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Informist, Friday, May 16, 2025

 

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--South Indian Bank MD: Aim to grow loans by 12-13% in FY26
--CONTEXT: South Indian Bk MD Seshadri comments in interview with Informist
--South Indian Bank MD: Aim to grow deposits by 10-12% in FY26
--South Indian Bank MD: Focus on improving credit to MSME, retail, agri
--South Indian Bk: Aim to raise share of gold loans to 20% from 14%
--South Indian Bk MD:Aim to double co-lending book to around INR 35 bln FY26
--South Indian Bank MD: See net interest margin moderating
--South Indian Bank MD: Aim to recover INR 12 bln–INR 13 bln in FY26
--South Indian Bank MD: No plan to raise capital in near term
--South Indian Bk MD: In talks with RBI to resume co-branded credit card ops
--South Indian Bk: Resuming co-branded cards ops taking longer than thought
--South Indian Bank: See higher stress in unsecured, credit card book

By Kshipra Petkar and Gowri Lakshmi

 

MUMBAI – South Indian Bank aims to grow its loan book by 12-13% and deposit book 10-12% in the current financial year started April, Managing Director and Chief Executive Officer P.R. Seshadri told Informist in a telephonic interview Thursday.

 

"In this financial year, we will grow faster," Seshadri said. "The slower growth was due to a 900 cr (INR 9 billion) write off. In FY26, we aim to grow loans by 12-13% and deposits by 10-12%." In the current financial year, the bank's main focus would be to grow credit to micro, small and medium enterprises, retail and agriculture sectors, he said. He also highlighted the bank was building an alternate distribution channel to improve its credit growth.

 

As of Mar. 31, the bank's gross advances were up 9% on year at INR 875.79 billion and deposits were up 6% on year at INR 1.07 trillion, mainly led by retail deposits.

 

He said the bank has reduced its share of bulk deposits and aim to increase the share of retail deposits and current account, savings account deposits. "We intend to increase CASA ratio but is difficult. Focus will be to increase CASA on corporate side by increasing transaction accounts and balances and growing the NRI deposits," he added. The bank's CASA deposits were 31.37% of total deposits as on Mar. 31.

 

Seshadri expects the bank's cost of funds to decline due to rising deposits and improving liquidity, however, he said that the fall will not be seen immediately and would take some time. The bank's cost of funds was 4.96% in the March quarter.

 

On co-lending, Seshadri said the bank expected the book to double this financial year. "We have multiple co-lending arrangement with IIFL Finance, AmazonPay, Axio and others. We expect the total exposure to double to 3000-3500 crores (INR 30 billion-INR 35 billion) in FY26 from roughly INR 1,250 crores (INR 12.50 billion) currently."

 

The bank expects the share of gold loan in the total loan book to increase to 20% in FY26 from 14% as of Mar. 31. The gold loan book rose 9% on year to INR 169.82 billion as on Mar. 31.

 

In November, the bank entered into a co-lending arrangement with Fedbank Financial Services, a retail-focused non-banking finance company specialising in gold, mortgage, and business loans. The bank had said this partnership would be a significant step in increasing access to finance and providing their customers with fast, reliable gold loan solutions.

 

In the March quarter, the bank's net interest margin moderated to 3.21% from 3.38% a year ago. However, on a sequential basis, the net interest margin rose from 3.19%. Seshadri said he expects to see further moderation in margins. However, he did not quantify by how much.

 

The gross non-performing ratio of the bank improved to 3.20% as of Mar. 31 from 4.30% a quarter ago and the net NPA ratio improved to 0.92% from 1.25% a quarter ago. On asset quality, he said these are "good numbers" that the bank has seen in recent years.  

 

In the latest quarter, the bank's provisions surged five-fold on year to INR 2.24 billion. Sequentially, too, the provisions were up over 200%. "The incremental provisions were made to create extra provisions and also enable us to take a technical write-off to reduce our gross and net NPA accordingly," he said.

 

He added that in comparison to other segments, the stress is slightly higher in the unsecured book and the credit card book. The bank saw slippages of INR 2.06 billion, out of which INR 1 billion were from personal loans and credit cards. The slippage ratio in the latest quarter was 0.24%.

 

Seshadri said the bank will target recoveries of INR 12 billion-INR 13 billion in the current financial year. "The recovery will mainly be from mid-market segments, small businesses, and corporate loans with collateral," he said. In FY25, the recoveries and upgrades stood at INR 15.34 billion. In the latest quarter, the gross non-performing assets fell nearly 23% on year to INR 28 billion and the net non-performing assets fell over 30% to INR 7.91 billion.

 

When asked about the bank's estimate for the liquidity coverage ratio based on the final guidelines issued by the Reserve Bank of India, he said it will be higher than the six percentage points estimated by the central bank. 

 

In April, the RBI announced the final guidelines on liquidity coverage ratio, reducing the additional run-off factor for retail deposits which are enabled with internet and mobile banking facilities to 2.5% from the 5.0% proposed in July last year in the draft guidelines. The final guidelines will be effective from Apr. 1, 2026, providing banks sufficient room for the transition. 

 

RBI estimated that the net impact of the revised measures would improve the liquidity coverage ratio of banks, at the aggregate level, by around six percentage points as of that date. As of Mar. 31, the liquidity coverage ratio of the bank was 151.34%.

 

With the bank's capital adequacy ratio at a comfortable level of 19.31%, the private sector bank does not intend to raise any capital in the near term.

 

On branch expansion plans, he said there may be some "realignment in existing branches" but the bank had no plans to add branches. Currently, the Kerala-based bank has 948 branches across the country.

 

RBI BAN ON CO-BRANDED CREDIT CARD BUSINESS

The bank stopped on-boarding new customers in its co-branded credit card business from Mar. 13, 2024, after the Reserve Bank of India pointed out some lapses. Since then, the bank has been working to restart on-boarding new customers for its co-branded credit card. "It has taken longer than we thought. But we are hoping that we are reaching near the end of the entire process," Seshadri said. He said that the bank has had multiple discussions with the RBI on lifting the ban and these have been cordial discussions.

 

"If there are any incremental areas, we are willing to fix them. So, this is pending at the regulator's end," he said. He also said that once the ban on co-branded credit card business is lifted, it would have a positive impact on the bank's margins. He did not specify what the impact on the margin would be.

 

He said the customer engagement in the co-branded card segment continues to be good. "(In such cases) people will voluntarily leave over a period of time," he said. "That kind of attrition is actually quite low in this portfolio. So this is a material portfolio for us and we are taking action to try and resolve the issues that exist so that we can go forward."

 

On Thursday, the private sector bank reported a 19% on-year jump in the net profit to INR 3.42 billion for the quarter ended March and the net interest income was INR 8.68 billion, lower than INR 8.74 billion reported a year ago. On the National Stock Exchange, the shares of South Indian Bank closed 0.7% lower at INR 27.55 Friday.  End

 

Edited by Akul Nishant Akhoury

 

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