The Bank Balance Sheet
Two sides — money the bank owes versus money it lends out; the gap is profit.
Why you care
Once you see deposits as the bank's debt and loans as its assets, every other banking concept clicks into place. It's the frame interviewers and seniors assume you already have — and it flips the intuition that "deposits are the bank's money."
Run the numbers
On a ₹100 cr bank, ~₹65 cr earns as loans while ~₹35 cr is tied up in forced reserves and low-yield G-secs (illustrative). The two sides always equal — that's why it "balances" — but the asset side is where the money is made.
Where this goes
The liability side's price is your cost of funds; the asset side's earnings are your yield on advances; the gap is the spread the rest of this map explains. Part of the asset side isn't yours to lend — the regulator forces it into G-secs via SLR.
Why you care
A bank's balance sheet is a two-sided list. On one side is the money it owes (deposits and borrowings — its liabilities); on the other, the money it has put to work (loans and investments — its assets). The whole business is making the asset side earn more than the liability side costs.
Most people picture a bank's "money" as cash in a vault. It isn't — it's almost entirely other people's money that the bank has borrowed (your customers' deposits) and lent back out. Once you see the balance sheet, every other concept in banking falls into place: deposits are a liability (the bank owes the depositor), and loans are an asset (the borrower owes the bank). For anyone in ops, credit, or a branch, this flips the intuition that "deposits are the bank's money" — they're the bank's debt, and a cheap one is gold.
Run the numbers
A simplified bank balance sheet, ₹100 crore in size (illustrative):
| Liabilities (where money comes from) | ₹ | Assets (where money goes) | ₹ |
|---|---|---|---|
| Deposits (CASA + term) | 85 cr | Loans / advances | 65 cr |
| Borrowings | 5 cr | Investments (mostly SLR G-secs) | 25 cr |
| Capital (shareholders') | 10 cr | Cash & balances with RBI (CRR) | 10 cr |
| Total | 100 cr | Total | 100 cr |
The two sides always equal — that's why it "balances." The art of banking is on the asset side: the ₹65 cr of loans earns ~9%, but ₹35 cr is tied up in lower-yielding investments and idle reserves the regulator forces. The liability side is a cost to be minimised; the asset side is income to be maximised; the difference is the bank's living.
Where this goes
The liability side's price is your cost of funds; the asset side's earnings are your yield on advances; the gap between them is the spread the rest of this map is about. Note too that part of the asset side isn't yours to lend — the regulator forces a chunk into G-secs via SLR, and the cheapest slice of the liability side is CASA.