5 Apr 2018

Net Interest Income (NII)

Finance feed by:

CA Rahul Agarwal
B.com (Hons),CA
CA in Practice    •    15 Year 6 Month  experience

Net interest income (NII) is the difference between the interest income a bank earns from its lending activities and the interest it pays to depositors.

Net interest income can differ from bank to bank due to variations in the composition and quality of assets and interest-bearing funds, change in yields of interest-earning assets and in interest rates paid on liabilities. NIIs of lenders with assets and liabilities bearing variable rates are more vulnerable to change in interest rates. If the spread between rate-sensitive assets (RSAs) and rate-sensitive liabilities (RSLs) increases, a rise in interest rate can make interest income rise more than interest expenses. In such a case, NII also goes up.

On the other hand, when the spread between RSAs and RSLs falls, a rise in interest rate can make interest expenses rise more than interest income, leading to a drop in NII. Meanwhile, can also get impacted by any rise or fall in non-performing assets (NPAs).

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