Definition
Cost-to-Income Ratio
The cost-to-income ratio measures a bank's operating expenses as a percentage of its operating income, gauging operational efficiency.
It is operating expenses (staff, technology, branches) divided by net operating income (net interest income plus other income). A lower ratio means the bank generates more income per rupee of cost, the hallmark of an efficient lender.
Indian banks investing heavily in branches, technology or new businesses often run elevated cost-to-income ratios that fall as those investments mature. Efficient private banks target ratios around 40-45%, while franchises in expansion or PSU banks with large workforces can sit higher.
Related terms
- Net Interest Margin (NIM)Net Interest Margin is the difference between the interest a bank earns on advances and investments and what it pays on deposits and borrowings, expressed as a percentage of average interest-earning assets.
- Return on Assets (ROA)ROA shows how much profit a company earns from each rupee of its total assets, measuring overall asset efficiency.
- Operating MarginOperating margin is the percentage of revenue left as operating profit after deducting the costs of running the core business.
- Other Income (Banking)Other income, or non-interest income, is the fee, commission, trading and miscellaneous income a bank earns beyond interest on loans.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.