• UGI USER
  • Apr 15, 2024
  • 20 Likes
  • 0 Comments

Q4 TO WITNESS NIM MODERATION DUE TO TIGHT LIQUIDITY CONDITIONS.

Why in the news?

Banks anticipate NIM pressure in Q4 due to tight liquidity conditions and higher funding costs, impacting profitability.

source:IE

Understanding the Factors Affecting NIM:

  • Tight liquidity conditions and higher funding costs are expected to impact banks’ net interest margins (NIM) in Q4.
  • Analysts predict a 5-15 basis points compression in NIM for most lenders due to limited loan repricing and increased cost of funds.
  • Private banks are particularly susceptible to sequential declines in NIM amid ongoing liquidity challenges.
What is Net Interest Margin?

  • NIM stands for Net Interest Margin.
  • It represents the variance between a bank’s interest income and the interest paid relative to its interest-earning assets.
  • Reflects profitability and efficiency in managing interest rate risk.

What is Banking System Liquidity?

  • Definition:
  • Refers to readily available cash banks required for short-term business and financial needs.
  • Measurement:
  • Deficit: Banking system borrows from RBI under Liquidity Adjustment Facility (LAF).
  • Surplus: Banking system lends to RBI under LAF.

Liquidity Adjustment Facility (LAF):

  • RBI’s operations to inject or absorb liquidity into/from the banking system.

Source:

https://indianexpress.com/article/business/banking-and-finance/banks-to-see-moderation-in-nim-in-q4-on-tight-liquidity-condition-9270252/#:~:text=Banks%20are%20likely%20to%20see,conditions%20and%20higher%20funding%20cost.