South Indian Bank cleaned half its bad loans, to focus on retail and better rated corporates

South Indian Bank has nearly halved its net bad loans the past year, paced by aggressive recovery and provisioning, and is focusing on growth through high-yield retail loans and advances to better rated companies.

The Thrissur-based lender would accelerate personal loans and credit cards it launched last year as the Southern region in which it is dominant has a huge unaddressed market.

“We have put in place all the building blocks that are required to build a strong institution,’’ said Murali Ramakrishnan, CEO, South Indian Bank. “Credit cards and personal loans are NIM-building products and the growth is strong. In just about a year, it is more than Rs 300 crore.’’

NIM, or net interest margin, pertains to the profitability of the bank’s core business, reflecting the gap between earnings on advances and the cost of money for the lender.

South Indian Bank was beset with bad loans after its loans to companies such as DHFL and IL&FS soured. Under Ramakrishnan who took charge about two years ago, the bank raised its provisioning and put in place processes that improved underwriting.

“What is right for us is to improve predictability,’’ said Ramakrishnan. “We are ensuring that you don’t have any shocks.’’

The bank’s provision coverage ratio has increased to 70% in the June quarter, up from 42.5% in March 2019. Net bad loans have fallen to 2.87% from 5.05% a year earlier.

“The pace of growth of slippages has come down,’’ he said.

In the past two years, the bank mostly underwrites credit above Single A rating. The share of corporate loans below triple B rating has fallen to less than 10% in June, from as high as 32% a year ago.

The bank set a target to raise its assets to about Rs 1 lakh crore by next fiscal year from Rs 64,704 crore now. That timeline may get pushed behind by a year.

“I don’t want to compromise on quality for growth,’’ said Ramakrishnan.

The bank is raising productivity and improving profitability metrics by accelerating recovery of bad loans and rising digitisation for lending as well as raising deposits. The bank has the technology infrastructure in place to suit its business model which it expects to help in driving business.

The bank’s low cost deposits, or CASA, jumped 660 basis points to 34.4 percent in the June quarter and recovered or upgraded accounts worth Rs. 2,269 crores.

While the bank’s tier 1 capital is adequate at 13.2 percent, its provisioning and growth could lead it to raise fresh capital which the board would decide on the need and the pricing, said Ramakrishnan.

Source: Economic Times

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