Banking & Lending Decoded

A bank is a business that borrows money cheap (your deposits) and lends it out expensive (loans), living on the gap. Everything on its dashboard measures three things: the gap, the safety of the loans, and the cushion for accidents. Each term below: meaning + direction (is rising good or bad?).

NPA — Non-Performing Asset. A loan where the borrower has stopped paying (90+ days overdue). For a bank, loans are its assets — an NPA is an asset that stopped performing its one job. Gross NPA % = share of all loans gone bad; Net NPA % = what remains after the safety cushion (provisions, below) is subtracted. Direction: rising NPA = bad, always. When TV says "asset quality deteriorated," this is the number that moved. India's banking stress of the mid-2010s was, in one number, gross NPAs climbing toward double digits at public-sector banks.

Provisions. Money the bank sets aside from profits in advance to absorb loans it expects to go bad — an internal insurance fund. Direction: subtle. Rising provisions cut today's profit but signal honesty about tomorrow's losses; suspiciously low provisions can mean problems being hidden, not absent. The quality measure is the Provision Coverage Ratio (PCR) — what % of bad loans are already covered by the cushion. Higher PCR = safer. A bank with 80% PCR has largely pre-paid for its known mistakes.

NIM — Net Interest Margin. The gap that is the business: interest earned on loans minus interest paid on deposits, as a % of lending assets. Indian banks typically live around 3–4%. Direction: higher = better; watch the trend. "NIMs compressed" = the gap shrank (deposits got costlier or loan pricing got competitive) — the bank's core engine lost some power this quarter.

CASA — Current Account, Savings Account ratio. What share of the bank's deposits sit in current/savings accounts — which pay the bank's cheapest interest (savings ~2.5–3%, current accounts ~0%) versus costlier fixed deposits. Direction: higher CASA = better — cheaper raw material for the lending machine, which directly protects NIM. This is why banks fight so hard for your salary account.

Credit growth / deposit growth. How fast the loan book and deposit base are growing. Direction: healthy credit growth = good, but — and this is the sector's defining tension — lending is the one business where growing too fast is a classic danger sign. Loans given in a hurry in year 1 become NPAs in year 3. A lender growing 40% while peers grow 15% deserves suspicion before applause. (This exact pattern preceded multiple NBFC blow-ups.)

CAR / CRAR — Capital Adequacy Ratio. The regulator-mandated shock-absorber: the bank's own capital as a % of its risk-weighted loans. Direction: higher = safer. Falling toward the regulatory minimum = the bank may soon need to raise capital (diluting shareholders) or slow its lending.

NBFC. Non-Banking Financial Company — lends like a bank but cannot take your deposits, so it borrows its raw material from banks and bond markets, making it more fragile when money gets tight (Chapter 18: rates rise → NBFC borrowing costs jump → NIM squeezed → the weakest break — the 2018 IL&FS episode in one sentence).

Now reread the hook: "Gross NPAs rose, NIMs compressed, but CASA improved." Translation: more loans went bad, the core profit gap shrank, but the bank attracted more cheap deposits. A mixed quarter, leaning negative. You just read bank-speak fluently.