To shore up interest income
C L Jose
KOCHI/October 26-2023: The Thrissur-headquartered South Indian Bank (SIB) seems to be mulling a strategy shift that will see relatively high-yielding loans substituting top-notch, low-priced corporate loans in a concerted move to shore up interest income.
“Given the reliance on corporate loans, and the fact that these loans are mainly targeted to extremely highly-rated institutions, the margin of the organization tends to be a little lower than some of our competitors in both Kerala and outside the state,” PR Seshadri, managing director and chief executive officer (CEO) of SIB said while talking to analysts recently.
The bank believes that the highly rated, low yielding corporate loans that have entered the bank’s loan book, mostly since October 2020, have pulled down the net interest margin (NIM) of the bank, ultimately denting the bottom line.
NIM is a significant measure of a bank that represents its interest income. While corporates with better standing and high rating help them command stronger bargaining power while negotiating on the pricing of their loans, MSME and retail loans let these banks earn higher interest.
SIB’s NIM as of September end, 2023 was 3.21 per cent, down from 3.31 per cent a year ago. CSB Bank that has a relatively large high yielding gold loan book enjoys a net interest margin (NIM) of 4.84 per cent as of September 30, 2023, down from 5.6 per cent a year ago.
Federal Bank too is not that successful in maintaining a healthy NIM which was just 3.16 per cent as of end-Q2, down from 3.30 per cent a year ago.
Highly rated corporate loans
Seemingly turning nervous with large NPAs, SIB had turned its focus on signing less risky loans with better rated corporates, but the bank had to pay a price for this by sacrificing on interest rates.
But the newly appointed CEO of the bank, Seshadri, believes the bank could earn better interest income by adding more of SME loans and retail loans to its loan book, thus going for a balanced portfolio.
As of September end, 2023, the share of SIB’s A+ rated large corporate loans accounted for 94 per cent of the corporate book with 97 per cent representing the new entries since October 2020 and 29 per cent being legacy loans.
Though a great amount of damage control work has been done to bring down the NPAs by the past heads of banks, especially Murali Ramakrishnan, the immediately previous CEO, the bank still suffers an NPA overhang of Rs3707 crore mostly contributed by the old loan book.
