KOCHI: There was a time when South Indian Bank (SIB) was almost synonymous with a lender wilting under the weight of its bad loans.
That is no longer the case. More than its latest growth in deposits, advances and profitability, the Kerala-based private sector bank may now be discussed among its peers for its decade-long battle to clean up its balance sheet.
The bank that once struggled with a mountain of bad loans now has one of the cleanest balance sheets among Indian banks, with gross NPA at 1.24 per cent and net NPA at just 0.09 per cent.
While discussing the bank's second-quarter performance with analysts recently, MD & CEO Mahesh Muralidhar Pai said the current NPA level was not only among the lowest in the industry but also the bank's best ever.
The transformation has been substantial. GNPA, which had peaked at 6.97 per cent and NNPA at 4.71 per cent in March 2021, have since fallen sharply. Gross NPA declined from Rs4,143 crore then to Rs1,354 crore by September 2026, while net NPA fell from Rs2,734.52 crore to just Rs102.71 crore.
But this was not simply a recovery exercise. The bank had to change the composition and quality of its loan book.
Strategy
The roots of the problem went back several years. In an interview with this reporter in 2017, former MD & CEO V G Mathew said the bank had done a significant amount of large corporate business between 2010 and 2013, which “has not served well for the bank” and had contributed to elevated NPAs.
The bank subsequently began moving away from very large corporate exposures towards retail and smaller corporates. But the problem persisted, with GNPA rising to 4.92 per cent by FY19 and eventually reaching 6.97 per cent in March 2021.
When Murali Ramakrishnan took charge in October 2020, the bank faced both a sizeable legacy stressed book and fresh pandemic-related stress. He adopted a two-pronged approach: clean up the old book while ensuring that the new book did not recreate the same problem.
In FY21 and FY22, the bank had nearly Rs4,400 crore of slippages, predominantly from SME and retail, according to Ramakrishnan. At the same time, recoveries and upgrades were stepped up sharply. The bank upgraded and recovered about Rs1,500 crore of NPAs in FY22, compared with Rs600 crore in the previous year.
But recovery was only one part of the strategy.
The bank became far more selective in corporate lending and reduced concentration risk. By September 2022, AA- and AAA-rated borrowers accounted for 84.3 per cent of the corporate loan book.
The clean-up continued under successive managements. GNPA fell from 6.97 per cent in FY21 to 5.90 per cent in FY22, 5.14 per cent in FY23, 4.50 per cent in FY24, 3.20 per cent in FY25 and 1.43 per cent in FY26. NNPA declined even faster, from 1.46 per cent in FY24 to 0.92 per cent in FY25 and 0.29 per cent in FY26.
Write-offs were part of the process, but recoveries and upgrades were substantial as well. More importantly, the bank was simultaneously building a different loan book.
The corporate-heavy character gradually gave way to a more diversified portfolio, with retail and MSME gaining importance. Under P R Seshadri, who took over as MD & CEO in 2023, the bank continued to focus on highly rated corporate borrowers while seeking greater growth in higher-yielding retail and MSME assets.
The distinction is important: South Indian Bank did not abandon corporate banking. It became more selective about it.
The new book
The strongest evidence that the transformation goes beyond cleaning up legacy NPAs is the performance of the new loan book.
Gross advances rose 18.7 per cent year-on-year to Rs1,09,517 crore by September 2026, even as GNPA fell to 1.24 per cent.
The improvement is now also feeding into profitability. South Indian Bank reported a record quarterly net profit of Rs426.13 crore in Q2 FY27, up 21.3 per cent year-on-year. NII rose 38 per cent to Rs1,116 crore, operating profit increased 37 per cent to Rs732 crore and NIM improved to 3.33 per cent from 2.80 per cent.
The latest numbers give the bank's long NPA battle a striking end point: GNPA of 1.24 per cent and NNPA of 0.09 per cent.
For Pai, the numbers represent one of the strongest points in the bank's recent history.
But the bigger story lies behind them.
South Indian Bank's journey from a 6.97 per cent GNPA to 1.24 per cent was not the result of one recovery drive or one management team. It was a gradual change in the bank's approach to risk — from large corporate exposures that created pressure to a more selective corporate book, a larger retail and MSME franchise, stronger credit controls and a sustained effort to resolve its legacy bad-loan pool.
