Banks' net interest margins likely to decline further after RBI rate cut

Extent of NIM compression will depend on further rate cuts

The 25-basis-point (bps) cut by the six-member Monetary Policy Committee (MPC) last week is expected to further compress net interest margins (NIMs) of banks. The banks were already under pressure due to the elevated cost of deposits because of tight liquidity conditions.

 

Margins are under pressure also due to recalibration in the unsecured retail segment, which typically yields higher margins for banks.

 

"The 25-bps cut was expected. This would be slightly negative on the NIMs as the deposit cost will not come down but the lending rates will fall immediately on the external benchmarked linked loans (EBLR). Having