SIB has a long way to go…

Bank hints at further increase in capital

KOCHI: Will the 16 per cent-plus fall in operating profit and the low provision coverage ratio (PCR) at 42.6 per cent raise alarm for South Indian Bank (SIB) management?

The bank’s operating profit has declined from Rs1481 crore to Rs1239 crore, falling more than 16 per cent, for the year ending March 31, 2019. As the financial year drew to a close, the gross NPA soared from Rs1980.30 crore to Rs3131.67 crore – an increase of 58.14 per cent with the gross NPA ratio growing from 3.59 per cent to 4.92 per cent.

The bank has lost close to half its value in the market during the past one year alone.

However, the management is hopeful of reining in the growing bad loans. Talking to analysts recently, VG Mathew (seen in the picture), the MD and chief executive of SIB, said over the past four years, SIB has stayed away from various stressed sectors, and on account of this, bank today has practically almost zero exposure to sectors such as aviation, telecom, EPC contractors etc.

“The exposures to steel and thermal powers are very limited and are of good quality. With legacy problems arising from large corporate sector under control, and with strong growth in the retail and MSME sectors, we are on the threshold of a period of stable and risk-controlled growth and expansion,” Mathew exuded confidence.

Talking to, analysts who closely follow the banking industry said a falling operating profit scenario is very rare among private sector banks. “It’s true that banks are going through a rough patch, and indeed they find it difficult to grow their bottom line during these bad times. But failing to turn in operating profit can’t be viewed lightly, especially among private sector banks,” said analysts.

“You have been talking of your performance, now the first thing is your pre-provision operating profit that has fallen 16 per cent this year, which is irrespective of NPAs,” reminded an analyst during the earnings call recently with the management team of the bank.

At 2.4 per cent, SIB is said to have one of the lowest net interest margin (NIM) in the industry. According to certain section of analysts, SIB enjoys one of the lowest current account & savings account (CASA) and lowest lending yields in the industry.

The bank has borrowed Tier 2 capital at 11.75 per cent recently and lends even at rates as low as 9 per cent. However, though the full-year operating profit posted decline, the operating profit during the fourth quarter (Q4) registered growth – from Rs311 crore to Rs328 crore, which essentially augers well for the future.

Though the state of NPA draws an ominous picture for the bank, Mathew said the clean-up of the large corporate book, which has been going on for the last four years, has come to an end.

Advances for the bank grew by 15.5 per cent year on year to Rs63,636 crore with growth drivers continuing to be MSME, mortgage loans, agriculture advances, and auto loans.

Retail loans grew by 33.9 per cent; SME grew by 16.23 per cent and agriculture by 9.52 per cent during the period under review. At the same time, the growth in corporate advances was muted at about 4.88 per cent.

Mathew hinted at a capital increase plan for the bank to support an expected expansion of 20 per cent in the bank’s asset base in the coming year.  The bank had already raised Rs250 crore Tier 2 capital during March even as the bank holds approvals for additional capital.

“We have headroom to take additional Tier 2 capital or even additional Tier 1 or Qualified Institutional Placement (QIP) or any other option that is available to us, but we will need to raise capital. Today the CRAR stands at 12.61 per cent, but the envisaged growth in assets, we obviously will need some more money to add to the capital base,” said Mathew.


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