how to know bank financial health -- Some points

Dear Reader,

Recently when i am reading some article about the financial crises across the world i came to know few points regarding "how to know bank financial health". I would like to share those points with you.

When you are estimating the financial health its important that you take both qualitative and quantitative aspects into account as weakness in one area could easily be compensated by strength in another segment.

Reserve Bank of India (RBI) will maintain the details about the banks which are in India, this date will be collected by RBI in regular time periods you can find details about the banks in Bank Profiles provided by RBI

Lets look into the details how we can estimate the financial health.

SLR (Statutory Liquidity Ratio):
In simple terms SLR means minimum amount of reserves (held in cash, gold, short term securities and other liquid assets) a bank must maintain during all times, after all it's investments and lending.The SLR for Indian banks is normally 25 per cent of the capital. For example, if a bank has Rs 1000 with it, before it gives away all of it, it has to maintain at least Rs 250. This helps in case depositors want to withdraw money, or for liquidity purposes.

Non-performing Assets (NPA) Ratio:
NPAs refer to the loans given by a bank that it classifies as doubtful. This means that the bank has low or no hopes of recovering money on these loans.A non performing asset or a loan is when the interest and/or installment of principal on it has remained 'past due' or unpaid -- for more than 90 days

CRAR(Capital Adequacy Ratio) :
In INDIA Commercial banks need to maintain a minimum capital to risk-weighted assets ratio (CRAR) of 9 per cent. In simple terms this means that if the bank has given out Rs 100, it should have at least Rs 9 with it as capital.


Related Links :

Assessing the health of your bank

3 ratios that tell if your bank is safe