Some important ratios and parameters that may be asked as part of descriptive questions in Phase II or in the interview have been listed down below. I have tried and put the ratios into various categories. In my RBI Grade B interview, I was asked a question on various ‘types of ratios’ and then was asked to name a few Profitability related ratios. I was unable to recall a single one and it was quite embarrassing. So understanding these ratios now would surely help with Phases II and III.
Note on how to use these ratios/terms
- Look up definitions and formulae for these terms and ratios on the net. Most ratios can be obtained from RBI’s website, especially ratios used only in India’s context like SMA2 ratio. For further understanding on these, refer to Investopedia or google search in general.
- Make notes of definitions/formulae of these terms and ratios and also other terms/ratios related to banking that you come across while studying or reading news. PLEASE do add to the comments section of this page any new term/ratios that you come across.
- Understand the meaning AND SIGNIFICANCE of the ratio/term as a whole. This is very important as it would help you remember the formula/definition. For example, WHY is PCR calculated for banks?
- Understand the meaning and significance of the COMPONENTS of the ratio/term. For example, to understand PCR, you first need to understand what are Provisions.
- Get a sense of whether the higher the ratio, the better the bank or vice versa. For example, higher the CRAR, better the bank. But higher the GNPA ratio, worse is the bank. Once you understand a particular ratio and its significance, this should come to your mind automatically when you think of the ratio
- Through new articles, try and get a very rough idea of the current range of values of the ratio prevailing in the Indian economy. For example, GNPA ratio for Indian banking system as a whole at the peak of NPA issue in 2018 was roughly around 11% but has now come down to around 8-9%. PCR for Indian banks is around 75-80% etc.
Kamath Committee related
- Total Outside Liability / Adjusted Tangible Net Worth (TOL / Adjusted TNW): Addition of long-term debt, short term debt, current liabilities and provisions along with deferred tax liability divided by tangible net worth net of the investments and loans in the group and outside entities.
- Total Debt / EBITDA: Addition of short term and long-term debt divided by addition of profit before tax, interest and finance charges along with depreciation and amortisation.
- Current ratio: Current assets divided by current liabilities.
- Debt Service Coverage Ratio (DSCR): For the relevant year addition of net cash accruals along with interest and finance charges divided by addition of current portion of long term debt with interest and finance charges.
- Average DSCR: Over the period of the loan addition of net cash accruals along with interest and finance charges divided by addition of current portion of long term debt with interest and finance charges.
Profitability related
- Net Interest Income (NII)
- Net Interest Margin (NIM)
- Return on Assets (RoA)
- Return on Equity (RoE)
- Profit After Tax (PAT)
- Earnings Before Provision and Taxes (EBPT)
- Cost to Income Ratio (efficiency ratio)
- Profit Margin
Capital Adequacy related
- Capital to Risk Weighted Assets Ratio (CRAR) or Capital Adequacy Ratio (CAR)
- Common Equity Tier 1 Ratio (CET1 ratio)
- Leverage ratio
- Risk Weight Density (total RWAs to total assets)
Asset Quality related
- GNPA ratio
- NNPA ratio
- Special Mention Account 2 ratio (SMA2 ratio) or Potential NPA ratio
- Provision Coverage Ratio
- Slippage Ratio
Liquidity Risk related
- Liquidity Coverage Ratio (LCR)
- Credit Deposit Ratio (CD Ratio)
Market Risk related
- Earnings at Risk
Reserve ratios and policy rates
- CRR
- SLR
- Base Rate
- MCLR
- Repo Rate
- Reverse Repo Rate
- MSF Rate
- Bank Rate
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