Credit cost: what it means and how to read it
What is Credit cost?
What a lender charged against profit in the year for loans expected to go bad, as a share of its average loan book.
Credit cost turns bad loans into a yearly percentage that can be set straight against the net interest margin. A lender with a 4% margin and a 0.6% credit cost keeps far more than one with an 8% margin and a 5% credit cost, although the second looks more profitable at first glance.
It rises and falls with the economy. In good years it is low everywhere and tells you little; the test is how high it went in the last downturn, and whether margins covered it.
How it is calculated
A worked example
Why does Credit cost matter?
It is the price of lending mistakes, in the same units as the margin. A lender only makes money on what is left of its margin after credit costs.
What is a good Credit cost?
Under 1% is low for a bank. Lenders to riskier borrowers run 2% to 4% and price their loans for it.
Lower is better, read against the margin. A rough rule is that margin minus credit cost minus operating cost must leave a healthy return on assets. For secured retail and corporate lending under 1% is normal; for microfinance and unsecured loans 2% to 4% is part of the model.
Reading scale
What are the common mistakes with Credit cost?
What is a typical Credit cost in India today?
The median across the 114 listed companies that report it, as of 12 Oct 2026. Half sit above each figure and half below.