The Rising Interest Rate Impact on Bank Asset Quality

Abstract

The banks have sought to counter the mounting pressure on spreads by raising their PLRs. The rise in interest rates has resulted in a slowdown in credit growth in the banking sector. This is also likely to put pressure on the banking sectors earning profile and Net Profitability Margin (NPM). The rising interest rate scenario also has the potential to create significant pressure on the asset quality of banks.

Keywords: NPM (Net Profitability Margin), EMI (Equated Monthly Instalments), ROA (Return on Assets), NIM (Net Interest Margin), C-D Ratio (Credit & Deposit Ratio), NPA (Non Performing Assets), PLRs (Prime Lending Rates) and IIRs (Instalment to Income Ratios

JEL Classification: G12