Retail yet to shape up for South Indian Bank

KOCHI: What is ailing South Indian Bank (SIB), which is considered to be a decent bank and that has not been in the midst of any controversies in the recent past?

But investors and the bank’s existing shareholders have started taking notice of the developments in the bank and its performance as they have valid reasons to do so, especially when the bank shares are trading at huge discount to its book value (BV).

The financials of the bank that has been in the business for close to nine decades have not been that impressive for the full year 2017-18 as well as for the first quarter of the current fiscal.

SIB’s net profit has plunged to Rs23.04 crore for the quarter ending June 30, 2018 from Rs114.10 sequentially, and against Rs101.47 crore the bank reported for the same quarter last year.

Again, the 2017-18 full-year net profit had dropped to Rs334.89 crore from Rs392.50 crore the bank posted for 2016-17, registering a decrease of Rs57.61 crore.

Like many other banks in the country, after having burnt fingers at corporate loans, SIB had also sought to change its strategy and decided to lean more towards retail seeking solace at the expense of the growth in corporate portfolio.

SIB, as learns, has been one of the early movers on this strategy, maybe three years ago – much before the big corporates’ delinquency started to become a trend.

But the moot question is whether the new strategy has paid off for SIB. A close look at the financials proves that the bottom line has failed to improve despite the increase in the size of retail portfolio.

For the last couple of years SIB has been pronouncing its stated policy of becoming a retail power house. And with the new strategy well in place, the bank stated, “The non-corporate advances (62.91 per cent of total advances) grew by 18.80 per cent during 2017-18 in line with the bank’s focus on retail business.”

The bank has walked the talk and the retail banking segment increased from Rs1990.36 crore to Rs2288.81 crore as the year 2017-18 drew to a close. But surprisingly, the earnings from retail kept shrinking even as the size of the portfolio expanded quarter after quarter.

The retail sector earnings dropped to Rs75.51 crore for the current quarter under review (ending June 30, 2018) compared with Rs98.59 crore the bank earned for the immediate previous quarter (ending March 31, 2018).

Again, the earnings from retail for the quarter ending June 30, 2017 was even higher at Rs108.86 crore, proving that the retail earnings have been falling in a row.

Surprisingly, this is despite the fact that the segment revenue for the retail portfolio of the bank has been steadily growing through all these quarters.

While the retail revenue for the quarter under review was to the tune of Rs588.39 crore, that for the fourth quarter of the previous year (sequentially previous quarter) was Rs511.26 crore, whereas the quarter ending June 30, 2017 witnessed revenue of Rs545.86 crore.

Treasury, as the bank has stated officially, posted a loss of  Rs66.26 crore for the quarter ending June 30, against Rs47.63 crore profit the bank turned in for the previous quarter. Even the full year 2017-18 ended with a treasury loss of Rs 117.71 crore

Corporate has been a pain in the neck for the bank for some time now. The bank has been reporting loss on this account for quarters in a row with loss of Rs22.22 crore, Rs39.81 crore and Rs30.89 crore for the last three quarters respectively.

Another worrying factor has been the sticky bad loans that doggedly stayed on the books. Despite having made higher provisions at Rs231.53 crore this time compared with Rs148.63 crore the bank set aside for the quarter ending March 31, 2018 and Rs224.31 crore for the same quarter last year, both gross provisions and net provisions have grown substantially towards the end of the quarter under review.

While GNPA went up from Rs1980.30 to Rs2552.18 crore (by about Rs572 crore) the Net NPA went up from Rs1415.80 crore to Rs1813.88 crore. Return on assets plunged from 0.56 to 0.11 (on annualized basis) during the quarter under review.


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