Take the stylised bank P&L and put real names on it. Indian banks report under RBI formats, in the Form B P&L. The same logic maps onto a US 10-K with different labels, and the regulatory map translates them.
What are the lines of a bank income statement?
Interest income. Interest on advances, plus interest on the investment book. Advances are the loan book, and they earn whatever yield the bank can command, which depends on loan mix. Unsecured personal loans earn 13 to 16%, mortgages 8 to 9% and AAA corporate loans 7.5 to 8.5%. The investment book is mostly government securities yielding ~7%. Here, loan mix is destiny. A book heavy in unsecured retail yields more and loses more. A mortgage book yields less and loses almost nothing.
Interest expense. The cost of deposits, plus the cost of borrowings. Current accounts cost 0%, savings ~2.5 to 3.5% and term deposits ~6.5 to 7.5% (rates as of mid-2026, so check against any bank's investor presentation). Borrowings means interbank money and refinance. It also covers infrastructure bonds and Tier 2 bonds.
Net interest income (NII) = interest income − interest expense. Think of it as the engine room. Divide it by average interest-earning assets and you have NIM, KPI 1 on the bank financial ratios page.
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What goes into a bank's other income?
Other income. It comes in four buckets, and their quality varies a lot. (i) Core fees cover processing fees and card interchange, plus the margins on transaction banking and forex. They recur and need little capital, and they're the best income a bank has. (ii) Distribution income is the commission for selling insurance and mutual funds through the branch network. It's recurring-ish but sensitive to the regulator. (iii) Treasury gains are profits from selling investments when yields fall. They're cyclical and mean-reverting, and they're the classic place a weak year gets "managed", so bring your cash-flow-shenanigans reflexes. (iv) Recoveries from written-off accounts are good news, but lumpy. Indian banks typically earn 25 to 30% of net revenue as other income, and large US banks ~40 to 50%. The scale contrast in the valuation section shows the gap.
Operating expenses. That's people and branches, and the technology behind them. Divide by NII plus other income and you get the cost-to-income ratio, KPI 8. Branch networks are the paradox here. They're the expensive machine that gathers the cheap CASA, so cut opex too hard and you can destroy the funding moat without noticing.
Pre-provision operating profit (PPOP). NII + other income − opex. Watch this line. It's the bank's earnings power before the credit cycle has its say, and it's the buffer that absorbs provisions before capital has to. A bank with PPOP at 2.4% of assets can take a 2% credit-cost year and stay profitable. A bank with PPOP at 1.2% can't.
Provisions. It's the P&L charge for expected loan losses. It also includes provisions on investments and standard-asset provisions. Divide it by average advances and you have the credit cost (KPI 4). This is the line where management has discretion. India currently runs an incurred-loss regime with minimums the RBI prescribes, which the regulatory map sets out, so the timing of recognition is the game. Everything in the credit-cycle section is about this line lying to you in booms.
PAT = (PPOP − provisions) × (1 − tax rate). ROA and ROE follow.
What is the ROA tree?
The ROA tree (the bank DuPont). Express every line as a percentage of average assets and ROE decomposes cleanly:
ROE = [NII% + other income% − opex% − credit cost%] × (1 − tax) × leverage
For the stylised bank, (3.2 + 1.2 − 2.0 − 0.5) × 0.75 = 1.42% ROA. Multiply by 11.1× leverage and you get 15.8% ROE. Every bank conversation you'll ever have fits in this tree. When ROE moves, find the branch that moved it: margin (NIM), fees, efficiency, credit or leverage. An ROE built from 2.0% ROA at 8× leverage and one built from 1.0% ROA at 16× leverage are the same number and utterly different investments. The second has half the margin for error on asset quality.
Always quote ROA alongside ROE.