Cost to Income Ratio

The Cost to Income Ratio (also called the efficiency ratio) measures what proportion of a bank's or financial institution's operating income is consumed by its operating expenses — essentially, how much it costs to generate each rupee of income. It is calculated as: Cost to Income Ratio = Operating Expenses ÷ Operating Income × 100. A lower ratio indicates a more efficient institution — a ratio of 40–50% is generally considered healthy for Indian banks. Rising cost-to-income ratios can signal cost discipline issues, heavy investment in expansion, or deteriorating revenue. It is a key metric for comparing operational efficiency across banks of different sizes and business models — private sector banks in India have historically maintained lower cost-to-income ratios than public sector banks.