Banking
The whole thing, in causal order
33 ideas, 50 causal links. Below is the longest single chain through them — 12 ideas where each one genuinely causes the next. Everything else either feeds into that chain or hangs off it.
The spine
Read top to bottom. The line under each idea is why it causes the one below it.
- 01The Bank Balance SheetThe asset side's earnings are the yield on advances.
- 02Yield on AdvancesChasing higher yield means riskier loans that slide down the classification ladder.
- 03Asset Classification (Standard → Loss)Each rung down the ladder forces a bigger provision.
- 04ProvisioningProvisions expressed as a percentage of the loan book are the bank's credit cost.
- 05Credit CostCredit cost is the provision charge that comes off PPOP — the biggest swing on the way to net profit.
- 06Net ProfitRetained profit is what builds the capital in the CRAR numerator — a bank that earns well capitalises itself.
- 07Capital Adequacy (CRAR)Every new loan consumes capital, so capital adequacy sets the speed limit on how fast the book can grow.
- 08Credit GrowthA bigger loan book earns the spread on more rupees, lifting NII even if the margin is flat.
- 09Net Interest IncomeNII as a percentage of interest-earning assets is NIM.
- 10Net Interest MarginWhen NIM compresses, banks chase fee and other income to protect profitability.
- 11Non-Interest IncomeOther income stacks on top of NII to build pre-provision operating profit.
- 12Pre-Provision Operating Profit
What feeds the spine
Levers and rules that push on the chain from outside it. Nothing causes these — they are where the causation starts.
- Cash Reserve Ratio Cost of FundsCash locked at RBI earns nothing, so the lendable rest must carry it — raising effective cost of funds.
- Cost of Funds Net Interest IncomeSubtract funding cost from loan income and what's left is net interest income.
- Cost-to-Income Ratio Pre-Provision Operating ProfitOperating expenses are subtracted from income to reach pre-provision operating profit.
- Deposit Growth Credit-Deposit RatioDeposits are the denominator — slow deposit growth pushes the credit-deposit ratio up.
- IRAC Norms Asset Classification (Standard → Loss)IRAC defines the standard-to-loss classification ladder.
- Priority Sector Lending Credit GrowthThe mandate directs where a large slice of a bank's loan growth must go.
- Rate Transmission Net Interest MarginWhen loans reprice faster than deposits, the bank's margin gets squeezed.
- RBI & the Repo Rate Cost of FundsThe repo rate sets the floor under what banks pay for money.
- Recovery & Write-offs Net ProfitA recovery on an already-provided loan flows back as pure write-back to profit.
- SMA Stress Buckets Credit CostSlippage flowing out of the SMA buckets into fresh NPAs is what drives credit cost each quarter.
- Statutory Liquidity Ratio The Treasury BookThe forced G-secs are the base of the bank's bond portfolio, where rate moves become gains or losses.
- The Treasury Book Non-Interest IncomeTrading and treasury gains on the bond book are a core part of the bank's other income.
- What an NPA Is (the 90-Day Rule) Asset Classification (Standard → Loss)Once past 90 days, the loan steps onto the classification ladder.
- Why Branches Push CASA Cost of FundsEvery rupee of CASA lowers the bank's blended cost of funds.
What comes off it
Consequences and scorecards. The chain reaches these, and stops.
- Credit-Deposit Ratio Credit GrowthLoan growth outrunning deposit growth pushes the credit-deposit ratio up.
- Gross & Net NPA Ratio Asset Classification (Standard → Loss)Loans graded down the ladder sum into the gross NPA figure.
- Provision Coverage Ratio ProvisioningHow much of the bad loans a bank has provided against is the provision coverage ratio.
- ROA / ROE Credit CostCredit cost as a share of assets maps almost one-for-one onto the drag on ROA.
Standalone ideas
3 ideas with no causal link to the spine. They are reference — things you look up, not things that cause anything. Worth knowing that upfront rather than hunting for a connection that was never authored.