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CS Professional · Banking and Insurance - Laws and Practice · Calculation of Interest and Annuities

A bank reports interest earned of ₹60 crore and interest expended of ₹40 crore for the year, with average earning assets of ₹500 crore. What is its net interest margin?

The net interest margin is 4%. Net interest income is interest earned minus interest expended, which is ₹20 crore. Dividing by average earning assets of ₹500 crore gives 4%. Using only interest earned would give 12%, which ignores the cost of funds.

  1. A12%
  2. B8%
  3. C33.3%
  4. D4%Correct

Explanation

Net interest income = 60 − 40 = ₹20 crore. NIM = 20 / 500 = 4%. The 12% figure divides gross interest earned by assets and ignores the interest expended.

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