Credit deposit ratio and net Interest Margin (NIM) of Indian Commercial Banks – An analysis

The process of economic growth needs development of capital resources, besides other structural changes like improvement in skill and efficiency of manpower, better organization of production and distribution, better health, education, etc. The financial institutions are one of the main instruments of economic development as they provide financial resources. An efficient financial system can perform this function by raising the level of economic activity. Financial institutions are the tools to mobilize savings and encourage investments by diverting it to productive channels. Financial institutions occupy a key position in modern economy. The banks manage everyday money matters for private individuals and companies such as the payment of salaries and bills and the repayment of loans, other means of payment such as bank cards or charge cards, can be added to the current accounts. In addition to normal current accounts, the banks also offer accounts paying higher rates of interest, intended for investment purposes. Every day money matters are managed through the banks. Banks also offer loans and opportunities for investing money in securities or investment accounts. About 80 percent of the operating revenue from a typical community bank comes from the Net Interest Margin (NIM). It is the percentage difference between the interest income produced by a bank's earning assets (Loans & Investments) and its major expense – interest paid to its depositors. The net difference between interest earned and interest paid is a key measure of bank's profitability. The paper provides a comprehensive study of functional spread of Commercial Banks and analysis of NIM for three sectors of banks and its variations over the period.