KOCHI: South Indian Bank (SIB) is quietly reshaping its balance sheet – retiring expensive bonds, cleaning up legacy bad loans, and strengthening capital buffers – moves that are now drawing renewed investor attention to a stock still trading well below peer valuations.
The Thrissur-headquartered lender will repay its Rs300 crore Tier II bond carrying a steep 10.25 per cent coupon on October 31, 2025. This follows the January 2025 call option exercise by SIB, when it retired a Rs500 crore Tier I bond issued at a prohibitively high 13.75 per cent.
By paring these high-cost liabilities, SIB is lowering interest expenses at a time when deposit rates are soft and could fall further if the Reserve Bank of India (RBI) cuts policy rates again. The bank’s capital adequacy ratio of 19.48 per cent, including a Tier I ratio of 18.25 per cent, leaves ample room for such repayments without denting regulatory comfort.
A senior SIB official told businessbenchmark.news that the bank does not plan to issue new bonds soon to replace the Rs800 crore worth of debt retired this year.
Valuation gap persists
On the stock market, SIB shares have gained over 10 per cent recently amid improving investor sentiment. Yet, the stock remains undervalued compared with Kerala-based peers such as Federal Bank, CSB Bank, and Dhanlaxmi Bank.
SIB’s price-to-earnings (P/E) multiple of around 6.7–6.9 trails the peer range of 11–15, while its price-to-book (P/B) ratio below 0.9 stands far behind others often above 1.5 — a gap that analysts see as reflecting an underappreciated asset base and earnings potential.
Cleaner books, stronger metrics
The bank’s asset quality has steadily improved, with non-performing assets (NPAs) declining and return on equity (RoE) crossing 13 per cent. As of September-end, total advances stood at Rs92,287 crore against deposits of Rs1,15,635 crore, yielding a credit-deposit ratio (CD ratio) of around 80 per cent.
Interestingly, without the Rs900 crore write-off made during the March 2025 quarter, the CD ratio would have exceeded 86 per cent, reflecting stronger underlying credit growth.
The Gross Non-Performing Assets (GNPA) ratio declined from about 6.97 per cent in FY21 to around 3.15 per cent by Q1FY26 (June 2025), nearly halving over this period. The Net NPA (NNPA) ratio dropped from about 1.44 per cent in Q1FY25 to 0.68 per cent in Q1FY26, showing significant reduction in stressed loans In absolute terms, GNPA outstanding was approximately Rs3,720 crore in Q1FY25 and reduced to about Rs2,807 crore by Q1FY26, showing a decline of roughly Rs900 crore in stressed loans.
This improvement is due to steady recoveries and write-offs, with the bank having churned almost 78 per cent of its loan book since 2020 as part of its strategic clean-up
A case for re-rating
SIB’s combination of cleaner books, solid capital adequacy, and prudent liability management positions it well for sustained earnings growth.
“When viewed alongside market valuations and improving asset quality, these factors indicate ample headroom for the stock to appreciate toward peer multiples,” said an analyst.
With its improving fundamentals, disciplined balance sheet, and a stock that still trades at a discount, South Indian Bank may well be on the cusp of a long-overdue market re-rating.
