loan loss ratio (Provision for loan losses to
total income),
Provision for depreciation in investments ratio (Provision for
depreciation in investments to total Income) and
Tax ratio (Income tax to total Income)
isolates the impact of specific types of expenses and taxes.
EARNINGS
NO NAME
12 Asset The asset productivity depends on the proportion
Utilization of earning assets to total assets or earning base
(productivi of banks.
ty)
The earnings could be augmented through
efficient asset allocation.
The portfolio changes i.e. investment or loan are

not only induced by changes in environment but
also the yield differential and changing risk
profiles.
EARNINGS
NO
13 Break-even The ratios indicate the staff productivity in banks, which
Volume of is very important in a competitive environment.
Business
per A comparison of the ratios among the Peer Group
Employee would reveal the relative efficiency and staff productivity
of banks.
and
Net Total
Income per
Employee
RISK MEASURES - LIQUIDITY/INTEREST RATE RISK
NO NAME
1. Purchase Purchased funds which include all inter-bank and
d Funds short-term institutional liabilities and certificate of
to Total deposits are basically volatile and are used for
Assets funding assets would entail liquidity risk.
The higher ratio indicates the magnitude of

liquidity risk embedded in the balance sheet.
2 Net Loans Loans, essentially being illiquid, a higher ratio of

to total loans to total assets indicate the illiquidity of the
Assets bank
NO NAME
3 Core The advance portfolio of banks in India is illiquid and therefore it
Deposits to should be funded out of core deposits.
Net Advances Otherwise, the banks would be facing severe liquidity risk when
the market is experiencing liquidity crunch.
Lower ratio indicates the potential liquidity problems of banks.
4 Investments The investment portfolios of many of the banks are generally

in Short-term long-term while the liabilities are short-term.
Assets to At the same time, the market for investments is shallow.
Purchased Thus, the liquidity of the bank could be maintained only by proper
Funds/Total control over the maturity profile of investments.
Assets The lower the ratio, the higher is the liquidity risk.
NO NAME
5 Mismatches The ideal measurement of liquidity in the Indian context is cash
in Cash flows.
Flows The cash flow details should be captured to evaluate the liquidity
profile of banks.
6 Gap Analysis The deregulation of interest rates has exposed the banks to
market risk, especially interest rate risk.
The monitoring of mismatches in cash flows, repricing dates and
currency is going to be the top management/ supervisory focus
and the measure of gaps in different time buckets is required to
be done.
The gaps would reveal the potential loss/gain in NII/NIM on
account of changes in market interest rates.
The ratio of gaps to total Equity reveals the magnitude of risk
being borne and the ability to absorb the hit on capital.
RBI FRAMEWORK FOR PROMPT CORRECTIVE ACTION (PCA)
BY RBI FOR COMMERCIAL BANKS
The Reserve Bank has specified certain regulatory trigger points, as a part
of prompt corrective action (PCA) Framework, in terms of three parameters,
Capital to risk weighted assets ratio (CRAR),
Net non-performing assets (NPA) and
Return on Assets (RoA),
for initiation of certain
structured actions
discretionary actions
in respect of banks hitting such trigger points.
APPLICABILITY OF PROMPT CORRECTIVE ACTION FRAMEWORK
The PCA framework is applicable only to commercial banks and not extended to:
Co-operative banks,
Non-banking financial companies (NBFCs) and
Financial Institutions (FIs).

SUPERVISORY ACTION UNCER PCA OF RBI CAN BE AT TWO LEVELS:
Early stage recognition of problems and corrective actions.
Identifying problem banks early is one of the responsibilities of bank
supervisors.
Supervision and monitoring of troubled banks.
The other responsibility is to monitor the behaviour of troubled banks
in an attempt either to prevent failure or to limit losses.

TRIGGER POINTS ALONG WITH STRUCTURED AND DISCRETIONARY
ACTIONS BY RBI:
SR PARAMETE ACTION
NO R
1. CRAR less Bank to submit capital restoration plan;
than 9%, but Order recapitalisation
equal or more Restrictions on
than 6% RWA expansion,
entering into new lines of business
Accessing/renewing costly deposits and CDs,
making dividend payments
borrowing from inter-bank market,
reduction of stake in subsidiaries,
reducing its exposure to sensitive sectors like
capital market,
real estate or
investment in non-SLR securities, etc.
2 CRAR less In addition to actions in hitting the first trigger point, RBI could take steps to
than 6%, but bring in new Management/ Board,
equal or more appoint consultants for business/ organizational restructuring,
than 3% take steps to change ownership,
take steps to merge the bank if it fails to submit recapitalization plan.
3 CRAR less In addition to actions in hitting the first and second trigger points, more close monitoring;
than 3% steps to merge/amalgamate/liquidate the bank or
impose moratorium on the bank if its CRAR does not improve beyond 3% within one year or within
such extended period as agreed to
TRIGGER POINTS ALONG WITH STRUCTURED AND DISCRETIONARY
ACTIONS BY RBI:
NET NPAs
SR PARAMETER ACTION
NO
1. Net NPAs Special drive to reduce NPAS and
over 10% but Contain generation of fresh NPAS
less than 15% Review loan policy and
Take steps to strengthen credit appraisal skills,
Follow-up of advances and suit-filed/decreed debts,
Put in place proper credit-risk management policies;
Reduce loan concentration;
Restrictions in entering new lines of business,
Restrictions making dividend payments and
Restrictions on Increasing its stake in subsidiaries.
1. Net NPAs In addition to actions on hitting the above trigger point, Banks Board
15% and is called for discussion on corrective plan of action
above
TRIGGER POINTS ALONG WITH STRUCTURED AND
DISCRETIONARY ACTIONS BY RBI:
ROA RETURN ON ASSETS
Sr Parameter Action
No
ROA less Restrictions On
than 0.25% accessing/renewing costly deposits and CDs,
entering into new lines of business,
banks borrowings from inter-bank market,
making dividend payments
expanding its staff;
Steps To
increase fee-based income;
contain administrative expenses;
special drive to reduce NPAs and
contain generation of fresh NPAs; and
restrictions on incurring any capital expenditure other than for
technological upgradation and for some emergency situations
COMPARISON OF SUPERVISORY PROCESS
CAMELS VIS--VIS RISK BASED SUPERVISION
SN CAMELS RISK BASED SUPERVISION
1 Objective of Supervision:
RBIs supervisory processes include evaluation of Under the proposed RBS, the supervisory rating
banks performance by way of an on-site Annual would be a reflection on the risk elements (inherent
Financial Inspection. business risks and effectiveness of control).
The AFI findings are recorded under CAMELS The supervisory rating exercise would aim at
framework and a supervisory rating of the Bank is determining the overall probability of failure of the
done on the basis of scores obtained by them bank in light of risks to which the bank is exposed,
under relevant parameters of CAMELS (Capital strength of control/governance and oversight
Adequacy, Asset Quality, Management, Earnings, framework in place and available capital.
Liquidity and Supervision).
The bank would be apprised of the direction/trend of
Banks are apprised of the rating on Capital key risk groups along with overall risk faced by it.
Adequacy, Asset Quality, Management, Earnings,
Liquidity and Supervision.
Analysis of probability of failure of a bank and the
Supervisory rating models developed by the likely impact of its failure on the banking/financial
Reserve Bank to provide a risk based summary system will form the basis of the Reserve Bank of
view of the overall health of individual Banks. Indias proposed risk-based supervision (RBS)
CAMELS VIS--VIS RISK BASED SUPERVISION (CONTINUED)
2 Coverage of Supervision:
Compliance-based and Transaction- Evaluation of both present and future
testing approach and is more in the risks, identifying incipient problems,
nature of a point-in-time assessment. and will facilitate prompt
intervention/early corrective action.
(Historical data to be captured to know
the trend)
3 Frequency & Intensity of Supervision:
The Supervisory Process of the Bank The periodicity/intensity of on-site
is conducted on yearly basis. inspection of a bank would depend on
its position on the Risk-Impact Index
Matrix rather than its volume of
business.
CAMELS VIS--VIS RISK BASED SUPERVISION (CONTINUED)
5 Methodology of Supervision:
The current supervisory rating framework (i.e. The proposed supervisory cycle under RBS would
CAMELS) while attempting to gauge the involve six key processes:
performance of the banks, enables the a) Understanding the bank (Bank Profile),
supervisors
b) Assessing risks faced by the bank for supervisory
to understand the micro-perspectives
purpose (Risk Assessment /Matrix),
and facilitates arriving at a rating for the
banks through a scoring pattern, c) Scheduling and Planning Supervisory Activities (Planning
but does not incorporate any forward for supervisory actions /interventions),
looking elements d) Defining Examination Activities, on-site reviews and on-
thereby not reflecting the true market going monitoring (Onsite Inspection objective, scope),
standing of the entity. e) Inspection Procedure (Onsite Inspection, conduct of
SREP, offsite continuous supervision) and
f) Reporting findings and recommendations and follow-up
(Inspection Reports, Updating of the bank Profile)
THANK
YOU

Session 12 Bank Performance Measurement &amp; Analysis

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Session 12 Bank Performance Measurement &amp; Analysis

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BANK PERFORMANCE

TO BE MEASURED IN BANKS AND TRACKED

a. Net Interest Income

b. Net Interest Margin

2. The economic value

a. Market Value of Equity

3. The ability to be funded

a. in the deposit market and

b. in the borrowing market (including inter-bank)

The primary purpose of the measurement parameters is :

to identify/analyse the key measures of returns and risks

to demonstrate the relationship of these returns and risks

evaluating the critical parameters of performance and

initiating appropriate corrective measures.

Peer group comparison of performance parameters evaluates:

the operational efficiency,

strengths and weaknesses in performance vis-a-vis competitors

(S) Systems & B B+ B B B- B-

Break even volume of = Cost per employee, Business per

Net total Income per employee = Net total income / Number

Asset Utilization = Total Income / Total Assets

institutional borrowings + Certificate of Deposits / Total Assets

Mismatches in Cash flows = Mismatch in a bucket / Total outflows in

Mismatches in Repricing = Rate Sensitive Assets (RSAs) - Rate

Sensitive Liabilities(RSLs) / Total Equity

Total Return on Investments = Coupon income + Capital gain(+) or

Capital loss (-)+ Reinvestment income

2. Adjusted Capital The ratio reckons

This adjustment is specifically relevant in view of the

In order to gain uniformity of various return performance

The total return concept recognises the impact of

Five additional ratios like

The portfolio changes i.e. investment or loan are

The higher ratio indicates the magnitude of

2 Net Loans Loans, essentially being illiquid, a higher ratio of

4 Investments The investment portfolios of many of the banks are generally

Non-banking financial companies (NBFCs) and

Financial Institutions (FIs).

Early stage recognition of problems and corrective actions.

Identifying problem banks early is one of the responsibilities of bank

Supervision and monitoring of troubled banks.

The other responsibility is to monitor the behaviour of troubled banks

in an attempt either to prevent failure or to limit losses.

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Session 12 Bank Performance Measurement & Analysis

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