Net Interest Margin

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Finance Manager
24 Points Joined December 2024

Dear Professionals,

Please clarify how NET INTEREST MARGIN is calculated in NBFC?

Thanks in advance.

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On 03 December 2024 at 11:56 Report
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Master in Accounts & high court Advocate
9434 Points Joined December 2011

Net Interest Margin (NIM) is a key performance indicator for Non-Banking Financial Companies (NBFCs).

 It measures the difference between interest income and interest expense, expressed as a percentage of average interest-earning assets.

Here's the step-by-step calculation:

1. *Interest Income*: Calculate the total interest income earned from loans, advances, and investments.

2. *Interest Expense*: Calculate the total interest expense paid on deposits, borrowings, and other debt.

 3. *Average Interest-Earning Assets*: Calculate the average balance of interest-earning assets, such as loans, advances, and investments.

 4. *NIM Calculation*: Use the formula: NIM = (Interest Income - Interest Expense) / Average Interest-Earning Assets

For example: Interest Income: ₹100 Interest Expense: ₹60 Average Interest-Earning Assets: ₹500 NIM = (₹100 - ₹60) / ₹500 = 8%

 This means the NBFC earns a net interest margin of 8% on its average interest-earning assets.

 Keep in mind that NIM varies across NBFCs depending on factors like loan portfolio mix, funding costs, and asset yields.

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On 03 December 2024 at 12:39
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Finance Manager
24 Points Joined December 2024

Thank you sir for your reply

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On 04 December 2024 at 13:18


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