Widely read:
Summary: The profit and loss (P&L) statement offers crucial insights into a company's financial performance, capturing the income earned, expenses incurred and profit generated. While its purpose is universal, the transactions that drive it look very different for banks and NBFCs compared to regular businesses. Here's a breakdown of what's inside.
Money makes money
Banks accept deposits and issue loans. They pay interest on deposits and charge a higher rate on loans. This gives rise to two key line items: interest earned, which is income from loans extended to customers and interest expended, or the cost of paying depositors. The difference between the two is called ‘net interest income’, and it is the primary revenue driver for banks.
NBFCs work similarly, with one key distinction: they cannot accept deposits. Instead, they borrow from financial institutions and lend that money out. The interest they pay on borrowings plays the same role as interest expended does for banks.
Beyond interest: Other income
Banks and NBFCs also earn non-interest income through fees and commissions, from loan processing, insurance sales and investment management, as well as investment income from buying and selling securities or gains from asset sales.
Managing expenses
Operating expenses cover the day-to-day costs of running the business: employee salaries and benefits, branch operations and administrative costs and marketing and customer acquisition.
Provisions deserve special attention. Not all loans get repaid. When loans turn bad and become non-performing assets (NPAs), banks and NBFCs set aside money to cover potential losses. While provisions reduce profitability, they reflect the institution's risk management discipline. High provisions often signal that the management is being proactive rather than complacent.
Net profit
After deducting all expenses, including taxes, the remaining amount is the net profit. For banks and NBFCs, where money is both the product and the raw material, net profit is the clearest measure of financial health, and the foundation for dividends, buybacks and future growth.
Profit and Loss Statement of HDFC Bank
Interest earned comprises the majority of the total income
| Particulars | FY24 (Rs cr) |
|---|---|
| Income | |
| Interest earned | 2,58,341 |
| Other income | 49,241 |
| Total | 3,07,582 |
| Expenditure | |
| Interest expended | 1,49,808 |
| Operating expenses | 63,386 |
| Provisions & contingencies | 33,575 |
| Total | 2,46,769 |
| Profit | |
| Net profit | 60,812 |
| Numbers are on a standalone basis.Details of each line item are presented in the notes to accounts section of the annual report. | |
Also read:
What is cash flow from operations
What is margin of safety and why do you need it
This article was originally published on August 12, 2024, and last updated on June 04, 2026.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
