Capitaline

Analyst Meet / AGM 27-Jun-20

Conference Call

South Indian Bank

Expects fresh slippages at 1.5-2.0%, provisions at Rs 250 crore per quarter for FY2021

South Indian Bank conducted a conference call on 27 June 2020 to discuss its financial results for the quarter and year ended March 2020. VG Mathew, MD&CEO of the bank addressed the call:
Highlights:

About 98% of the branches and ATMs of the bank were operational during the lockdown period.
The bank has provided opt-out facility for moratorium and 36% or Rs 23817 crore of the loan book of the bank is under moratorium.
As per the bank, about 34% of the customers under moratorium have balances in their accounts amounting to one or more installments which is also included in the calculation of loan book under moratorium.
The bank has a very little unsecured loan book and has a very strong collateral coverage for the secured loan book.
The exposure to small NBFCs with the ticket size of below Rs 25 crore stands at Rs 115 crore where there is no demand for moratorium and the loan book under SMA 0, 1 and 2 and standstill is zero.
The exposure to travel and tourism stands at Rs 1052 crore where the loan book under moratorium is Rs 631 crore, SMA Rs 5 crore and standstill Rs 4 crore.
The exposure to professional services including educational institutes stands at Rs 4544 crore with loan book under moratorium at Rs 2187 crore, SMA Rs 7 crore and standstill at Rs 3 crore.
The exposure to construction sector stands at Rs 3106 crore with loan book under moratorium at Rs 1157 crore, SMA Rs 51 crore and standstill Rs 4 crore.
The exposure to transportation sector stands at Rs 119 crore with loan book under moratorium at Rs 24 crore, SMA Rs 2 crore and standstill at Rs 2 crore.
The exposure to gems and jewellery sector stands at Rs 585 crore with loan book under moratorium at Rs 87 crore, while the SMA and standstill exposures is nil.
The exposure to commercial real estate sector stands at Rs 1086 crore with loan book under moratorium at Rs 345 crore, with nil SMA and standstill exposure.
The exposure to textile sector stands at Rs 3095 with loan book under moratorium at Rs 725 crore, SMA at Rs 7 crore and standstill at Rs 4 crore.
The bank has improved its provision coverage ratio to 54% while the bank aims to further improve provision coverage ratio to 60% in next 6 months and 65% by year end, while containing fresh slippages and improving recoveries and upgradations of NPAs.
The bank expects fresh slippage ratio at 1.5-2% or Rs 1000-1300 crore of fresh slippages in FY2021.
The bank is revising upward its credit cost estimate to Rs 250 crore per quarter from Rs 200 crore earlier for FY2021.
The bank is moving successfully on its stated strategy of strengthening margins, improving loan book to favourable mix and recognizing every stressed account.
The bank has continued to expand its loan book in the agriculture, MSME and retail segment which currently forms 71% of the total loan book. The retail loan book has increased by 15% driven by the mortgage, housing etc segments. The share of corporate loan book has declined to 29% from 34% a year ago.
The bank is targeting loan growth of 10-15% for FY2021. The long growth would be driven by retail, MSME, agriculture segments.
The gold loan book accounts for 12% of the overall loan book and posted strong 26% growth in FY2020.
In the corporate loans segment, the exposures above Rs 100 crore have declined sharply to Rs 6500 crore from as high as Rs 11000 crore.
The non interest income of the bank has been driven by strong growth in the treasury income. The bank expects treasury income of Rs 150-250 crore with good year to contribute higher treasury income of Rs 250 crore and bad year to contribute minimum treasury income of Rs 150 crore.
The bank has created one time additional provisions of Rs 255 crore on MTM on security receipts and Rs 76 crore for Covid-19. Excluding the one off extra ordinary provisions for security receipts and covid-19, the profit of the bank would have been higher at Rs 351 crore for FY2021 and Rs 104 crore for Q4FY2020.
The bank has created covid related provisions of Rs 76.5 crore for strengthening the balance sheet.
As per the RBI guideline the banks are required to create provisions of 10% (5% in Q4FY2020 and 5% in Q1FY2021) for the loan overdues as on 1 March 2020 where the standstill benefit is used. Such overdue loans amounted to Rs 207 crore which are not classified as NPAs and the bank has made full Rs 20.7 crore provision in Q4FY2020 itself. Further, the bank has created additional prudential provisions of Rs 55.7 crore, totaling to Rs 76.5 crore of covid related provisions.
The bank has not used covid related provisions in the calculation of NPAs.
The provision coverage ratio on security receipts has improved to 63%.
The fresh slippages of loan stood at Rs 323 crore which were contributed by the sectors such as NBFC, food processing and engineering sector. The corporate segment contributed slippages of Rs 110 crore, NBFC Rs 55 crore, food processing Rs 28 crore, engineering Rs 2 crore etc.
The core Tier 1 equity ratio of the bank stands at 10.7%. The bank raised additional Tier 1 capital of Rs 500 crore in FY2020.
The bank has created provisions of 100% for its exposure of Rs 200 crore for the subsidiary of Mumbai based infrastructure conglomerate, where the recovery is expected at 50%.
The bank has one large account with the exposure of Rs 423 crore relating to a large Kolkata based group in the cement and tyre segment where the bank has created provisions of 10% for a likely stress ahead.
As per the bank, its capital adequacy position is comfortable for the long growth of 10 to 15% in FY2021, while it would keep a watch on the market situation for further capital raising.
The succession planning of the bank is on track, while the bank has recommended names of new MD and CEO of the bank to the RBI.
Under the IBC, the bank has referred one Delhi based EPC account with the exposure of Rs 226 crore where the bank has created provisions of 50%. The exposure to accounts referred by other banks stands at Rs 494 crore where the bank has also created reasonable provisions.
The bank has witnessed decline in the current account balances in Q4FY2020 due to the exit of some of the government balances.
The bank has completed tie up with leading insurance companies and is showing healthy traction in the third party fee income.
The centralized processing, improved productivity and growth in free income would help the bank to further improve cost to Income ratio going forward.

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