Pre-Provision Operating Profit (PPOP)

What PPOP measures

Pre-Provision Operating Profit (PPOP) is a bank's operating profit *before* it subtracts provisions for bad loans and before tax. It is calculated as net interest income plus fee and other income, minus operating expenses. By stopping short of provisions, PPOP isolates the core earning power of a bank — how much its lending and fee businesses generate — stripped of the volatile, sometimes lumpy effect of credit costs. Analysts love it because provisions can swing wildly from quarter to quarter, masking whether the underlying franchise is actually getting stronger.

Why it can diverge from net profit

The gap between PPOP and the bottom line is provisions and tax, and that gap can be large. A bank can post strong PPOP yet a weak net profit if it takes heavy provisions — and vice versa. Real examples make this vivid:

- HDFC Bank in one recent quarter grew PPOP by over 27% year-on-year to around ₹23,885 crore, yet net profit rose only modestly because provisions and tax absorbed much of the gain. - SBI crossed ₹1 lakh crore in full-year operating profit for the first time, up nearly 18%, even as a particular quarter's net profit *fell* — largely because of the absence of a one-time provision write-back. The headline profit dropped on provisioning even though the core engine held up, exactly what PPOP filters out.

The analytical value

PPOP answers a different question from net profit. Net profit tells you what shareholders earned this quarter; PPOP tells you how powerful the bank's underlying money-making machine is, before the noise of credit-cost decisions. A bank with steadily rising PPOP has a strengthening franchise, even if a bad quarter for provisions dents the reported profit.

Why investors should watch it

When a bank's net profit falls, the first question to ask is *why*. If PPOP is still growing and the drop is purely due to higher provisions, the core business may be perfectly healthy — and the provisioning may even be prudent buffering. But if PPOP itself is shrinking, the franchise is genuinely weakening. Reading PPOP alongside provisions and net profit gives you a far clearer view of an Indian bank's true health than the headline number alone.