SIB eyes new businesses through subsidiaries

Rs30 cr fresh equity, Rs500 cr debt issues on cards

KOCHI: The South Indian Bank (SIB), which has been struggling to come out of its large bad loans trap, seems to be preparing the ground to set up subsidiaries or associate companies in order to try its hand at other financial services including retail financing, insurance, reinsurance etc.

The recent board meeting of SIB, the second largest bank in Kerala, has proposed to modify the Memorandum of Association of the bank to facilitate the establishment of separate entities that can take on the large range of businesses including retail financing, insurance, stock broking, portfolio management, and many others.

The bank has also proposed raising equity capital up to Rs30 crore in one or more tranches at a premium yet to be decided. The board meeting has also proposed raising up to Rs500 crore in Indian/ foreign currency by way of issuance of debt securities.

The bank said  the issue of equity shares could be through public issue, private placement, preferential issue and/or Qualified Institutional Placement (QIP) or any other international offering like Global Depository Receipts (GDRs)/American Depository Receipt (ADRs)/Foreign Currency convertible bonds (FCCBs ), or any other Tier I instrument with the approval of the regulators.

SIB, which witnessed a 36 per cent decline in its Q4 net profit to Rs70.51 crore, is being punished on the stock markets as well with the share price currently hovering around Rs13.30 (on the last working day) which is less than half of its book value at Rs29.

Analysts view that the bank with Rs180.9 crore share capital may find it difficult to charge even a reasonable premium if it wants to issue fresh shares as they are currently traded at close to its record low prices with the market capitalisation at around Rs2390 crore.

The CEO and MD of the bank, VG Mathew, citing the 16 per cent growth in the bank’s Q4 operating profit to Rs328 crore, had indicated that the clean-up of the bank’s large corporate bad loans had come to an end.

The way the bank plans to grow certainly needs capital enhancement. Mathew had said the bank was targeting 20 per cent credit growth in the current year, for which everything was in place.

The retail portfolio accounts for 29 per cent of the loan book. The bank also plans to recruit 300-400 people in the current fiscal – that could include senior officers, to address the skill gap, he had added while briefing on the annual results some time back.

 

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