Shares of a few leading private sector banks have come under pressure after their net interest margin (NIM) — a key measure of net interest income — declined in the latest quarter, according to recent data.
Banks such as HDFC Bank, Axis Bank, Kotak Mahindra Bank and Bandhan Bank have reported a softer NIM, which triggered a negative reaction in the market. However, sector experts say the impact should be seen as temporary rather than a sign of structural weakness.
Hari Krishnan, a former general manager at the Reserve Bank of India, said a fall in NIM alone should not be taken as proof that a bank has become weak. He pointed to factors such as higher interest paid on deposits, changes in RBI policy rates, intensifying competition in lending, and greater allocation to lower-yield investments.
Market participants also stress that bank performance must be judged using a basket of indicators, including overall profitability, bad loans, asset quality and capital adequacy.
Ponmudi R, founder and CEO of Enrich Money, said NIM remains an important indicator of a bank’s core earning ability and should be tracked while reviewing quarterly results. He added that the private banking sector is currently facing NIM pressure, and a one-quarter decline should not cause panic; if the RBI continues a rate-cut cycle, deposit rates may ease over time, potentially supporting a recovery in NIM.
