Capitaline

Analyst Meet / AGM 18-Oct-19

Conference Call

South Indian Bank

Expects slippages at Rs 250 crore and credit cost at Rs 200 crore per quarter for next four quarters

South Indian Bank conducted a conference call on 18 October 2019 to discuss its financial results for the quarter ended September 2019. VG Mathew, MD& CEO of the bank addressed the call:
Highlights:

In line with the strategy, the bank has continued to focus on expansion of retail, agriculture and MSME loan book, while the corporate loan book share has declined to 31% from 35% a year and bank proposes to reduce it further to 30%.
The retail loan book grew 20% gaining share to 30% driven by mortgage, auto and gold loan segment. The share of MSME loan book has expanded to 24% and bank aims to raise it to 25%.
The loan book grew 11% end September 2019, while bank expects loan growth to accelerate to 15% by end March 2020.
The deposits book of the bank has expanded 11%, while CASA deposits improved 12% and CASA ratio improved to 24.9% end September 2019.
The investment book of the bank has increased 13% to Rs 20972 crore, which HTM book stood at Rs 16680 crore AFS at Rs 4292 crore end September 2019.
The net interest income of the bank has increased 15% with improvement in net interest margin to 2.69% in Q2FY2019 from 2.61% in Q2FY2019. The bank is targeting NIM of 2.7% for FY2020.
On repo linked loans front, the bank expects Rs 1000 crore of loans to switch to repo linked lending rate system every quarter in addition to fresh loans.
The cost to income ratio declined to 50.6% in Q2FY2019 from 55.7% in the previous quarter and 53.4% in the corresponding quarter last year. The bank expects to continue to improve cost-to-income ratio with improving operating leverage.
The bank has assumed wage rate hike of 12% under IBA wage negotiation.
The fresh slippages of loans were higher at Rs 435 crore in Q2FY2020, of which Rs 238 crore came from single textiles account.
The recoveries and upgradations stood at Rs 93 crore and write-off were Rs 351 crore in Q2FY2020. The bank is expecting strong recoveries from written off loans with strong collateral coverage.
The restructured loan book of the bank has increased to Rs 516 crore end September 2019 from Rs 292 crore end June 2019 on account of fresh restructuring of Rs 242 crore in MSME accounts and Rs 27 crore for Kerala flood related accounts in Q2FY2020. The bank expects these accounts to perform well, while slippage rate for its restructured loan book is low at 20%.
The bank holds provisions of 5% for restructured advance book end September 2019.
The provision coverage ratio of the bank has increased to 48.1% end September 2019 from 41.9% end September 2018, while bank aims to improve provision coverage ratio to 52% by end March 2020 and 62% by March 2021.
The bank had targeted recoveries of Rs 500-600 crore for FY2020. With recoveries of Rs 200 crore in H1FY2020, the bank expects recoveries of Rs 400 crore in H2FY2020.
The bank had guided at slippages of Rs 1000 crore in FY2020, of which Rs 658 crore is crystallized in H1FT2020 and expects slippages to be below Rs 500 crore in H2FY2020.
The bank is guiding at slippage run rate of Rs 250 crore per quarter, while aims to reduce slippages to normal run rate of Rs 150 crore per quarter.
The bank continues to guide at credit cost of Rs 200 crore per quarter for FY2020 and next four quarters.
The bank has four stressed accounts under close watch, which includes HFC account of Rs 114 crore, real estate related NBFC Rs 68 crore, fitness sector related company Rs 75 crore and irrigation related company of Rs 50 crore. The bank has already signed ICA for HFC and irrigation related company.
The CRAR ratio of the company stood at 12.5% with tier I ratio of 9.6% end September 2019. Tier I ratio including profit for H1FY2020 stands at 9.9%.
The risk weighted assets of the bank stood at Rs 63000 crore end September 2019.

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