Definition
Adjusted Book Value
Adjusted book value is a bank's reported net worth reduced by its unprovided net NPAs and other expected losses, giving a more conservative measure of true equity.
Reported book value can overstate a bank's real capital if bad loans are under-provided. Adjusted book value strips out net NPAs and sometimes restructured or stressed exposures to reflect the equity that would survive those losses.
Indian analysts use adjusted book value to compare banks with very different provisioning policies on a like-for-like basis. A bank trading at a high multiple of adjusted book typically has clean assets and strong returns, justifying the premium.
Related terms
- Net NPA RatioThe Net NPA ratio is gross non-performing assets minus provisions held against them, expressed as a percentage of net advances.
- Price-to-Book (P/B) RatioThe P/B ratio compares a company's market price to its book value (net assets) per share, showing how much investors pay for each rupee of net worth.
- Provision Coverage Ratio (PCR)The Provision Coverage Ratio is the proportion of a bank's gross non-performing assets covered by provisions, showing how well it is buffered against loan losses.
- Book Value of a BankThe book value of a bank is its net worth, total assets minus liabilities, often viewed per share and adjusted for net NPAs to gauge underlying value.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.