The spread engine

Net Interest Margin (NIM): the single most-watched number in banking

The gap between what a bank earns on loans and pays for funds, as a % of its assets — the spread engine in one number.

4.55%

Net interest margin

illustrative

Yield on advances9%

Cost of funds4.45%

NIM4.55%

What the bank earns (9%) splits into what its money costs (4.45%) and the margin it keeps — NIM 4.55%.

Why it matters

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.

A worked example

Earn 9% on loans, pay 4.45% for funds → NIM ≈ 4.55%. When rates fall, cheap funds protect the spread while costly FDs get squeezed — which is exactly why the deposit mix matters.

NIM calculator

Move the sliders to see what CRR + SLR actually do to the spread.

Yield on advances9.00%

Cost of funds4.45%

Naive spread

4.55%

yield − cost (ignores reserves)

Real NIM

2.54%

drag: −2.01% from CRR/SLR

How the drag works: Of every ₹100 raised, ₹4.5 sits at RBI (CRR, earns 0%) and ₹18 is locked in G-secs (SLR, earns ~7%). Only ₹77.5 is deployed as loans at your yield. That gap between naive and real NIM is the hidden cost of regulation. All figures illustrative — needs_founder_review.

The picture

What it leads to

Widen NIM either by earning more on loans (riskier) or, more safely, by paying less for funds — i.e. raising more cheap CASA. It's also a headline number when you read a bank's results.

Where it sits in the map

Follow the causation

this is why branches are pushed to chase current accountsWhy branches push CASA→this is the input that, when lowered, widens NIMCost of funds→this is the ratio that shows whether the CASA strategy is workingCASA ratio→this is where NIM sits among the other numbers analysts watchReading a bank's results (hub)→