Capitaline

Analyst Meet / AGM 26-Jul-19

Conference Call

South Indian Bank

Expects slippages to dip 50% in FY2020

South Indian Bank conducted conference call on 26 July 2019 to discuss its financial results for the quarter ended June 2019. VG Mathew, Managing Director of the bank addressed the call:
Highlights:

The bank has posted healthy growth in the net profit to Rs 73 crore in Q1FY2020 from Rs 23 crore in Q1FY2019. The bank remains committed to expansion of retail, agriculture and MSME (RAM) loan book, raising other income and superior asset quality.
The loan book of the bank has increased 13%, driven by RAM book, while corporate loan book rose at moderate pace of 3% end June 2019 over June 2018. The retail loans increased 25%, driven by mortgage, auto and gold loans segment.
The share of corporate loan book declined to 32% from 36% a year ago, while the bank expects the corporate loan book growth to remain subdued, going forward. The bank is targeting overall loan growth of 15-18% for FY2020.
The bank has maintained stable CASA deposits ratio of 24% end June 2019. The bank has witnessed small moderation in remittance business, while the share of NRI deposits stands at healthy level of 27% of total deposits.
The net interest margin of the bank improved to 2.53% in Q1FY2020 from 2.46% in Q4FY20119. The bank expects to improve net interest margin by 10-15 bps to 2.7-2.75% in FY2020 from 2.58% in FY2019. The bulk deposits of the bank have declined by 3% end June 2019 over March 2019.
The GNPA ratio of the bank rose marginally to 4.96% end June 2019 from 4.92% from March 2019.
The fresh slippages of loans stood at Rs 241 crore in Q1FY2020, while the bank has recorded recoveries and upgradations of Rs 87 crore, while write-offs stood at Rs 132 crore.
The bank expects to contain fresh slippages at Rs 250 crore per quarter and below Rs 1000 crore in FY2020, showing 50% decline from the level of slippages for last two years.
The provisions of NPAs stood at Rs 184 crore in Q1FY2020, while the bank expects credit cost of Rs 200 crore per quarter, on account of higher share of corporate loan in NPA book which takes longer time for resolution. The credit cost is expected at 1.0-1.1% for FY2020.
The bank has improved PCR to 45.1% end June 2019 from 42.5% end March 2019 and 39% end June 2019, while to improve PCR to 65% in FY2020.
The bank expects recoveries of NPAs of Rs 500-600 crore in FY2020 with NCLT recoveries, which would help to improve PCR ratio.
The corporate loan book is stable, while 1-2 accounts are under watch list in the corporate, otherwise no specific account showing any stress.
The exposure to housing finance company showing stress is having exposure of Rs 150 crore.
The exposure to below BBB rate book is 8%, but no account above Rs 100 crore exposure is in SMA 1 or SMA 2 category.
The SMA 2 category loan book of the bank has increased from 1.71% end March 2019 to 2.65% end June 2019, mainly driven by 4762 accounts with less than 5 crore exposure has contributed Rs 400 crore and above Rs 5 crore accounts have contributed rise of Rs 200 crore in SMA-2 book in Q1FY2020. One account with exposure of Rs 50-100 crore relating to road project is added to SMA 2 book, which is expected to get resolved. However, the accounts having more than Rs 100 crore not added to SMA 2 book for last two quarters.
The ticket size for housing loans stands at Rs 25 lakh LAP at Rs 38 lakh and business loans at Rs 37 lakh.
The bank has restructured loan book of Rs 292 crore, of which MSME exposure is Rs 107 crore ( Rs 32 crore a quarter ago), Kerala non-flood exposure is Rs 21 crore (Rs 57 crore) and Kerala flood related exposure is Rs 164 crore (flat qoq).
The moratorium for Kerala flood related restructured loan is available upto 31 December 2019, till then no recovery and no coercive action would be taken.
The bank has taken capital raising shareholder approval for raising 30 crore share and Rs 500 crore of bonds. It may go for capital raising in H2FY2020, depending upon market environment.
The bank is expecting Rs 200 crore plough back of profits to capital in FY2020.
The cost side is well controlled, while bank expects to improve expense ratio by 200 bps in FY2020 with strong fee income and treasury income.

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