SIB hopes to get out of bad loan trap within a year

KOCHI: The Trichur-based South Indian Bank (SIB) that has been reeling from the non-performing assets, thanks to mainly a few corporate accounts, has set a target of four or five quarters to free itself from the ‘bad loan trap’.

Talking to analysts recently while briefing on the second quarter financial performance of the bank, VG Mathew, the CEO and MD (seen in the picture), said the bank aims to set aside Rs200 crore towards provision every quarter thus taking the total annual provisions to Rs800 crore in order to contain the bad loans.

Despite reporting decent operating profits quarter after quarter, large provisions against credit loss consume a good chunk of the earnings leaving behind an ‘unimpressive’ net profit for the bank to close each quarter.

The SIB share price has been trading below Rs15 for the past more than five months against a book value of about Rs30 (current). The last few days even saw the share hovering around Rs10 though the bank has reported a net profit of Rs84 crore for the just concluded quarter.

“The elevated provision planned by the bank has to continue for another four to five quarters, before we are out of this [mess] completely,” Mathew said. He reminded that the bank had generated an operating profit of Rs411 crore for the quarter ending September 30, 2019 though eventually the net profit had settled much below that.

Overall provisions increased by 50 per cent to Rs306 crore in Q2 FY20. “These provisions included mainly the loan-loss provisions to the tune of Rs285 crore,” Mathew elaborated. The provision coverage ratio (PCR) stood at 48.1 per cent for September 2019 as against 45.1 per cent as of June 2019.

Dwelling on the details of fresh NPAs, SIB chief said in Q2 FY20, gross slippages amounted to Rs418 crore, out of which Rs238 crore was contributed by a single account from textile sector.

“We had given a guidance of Rs1,000 crore for slippages for the full year, out of which Rs658 crore have already been recorded during the six months ended September 30, 2019,” he added.

Mathew said the bank has seen stress in a few other accounts for which various resolution options are being explored.

The stressed assets seeking immediate attention include a housing finance company (HFC) with exposure of Rs114 crore; a real estate-focused NBFC where SIB’s exposure is Rs68 crore; a fitness-related company with exposure of Rs75 crore; and one entity in the irrigation sector with exposure to the tune of Rs50 crore.

As part of its stated strategy, the bank continues to expand its non-corporate portfolio, particularly in the segments of retail, MSME and Agri loans.

In tune with the bank’s strategy, the share of corporate loans declined from 35 per cent as of September end 2018, to 31 per cent as of September 2019.

As on September 30, 2019, the total business of the bank stood at Rs1,46,857 crore – an increase of 11 per cent. Advances grew by 11 per cent to Rs63,920 crore, driven by continued robust growth in retail, MSME and Agri loan segments, while the corporate loan portfolio declined.

Mathew said the bank has plans to raise additional capital, and towards that the bank has already secured necessary approvals to raise both Tier 2 as well as Tier 1 capital.

 

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