KOCHI: South Indian Bank (SIB) continues to face two challenges- a large NPA book the bank has been carrying for long and the relatively high cost-to-income ratio (C/I) ratio.
The bank management seems to believe that pruning the corporate loan book and scaling up the retail and MSME loan book could address this issue to a good extent.
SIB’s managing director and chief executive officer (CEO), PR Seshadri said the bank is working towards downsizing the corporate book from the current 40 per cent to 33 per cent within two years.
Focus on retail and MSME
Seshadri initially said “We want to get out of corporate and want to get into retail and MSME, which are slightly higher-yielding assets.”
But later, during his interaction with analysts, Seshadri toned down it by saying, “What I wanted to convey was that though we will continue to grow our corporate book, it will not be at the same pace we used to.”
SIB has a large exposure to corporate loans and almost all of it is rated ‘A’ and above, which means the returns that the bank gets on lending money to them are quite low.
To improve NIM
“So in order to improve the net interest margin (NIM), and in order to increase the return metrics for ourselves, what we are intending to do is to have larger proportion of our balance sheet in MSME and retail loans,” Seshadri explained.
Seshadri said SIB’s disadvantage is that it nurses a very large corporate book relative to its size, being a smaller bank. “We are ideally expected to have more MSME and retail,” he noted.
While a corporate book could fetch a margin in the range of 200 to 250 basis points, the retail and MSME could earn margins close to 400 basis points, which means 4 percentage points.
The bank hopes to earn a net interest margin (NIM), one of the most crucial ratios that determine a bank’s performance, of about 3.5 per cent soon and raise it to 4 per cent going forward.
SIB has earned an NIM of 3.24 per cent for the quarter that ended September 30, 2024.
NPA still high
Overall, the gross NPA though reduced by 56 basis points from 4.96 per cent to 4.40 per cent year on year as of September end, the count is still considered high compared with the other Kerala-based banks.
Net NPA reduced by 39 basis points from 1.7 per cent to 1.31 per cent during the same period. The home loan and auto loan are two portfolios that have logged good growth in the second quarter (Q2).
On a Y-o-Y basis, SIB has been able to achieve 206 per cent growth in home loan disbursals and 79 per cent growth in auto loan disbursed. The home loan book as of the end of September 2024 was at Rs7,072 crore and the auto loan book at Rs1,828 crore.
