Net Interest MarginNIM
The spread engine in one number.
Why you care
The first number every analyst and your own CFO checks: is the bank actually making money on borrow-cheap-lend-dear? Every CASA push and rate tweak is a lever on it. If you remember one number from this whole map, make it NIM.
Run the numbers
Earn 9% on loans, pay 4.45% for funds → NIM ≈ 4.55% (illustrative). When rates fall, cheap funds protect the spread while costly FDs get squeezed — which is exactly why the deposit mix matters.
Where this goes
Widen NIM either by earning more on loans (riskier) or, more safely, by paying less for funds — raising more cheap CASA. When NIM compresses, banks chase fee income to defend profit. It's also a headline number when you read a bank's results.
Why you care
Net Interest Margin (NIM) is the gap between what a bank earns on its loans and investments and what it pays for its funds, measured as a percentage of its interest-earning assets. It's the spread engine of the whole business in one number.
If you remember one number from this entire map, make it NIM. It is the first thing every analyst, investor, and your own CFO looks at, because it answers the core question: is the bank actually making money on its basic job of borrowing and lending? The bank's central idea — borrow cheap, lend dear, the gap is the business — is literally what NIM measures. Every CASA campaign, every deposit-rate tweak, every loan-pricing decision your branch makes is, in the end, a lever on NIM. When management says "protect margins," this is the margin.
Run the numbers
Take the branch from the cost of funds example: ₹100 crore raised at a blended cost of funds of 4.45%. Suppose it lends that money out and earns a yield on advances of 9%.
- Interest earned on loans: 9% of ₹100 cr = ₹9.00 cr
- Interest paid on funds: 4.45% of ₹100 cr = ₹4.45 cr
- Net interest income: ₹9.00 − ₹4.45 = ₹4.55 cr
- NIM = ₹4.55 cr / ₹100 cr = 4.55%
(Real Indian banks run NIMs of roughly 3–3.5% — the worked example looks rich because it ignores the slice of assets locked in zero/low-yield CRR/SLR.)
Now watch how fragile it is. If RBI cuts rates and the bank's yield on advances falls to 8.5% but its term-deposit costs stay sticky at 7%, the spread narrows fast. A bank with cheaper funds survives that squeeze; a bank funded by costly FDs gets hurt. That single sentence is why the deposit mix matters so much — and it leads straight to CASA.
Where this goes
NIM is squeezed from two sides. You widen it either by earning more on loans (riskier — see asset classification) or, more safely, by paying less for funds, which means raising more cheap CASA. That is why branches are pushed to open current and savings accounts: a higher CASA share lowers cost of funds, which widens NIM, which drives profitability.
When NIM does compress — deposit costs rising or lending rates falling — the bank leans on the other engine: non-interest income, the fees and treasury gains that don't depend on the spread. NIM is also one of the headline numbers when you sit down to read a bank's results.