Bank NIMs and Profits Improve as RBI Cuts Rates
Why in the news
As RBI starts cutting policy rates, banks report stronger profits and wider Net Interest Margins (NIMs).
Key facts
- Funding cost: cheaper borrowing lets banks reprice loans while older loans keep earning well.
- Loan pricing: shift towards EBLR and MCLR, improving transparency.
- Deposits: slower deposit growth than credit raises competition and tests asset-liability management.
- Sectors: private banks keep higher NIMs than public sector banks through better appraisal and varied loan books.
What is NIM?
A measure of lending profitability: interest earned minus interest paid, as a share of earning assets. A higher NIM signals a more efficient bank.
Exam angle
- EBLR = External Benchmark Lending Rate; MCLR = Marginal Cost of Funds-based Lending Rate.