South India Bank Ltd’s report robust PAT up 75.42% YoY
Company Overview:
South India Bank, established in 1929 in Kerala, holds the distinction of being the earliest bank in South India. It primarily operates in Kerala and the southern regions of India, with plans for further expansion nationwide. The bank offers lending facilities at competitive rates to retail individuals and businesses, catering to various sectors, including corporations, personal, business, and agriculture. Additionally, it engages in para-banking activities such as debit card services, third-party financial product distribution, treasury operations, and foreign exchange transactions.
Branch Network:
As of June 2023, South India Bank boasts an extensive branch network of 941, inclusive of 3 satellite branches and 3 ultra-small branches, complemented by 1,296 ATMs spanning the country. Notably, a significant 82% of its branches are concentrated in Kerala and the southern region, posing geographic concentration risks. The majority of these branches, approximately 50%, are located in semi-urban areas. With an employee base of 9,894, the bank aims to enhance its presence with the opening of 17 banking outlets and 25 ATMs, along with 10 cash recycling machines in the financial year 2023-24.
Loan Book Concentration:
In Q1FY24, the bank’s loan book exhibits a notable concentration in the southern region of India, with 36% of loans sanctioned in Kerala and 35% in the southern states excluding Kerala, collectively forming 72% of the loan portfolio. The remaining 28% of loans are disbursed in the rest of India. The loan book is diversified among segments, with corporate loans accounting for 37%, personal loans at 23%, business loans making up 21%, and agriculture loans comprising 19% of the portfolio.
Segment-wise Performance in Q1FY24:
South India Bank’s gold loan book witnessed consistent growth, increasing by 21.04% YoY, primarily driven by retail and agriculture sub-segments. The personal loan segment expanded by 12.18% YoY, primarily attributed to housing loans. In contrast, business loans decreased by 14.57% YoY due to declines in MSME/SME and other loans. Corporate loans exhibited robust performance, growing by 47.94% YoY in Q1FY24, with a significant portion comprising AAA-rated and AA-rated companies.
Assets Quality and Capital Adequacy:
The bank’s asset quality improved in Q1FY24, with GNPA at 5.13% compared to 5.87% in the previous year and NNPA at 1.85% compared to 2.87%. South India Bank maintains a capital adequacy ratio of 16.49%, exceeding the RBI’s guideline of 15%. The provision coverage ratio increased to 76.54% from 70.11% in Q1FY23.
Valuation and Key Ratios:
Currently trading at 0.82 times its book value of 31.9 Rs per share, the bank exhibits improved financial metrics, with ROA and ROE at 0.73% and 11.80%, respectively. Net Interest Margins (NIMs) increased to 3.34% in Q1FY24, up 60 bps from 2.74% in Q1FY23. However, the CASA ratio declined to 32.64% from 34.4% in Q1FY23, and the cost-to-income ratio, while slightly high at 58%, improved from 62.7% in the previous year.
Q1FY24 Results Update: Consolidated
In Q1FY24, the bank reported impressive financials, with interest income growing by 24.86% YoY, resulting in net interest income of 807.77 Cr, a 33.87% YoY increase. Notable improvements were seen in corporate and personal segments. NIMs increased to 3.34% compared to 2.74% in Q1FY23. Pre-provision operating profit (PPOP) grew by 54.77% YoY. Profit after tax (PAT) recorded a significant 75.42% YoY growth to 202.5 Cr, with an earnings per share (EPS) of 0.97 Rs for the quarter. The collection efficiency also improved to 100.1% in Q1FY24 compared to 99.8% in the previous quarter.
Conclusions:
South India Bank demonstrates a strong regional presence, particularly in Kerala and the southern regions of India. The bank’s diversified loan portfolio, improving asset quality, and capital adequacy ratios above regulatory requirements indicate a positive outlook. Despite some challenges like geographic concentration and a slight decline in CASA, the bank’s performance in Q1FY24 showcases growth potential, especially in the corporate and personal segments.
