Net Interest Margin is the ratio of net interest income to average interest-earning assets
NIM = Net Interest Income / Avg Interest Earning Assets
Where, Net interest income is the difference between interest income and interest expense.
And Average Interest-earning assets are loans / advances given to borrowers by banks / NBFCs. Average of the beginning to end of the period is considered for prudent calculation.
E.g. If Interest income = Rs. 150 crore
Interest expense = Rs. 80 crore
Interest-earning assets (at beginning of year) = Rs. 2,000 crore
Interest-earning assets (at end of year) = Rs. 2,500 crore
NIM = ____(150 – 80)___
(2000 + 2500) / 2
NIM = __70___
NIM = 3.11%