According to Moody's, Indian banks would experience a jump in margins in FY23

29 Jun 2022 , 10:19 AM

In the current fiscal year (FY23), net interest margins (NIMs) at Indian banks may increase, according to research released on Monday by Moody’s Investor Service.

The net interest margin (NIM) is the difference between interest received and interest paid by a bank to its interest-earning assets.
Recent interest rate increases made by the Reserve Bank of India (RBI) to control inflation are to blame for the widening of these disparities.

The analysis also suggested that higher policy rates and advantageous finance arrangements may have an impact on the bigger margins.

Higher returns on assets, or ROA, will result as a result of this. However, after sharply rising during the epidemic, credit costs may either remain steady or even decrease in FY23.

“In India, bank restructurings that occurred in 2016—18, a period of falling inflation, and notably delayed identification of NPLs have altered the historical link between loan costs and inflation. Because of recoveries and write-offs of historical NPLs, we anticipate that the asset quality of Indian banks will improve in 2022—2033 “stated Moody.

Real (inflation-adjusted) policy rates are now negative due to the rising inflation and rate rises. Because fewer clients are ready to deposit money at these institutions, this could hurt the banks.

According to the analysis, Turkey, Brazil, Argentina, and Mexico had the greatest negative real rates out of the 10 emerging markets that the firm took into account.

To combat the severe inflationary pressures, the RBI recently increased the benchmark interest rate by 50 basis points to 4.90%. The amount is still lower than pre-pandemic levels, though.