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Banks to see pressure on Q2 margins as cost of deposits surge even as lending rates stay flat
October 10, 2023
In the coming months, banks might earn less money from the interest they charge on loans compared to what they pay for deposits, a situation known as net interest margin (NIM) compression. This is because the cost of getting deposits (like savings accounts and fixed deposits) is increasing, making it harder for banks to make a profit from lending. In the past few months, banks\’ NIM has already decreased.
However, analysts predict that banks will still make a good profit after paying taxes. They also believe that the quality of assets owned by banks will improve, and there won\’t be many bad loans. Even though lending rates will remain stable, the cost of getting funds for banks will keep going up, making their profits smaller.
This trend is expected to continue in the next quarter (Q2FY24). Some banks might be slightly better off than others, but overall, most banks will face challenges in making profits due to these factors. This situation has been caused by various reasons, including how much it costs banks to get money from depositors and the interest rates they charge on loans.
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