Effects on banks on reducing rate scenario:

1. When interest rates go down, income from loans also decreases, while the interest paid on deposits might not drop quickly. This can squeeze the spread between what the bank earns and what it pays, lowering NIM.
   1.1 But note that deposits are a portion of their cost. Banks also borrow money to fund their lending activities. Lower interest rates can reduce their funding costs, potentially offsetting some of the decline in interest income.
2. Increased competition for deposits, as customers may be less keen to keep their money in savings accounts. Banks have to compete to offer higher interest rates, reducing margins.
3. Bank treasuries borrow short-term at lower rates and lend long-term at higher rates. Existing short-term loans mature and are repriced at lower rates, the bank earns the higher interest on longer-term loans, temporarily benefiting NIM
4. Low interest rates stimulates capex cycle, thus higher growth rate.

As per me, effect on NIMs will be temporary, i believe that improved credit offtake will offset the impact in margin.
Another point to be to be considered is the bank’s specific lending and funding mix, customer composition, etc. Bank’s with higher % of fixed rate loans will be less impacted, for instance.

Post Q3, there are only buyers -no sellers for IREDA. While Q3 has been very good, but I am not sure if IREDA can repeat it’s performance. On roof top , IREDA is going to have a tough Competition from both pvt and PSU,’s

REC/ PFC are better placed to reap the benifits of both the world – Renewable & non renewable apart from financing other capex related themes such as infra projects. REC recently mandated to lend to railways too. The only thing we need to watch the NPA – which the management is very confident and has given guidance for net zero NPA.

Going by the valuation , REC ,& PFC are definitely better placed PSU for the medium to long term. I would not be a buyer for IREDA at this astronomical price.

Discl: Had got IPO allotment. profit booked and switched to REC , PFC . i may be biased. This is not a buy sell recommendation. please do your own assessment before you buy sell.

As I heard. Merger will add 2-2.5**%** to BVPS, not absolute 2-2.5 rupees.

Thanks & Regards,
Bharat Kothari
Phone 7685806922

Hi All,
Can you please help me understand the high NIM that IDFC has?

Their cost of funds is not cheap, and with thier low credit cost, I assume that they have a high quality loan book and such that will not fetch a super high yields. So, NII has to be average as that of other banks. Their CASA is relatively good though but all considered, How does IDFC First generate such a good NIM compared to its peer banks? I am trying to do the calculation myself to see what sets them apart and unable to do so. Appreciate your thoughts on it.

Its actually over ambitious target. Nevertheless they seem to be investing in grooming people which can probably payback once the slowdown is over. In your opinion is it purely a service company?