SIB gets RBI nod to set up non-financial subsidiary

To be wholly-owned entity; full details not known

THRISSUR: The Reserve Bank of India (RBI) has accorded in-principle approval to South Indian Bank (SIB) to set up a wholly owned non-financial subsidiary for activities permitted by RBI, according a regulatory filing made by the bank.

However, the bank has not given additional details on the new entity or what the activity of the new non-financial subsidiary will be except that it will be a wholly-owned subsidiary.

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 areas including retail financing, insurance, reinsurance etc.

In fact, a board meeting of the bank in last June had proposed to modify the Memorandum of Association (MoA) of the bank to facilitate the establishment of separate entities that can take on large range of businesses including, insurance, stock broking, portfolio management, and many others.

Moreover, the bank having burnt its fingers from large corporate loans portfolio had shifted its focus to SME and Retail lending since 2014. In line with this renewed focus on MSME, Agriculture, Home and Auto sector loans, SIB has engaged International Finance Corporation (IFC) to advise the bank on the medium and long term strategies for significant growth in the those sectors.

The outgoing MD and chief executive of the bank, VG Mathew, had said while briefing the analysts recently on the previous year’s financial performance that the “worst is behind the bank now.” He was referring to the ever increasing provisions that have been eating into the profitability of the bank.

Even the shareholders are unhappy that the share price of the bank has long been trading at huge discount to its book value with the current discount hovering around 75 per cent even as CSB Bank, its close neighbour and one of the worst performing banks in the country until recently, has turned the tables and is trading currently at around 1.7 times of book value.

Mathew is stepping down on September 30 after serving the bank for two terms of three years each. According to informed sources, a senior ICICI bank official is taking over as the new MD and CEO.

Though the bank has addressed its bad loan issue to a good extent under the guidance of Mathew, the bank is still straddled with a gross NPA of 4.93 per cent and net NPA of 3.09 per cent.

 

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