• UGI USER
  • Apr 15, 2024
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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.