The banks would continue to see a fall in key performance indicator, the net interest margins (NIM) for the current fiscal, due to absence of credit growth and lack of low cost deposits, said Kotak Institutional Securities.

Most of the commercial banks have seen a decline of 0.2% in the NIM for the quarter ending March. The slower credit growth and inability to raise deposits at low cost would reduce the NIM further.

The report projects the loan books to grow at 15% for next two fiscals, while the RBI's policy for credit growth had it at 16%.The deposits on the other hand have failed to rise despite high interest rates.

Another reason for compressing NIMs is restructuring of certain sectors like state electricity boards (SEBs). The last fiscal saw Rs. 30,000 crore of SEBs' debts restructured by banks, a major chunk going to two Rajasthan SEBs which amounted to Rs. 12,000 crore, and Rs 8,000 crore of three Haryana SEBs.