Capitaline

Analyst Meet / AGM 17-Jan-20

Conference Call

South Indian Bank

Expects 30-35% dip in slippages, provisions likely at Rs 200 crore per quarter in FY2021

South Indian Bank conducted a conference call on 17 January 2020 to discuss its financial results for the quarter ended December 2019. VG Mathew, MD& CEO of the bank addressed the call:
Highlights:

The bank has exhibited further improvement in its operating performance in the quarter ended December 2019. In line with the strategy, the bank has continued to achieve success on expansion of retail, agriculture and MSME loan book, margin expansion and recognizing of stressed assets.
The share of corporate loan book share has declined to 30% from 35% a year ago. The bank is comfortable with current loan mix, while it may further improve share of retail loan book.
The retail loan book grew 18% driven by mortgage, auto and gold loan segment. The share of MSME loan book has further increased to 25%.
The corporate loan book of the bank has declined 7%, with exposure to accounts above Rs 100 crore degrowing to 7300 crore end December 2019. The bank has not taken any fresh exposure to road, telecom, EPC, Aviation segments during last five years. NBFC exposure stands at 6.89% of total loan book against limit of 15%, while it is well rated exposure. Most of the corporate book is based in Mumbai, Delhi and Hyderabad, which has exhibited secular decline across these cities.
On deposits front, the bank has further improved CASA ratio to 25.2% end December 2019.
The bank has continued to improve net interest margin to 2.72% in Q3FY2020, while bank aims to maintain margins at current level.
The cost to income ratio stood at 53.4% in Q3FY2020, while bank expects to continue to improve cost-to-income ratio with improving operating leverage.
The bank has posted 18% growth in the non-interest income in Q3FY2020, while the multiple tie-ups for distribution of life and non-life insurance product is expected to support its transaction and third party income going forward. In life insurance segment, the bank has tied up with Bajaj, LIC, Kotak, SBI, while it has tied up with Bajaj Allianz, New India in non-life segment.
The fresh slippages of loans were Rs 358 crore in Q3FY2020, of which one HFC account and one fitness segment related account were major contributor to the fresh slippages. The bank has indicated about these accounts in the previous concall, while the NBFC related account is resolved and other irrigation related account remains standard.
The restructured loan book of the bank has increased to Rs 742 crore end December 2019 from Rs 516 crore end September 2019. The bank expects slippage rate for MSME restructured book at 15-20%, while the bank has sizeable collateral security available for its exposure.
The provision coverage ratio of the bank has increased to 50.4% end December 2019, while bank aims to improve provision coverage ratio to 60% by end March 2021.
The bank had targeted recoveries of Rs 500-600 crore for FY2020, while expects similar recoveries in FY2021.
The cash recoveries stood at Rs 45 crore, upgradation Rs 54 crore, ARC sales Rs 17 crore and write-off Rs 146 crore in Q3FY2020.
The bank expects 30-35% decline in slippages of loans to Rs 800-1000 crore in FY2021, with run rate of Rs 200-250 crore per quarter from Q4FY2020
The bank continues to guide at credit cost of Rs 200 crore per quarter for FY2021.
The bank expects that it will never cross 4.96% GNPA level.
SMA 2 category loan book of the bank has improved qoq to 2.71% from 3.51% end September 2019. No account in the SMA 2 book is above Rs 100 crore, while there is only one account of Rs 50 crore above.
Out of 3 account recognized as fraud in Q3FY2020, one is related to road segment acquired in 2012 and consortium decided to declare it as fraud on observing fund diversion. Other accounts related to textiles and FMCG segments.
The bank expects loan growth of 20% in agriculture and MSME and retail 18-20%. Assuming 8-10% growth in corporate book, the bank aims to achieve 18-20% loan growth in FY2021.
As per RBI supervision, the bank has not showed any NPA divergence for FY2019.

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