South Indian Bank worth not even its bad loans?

SIB plans to raise equity capital; may issue Rs500 cr tier 2 bonds soon

KOCHI: Is South Indian Bank (SIB), the state’s second largest bank that boasts an asset base of Rs88,249 crore, not even worth its bad loans, in the market?

The market value or the market capitalization (market cap) of South Indian Bank (SIB) has shrunk below the value of its bad loans after the SIB shares were unceasingly hammered in the market over the past few months, pulling the price to below half its book value.

While the current market cap of SIB is around Rs2443 crore (at CMP of Rs13.50), the gross NPA is far bigger at Rs2930 crore. “It is really worrying that the market is giving a short shrift to this share. I can’t give a proper reason for the ‘too humble’ performance of this share, whose book value at close to Rs28 is more than double the market price,” said one share broker.

True, many investors may view this as an opportunity to accumulate SIB shares, according to brokers. “There is no denying the fact that SIB as a bank is worth its salt, and is one bank that has churned out profit unfailingly, quarter after quarter, but on the contrary, the market chooses to pound it,” he said.

It may not be too long before Catholic Syrian Bank (CSB), which has always played second fiddle to SIB in this market could bridge the gap or even overtake SIB on market cap, according to analysts. Assuming that the full investment from Fairfax is in place, the CSB market cap would have been larger than SIB’s.

With Rs165 crore paid up capital as committed by Fairfax (with Rs10 face value), the market cap of CSB would have been Rs2475 crore given that CSB shares command a market price of Rs150 each currently.

To a query from on what basis CSB shares are valued at Rs150 each, a share broker said, “if you have CSB shares, I can sell them at Rs150 for you. Bring as much as you can, I will sell it at this price.”

However, SIB shares have commenced showing signs of recovery and on the other hand, the bank has decided to increase its share capital as announced by the bank’s CEO and managing director, VG Mathew while responding to analysts recently.

Mathew also said the bank would soon raise Rs500 crore through Tier 2 bonds for which the shareholders’ approval has already been obtained.

“And I am sure at the end of the year like every year in the past, we would be able to pull some money back in to the business from the net profit,” he said.

SIB, whose capital adequacy ratio (CAR) has fallen to 11.73 per cent as of December end, 2018 will inevitably have to raise capital in order to support a meaningful business growth in the future.

“We will definitely be going for equity raising in the next year,” Mathew said while responding to a specific query on this subject.



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