ICICI Bank, India’s second-largest lender, expects net interest margin for FY17 to be about 20 basis points lower than that of the March 2016 quarter level of 3.37 per cent.

The margin would be impacted as the bank is seeking to improve its credit mix driven by focus on retail lending and lending to higher-rated corporates, where yield on advances are typically lower. Further, provisions for bad loans are expected to remain elevated in FY17.

Net interest margin (NIM) is considered to be an important measure of efficiency in the financial sector. NIM is measured as the excess of interest income over interest expense divided by the average interest earning assets. Chanda Kochhar, MD and CEO, in a post results conference call with analysts, said her bank has worked out its capital allocation exercise and on that basis more capital will be allocated to retail business and less would be consumed by the corporate segment.

NS Kannan, Executive Director, observed that there are significant uncertainties around future trends and it is expected that non-performing asset (NPA) additions will continue to be at elevated levels in FY17.

Given the uncertainties around the corporate segment, and the ageing-based provisions on existing NPAs, provisions are expected to remain elevated in FY17, he explained.

Rakesh Jha, CFO, said the fact that pricing will be competitive on retail and corporate segments is also factored into the outlook for overall margins.