SOUTHBANK - South Indian Bank Ltd. Share Price

The management of South Indian Bank provided an optimistic outlook for the upcoming periods during the Q2 FY '26 earnings conference call on October 17, 2025. They highlighted several key points:

1. Growth in Key Metrics: The bank reported a net profit of Rs. 351 crores, an 8% increase from Rs. 325 crores in Q2 FY '25. Total deposits rose by 10% year-on-year to Rs. 115,635 crores, with advances up 9% to Rs. 92,286 crores.

2. Improvement in NPAs: Gross NPA improved significantly, decreasing by 147 basis points to 2.93%, while net NPA fell by 75 basis points to 0.56%. The provision coverage ratio (excluding write-offs) also improved by 1,005 basis points to 81.29%.

3. Retail Focus: The bank is prioritizing retail lending, with significant growth reported in gold loans (up 13% to Rs. 18,845 crores), home loans (up 25% to Rs. 8,849 crores), and auto loans (up 25% to Rs. 2,288 crores).

4. MSME Growth: MSME disbursements surged by 127% year-on-year. Advances from the corporate sector, however, were reduced from 42% to 40% of total advances as the bank shifts its focus to more retail and MSME lending.

5. Net Interest Margin (NIM) Recovery Expected: The current NIM is at 2.8%, which management believes is the lowest point, with expectations of gradual recovery as the interest rate environment stabilizes.

6. Future Strategies: The bank aims for a balanced growth strategy, targeting retail and MSME advances to eventually lower the proportion of corporate loans in the overall portfolio.

7. Investment in Digital and Co-lending Partnerships: The bank has developed digital assets for customer engagement and entered multiple co-lending arrangements, with a target to grow these digital assets significantly.

Overall, South Indian Bank's strategy aims at sustainable growth, risk management, and digital transformation, with an optimistic view of improving profitability and asset quality in the near future.

Here are the major questions and respective answers from the Q&A section of the earnings conference call transcript for South Indian Bank:

1. Question: "Can you explain the recent yield compression in net interest income and the nature of other income? Is it sustainable?" Answer: "The yield compression in our net interest income stems from the RBI's 100 basis points cut earlier this year. We've fully transmitted these changes, hitting what we believe is a low point in NIM at 2.8%. We expect a recovery moving forward. Regarding other income, while there was one-off gain of about Rs. 50 crores, the majority is recurring, and we don't foresee declining to previous low levels."

2. Question: "How do you view the growth of gold loans compared to the broader market?" Answer: "Our gold loan book stands at Rs. 18,845 crores, growing 13% YoY. While we plan to remain competitive, our growth is somewhat capped as gold loans constitute about 20.4% of our balance sheet. We're also positioned to capture pricing upside in this segment."

3. Question: "What are the definitions and current levels for SMA 0, SMA 1, and SMA 2 assets?" Answer: "Our SMA 1 and SMA 2 assets are around 80 basis points, with SMA 0 being near 200 basis points. This transition from a 40 to 500 basis points provision isn't expected to impact our credit costs significantly since we hold a conservative provision coverage ratio."

4. Question: "What are your expectations regarding the NIM going forward in light of RBI's dovish stance?" Answer: "While further RBI cuts may impact NIM, we believe we're at the low point and see potential for improvement if reference rates stabilize. Our focus is on expediting provisions and managing costs effectively."

5. Question: "Can you give guidance on credit costs for the full year?" Answer: "Currently, our slippage ratio is stable at about 21 basis points. If trends continue, we anticipate a full-year slippage roughly double our current run rate, maintaining credit costs at manageable levels."

6. Question: "What is your approach to the growth of MSME loans?" Answer: "Our aim is to grow our MSME book aggressively, targeting 20% yearly growth. Over the next 18 months, we plan to reduce the corporate book's proportion while increasing MSME share, which currently stands at 6% quarter-on-quarter growth."

7. Question: "Are there any capital adequacy movements attributable to AFS reserves this quarter?" Answer: "There was a slight decrease in capital adequacy. Our AFS reserves are at a debit balance of Rs. 10 crores; Tier-1 capital fell due to a significant increase in the investment book and Tier-2 bond repayments."

8. Question: "Can you outline plans for digital assets and co-lending?" Answer: "We're actively engaged in co-lending partnerships, currently at Rs. 1,500 crores, with plans to reach Rs. 3,000 crores by year-end. Digital initiatives include FinCredibles, aimed at enhancing customer engagement and growth."

9. Question: "What is your outlook for hiring and operational expenses?" Answer: "We have held our expenses steady, but positive trends indicate a need for selective hiring, particularly in sales and new product areas. Overall, we aim for operating leverage improvements while managing cost increases judiciously."

10. Question: "Could you confirm recoveries and upgrades within NPA for this quarter?" Answer: "We recorded recoveries of Rs. 352 crores for the quarter, of which Rs. 234 crores came from GNPA reversals and Rs. 60 crores from interest on NPA reversals, alongside Rs. 66 crores write-offs."