NIM Earned interest is the difference between the income and the interest paid by the bank for its interest-earning assets.
The increase in these margins can be attributed to the recent hike in interest rates. reserve Bank of India ,reserve Bank of India) to tame inflation,
In addition, higher policy rates and favorable funding structures could also contribute to larger margins, the report said. This, in turn, will help generate higher return on assets or ROA. However, credit costs may either remain stable or decline in FY23 after rising significantly during the pandemic.
“In the case of India, the historical relationship between credit cost and inflation is distorted because inflation was slow due to delays in recognition of NPLs and bank restructurings that took place in 2016-18. We expect the asset quality of Indian banks to improve in 2022. -23 due to the recovery and write-off of the legacy NPL,” Moody’s said.
Rising inflation coupled with rate hikes have pushed real (inflation-adjusted) policy rates into the negative. As a result, it can harm banks Due to less number of customers willing to deposit in these banks.
Of the 10 emerging markets considered by the firm, Turkey, Brazil, Argentina and Mexico have the most negative real rates, according to the report.
RBI recently raised the benchmark interest rate by 50 basis points to 4.90% as a measure to contain higher inflationary pressures. However, this number still remains below pre-pandemic levels.