SBI sees impact of 2-3 bps on NIM due to recent RBI rules

SBI Life Insurance Company Ltd: Shares of insurance major rose over 2 percent to Rs 1,420 on November 21, a day after the stock declined nearly 2 percent. As many as 11 lakh shares changed hands, outpacing the 1-month average of 10 lakh shares.

The Reserve Bank of India's (RBI) move to increase the risk weight for banks on consumer loans may impact the State Bank of India's net interest margin (NIM) by 2-3 basis points (bps), Chairman Dinesh Khara said on November 22.

"There will be an impact on NIMs by 2-3 bps in the next quarter," Khara said to the media at the FIBAC 2023.

One basis point is one-hundredth of a percentage point.

A profitability indicator, the net interest margin (NIM) is a measure of the amount of money that a bank or a financial institution earns in interest on loans compared to the amount it pays in interest on deposits.

RBI action

On November 16, the central bank raised the risk weight on consumer loans of banks and NBFCs by 25 percent on November 16 to curb the proliferation of unsecured consumer loans.

Earlier, banks attracted a risk weight of 125 percent and NBFCs 100 percent. After the tightening of the norms, the same will stand at 150 percent and 125 percent for banks and NBFCs.

Consumer loans include credit cards, some personal and retail loans. A jump in risk weight means lenders have to set aside higher capital against these loans.

Banks Q2

An analysis of some of the major banks’ earnings report for the Jul-September FY24 quarter showed that banks reported a contraction in their NIMs.

Among major banks, the country’s largest private sector bank, HDFC Bank, reported a net profit of Rs 15,976 crore, a 51 percent YoY jump. At the same time, the country’s largest bank, the State Bank of India (SBI) reported a net profit of Rs 14,330 crore in the July-September FY24 quarter. Whereas, ICICI Bank’s net profit for the quarter stood at Rs 10,261 crore and that of public sector lender, Bank of Baroda (BoB), stood at Rs 4,253 crore.