March 27, 2026

How to check the financial health of a bank

What could be better than a bank to ‘bank on,’ right? One would think that is a no-brainer. However, recent incidents of financial irregularities, and violation of RBI guidelines have created a lot of uncertainty in the minds of investors and created a trust deficit.
In such a scenario, it is prudent to check a few basic financial indicators of the bank before investing in its stock. In this blog, we'll look at some aspects of how to assess a bank's financial health and why it's important.

Key Indicators of Financial Health of a Bank

When it comes to checking the financial health of a bank, there are several key indicators that one can consider. These indicators give you an idea of the bank's overall financial position. These can also help in assessing the bank’s ability to weather economic storms.
  • Capital Adequacy Ratio (CAR): It is one of the most important indicators which measures a bank's capital against its risk-weighted assets and liabilities. This ratio is crucial because it tells you how much cushion a bank has to absorb losses before it becomes insolvent. Generally, a high CAR means that a bank has cushion to absorb losses without becoming insolvent.
  • Liquidity Ratio: This ratio highlights the proportion of highly liquid assets held by the bank to meet its short-term obligations. A bank with a high liquidity ratio is better placed to handle unexpected withdrawals or financial shocks. In general, this ratio shows how much high quality liquid assets a bank holds that are sufficient to cover 30 days of cash outflows.
  • Non-performing assets (NPAs): It is one of the most critical indicators of a bank's financial health. NPAs refer to the classification of loans which are not being repaid and have been tagged as default loans. As per RBI regulations, if interest on a loan is not paid for 3 months (90 days), the loan is categorised as a non-performing asset.
A higher NPA ratio indicates that the loans given by a bank are not being paid on time, which means that the asset quality of the bank is in poor shape. It is important to note that the interest income from loans is one of the main sources of income for banks.
  • Net interest margin (NIM): The NIM is a profitability indicator that highlights the likelihood of a bank thriving over a long period of time. It is the difference between interest earned by a bank on loans and the interest it pays on deposits. For better understanding of a bank's performance, one can also look at both NIM and NPAs together. For example, if the NPAs of a bank are rising then the interest earned by the bank should fall, resulting in decline of the NIM.
These are some of the key indicators that are essential in assessing a bank's financial health. Understanding each of them, and how they relate to each other, will give you a clear picture of a bank's overall financial health and allow you to make informed decisions before you invest.

Analysing Financial Statements

When reviewing a bank's financial health, one of the most important steps is to analyse the bank's financial statements. These statements typically include the balance sheet, profit and loss and cash flow statement. By going through these statements, you will be able to understand the bank's financial health. Like any listed company, banks are also expected to make public their financial statements on a quarterly basis. These documents are easily available on stock exchange websites.

Conclusion

In conclusion, it is important to check the financial health of a bank before you invest your hard-earned money in its stock. A few indicators such as capital adequacy ratio, liquidity ratio, non-performing assets and net interest margin provide insight into a bank's financial health. Analysing financial statements and regulatory reports can also help to assess a bank's financial stability. You can also use these numbers to compare the performance of different bank stocks and pick one that is aligned to your investment goal.

Disclaimer

The investment options and stocks mentioned here are not recommendations. Please go through your own due diligence and conduct thorough research before investing. Investment in the securities market is subject to market risks. Please read the Risk Disclosure documents carefully before investing. Past performance of instruments/securities does not indicate their future performance. Due to the price fluctuation risk and the market risk, there is no guarantee that your personal investment objectives will be achieved.

Never miss a trading opportunity with Margin Trading Facility

Enjoy 2X leverage on over 900+ stocks

Upstox Margin Trading Facility

RELATED ARTICLES

ATM Card: Meaning, Uses & How to Apply Online Easily

Understand what an ATM card is, how to use it for the first time, features, benefits, and how to apply online step by step.

How India's new wage code affects take-home pay

India's latest wage code has revamped salary structures, affecting what you finally take home. Your basic salary now needs to be at least half of your total earnings. This will affect your take-home pay based on your job contract and salary split, including elevated provident fund (PF) contributions, gratuity rule shifts allowing early benefits, and an updated salary structure impacting tax liabilities for high earners while lower and mid-range earners remain relatively unaffected. In the Union Budget 2021, the Indian government consolidated 29 labour laws into four new codes. The codes Include information about: - Industrial relations - Occupational safety and health - Working conditions - New wage code The definition of “wage” has been altered in the new wage code, departing from the stipulations of the Wage Code Bill of 2019. An employee's monthly basic salary, also known as “wage,” needs to be at least 50% of their total cost to the company (CTC). But what does this actually mean? How will the new wage code of 2022 impact the take-home pay of the salaried class in India? Let’s dive into the details.

Best Fixed Deposit Rates in India

Fixed deposits (FDs) are a popular investment option in India, providing a low-risk and stable source of income. Banks and other financial institutions offer FDs, providing a fixed interest rate for a predetermined period. Finding the best-fixed deposit rates in India can be beneficial several reasons. Firstly, FDs provide a low-risk and secure investment option for risk-averse individuals who prefer a guaranteed return on their investment. Secondly, banks and financial institutions' interest rates on FDs are generally higher than those offered on savings accounts. Lastly, FDs provide a stable source of income, which is especially important for retirees and those who rely on a fixed income to cover their expenses.

Bank of Baroda Mobile Banking and How to Activate: Login and Registration

Bank of Baroda has launched a mobile banking service that allows customers to access banking services such as balance inquiry, fund transfer, cheque-related services, bill payment, and more from their mobile phones. The service is available 24/7 and is compatible with any type of mobile phone. Customers must register first before they can use the service. The Bank of Baroda's mobile banking service provides customers with a secure, convenient, and easy-to-use service that gives them the freedom to manage their accounts anytime and anywhere. It has helped customers to save time and effort in managing their banking transactions, making banking easier, faster, and more secure.