SOUTHBANK - South Indian Bank Ltd. Share Price

In the Q1 FY26 earnings conference call, management highlighted a positive outlook for South Indian Bank. Key metrics showed a net profit of INR 322 crores, marking a 10% increase from INR 294 crores in Q1 FY25. Operating profit surged by 32% to INR 672 crores from INR 508 crores. Total deposits rose by 9% to INR 112,922 crores, while gross advances climbed by 8% to INR 89,198 crores. The overall business reached INR 2,02,119 crores, showing a 9% growth rate.

Management projected credit growth to exceed 12% for the fiscal year, aligning deposit growth with this target. The return on assets was recorded at 1.01%, with an anticipated increase to around 1.15% in the next fiscal year. The capital adequacy ratio stood at 19.48%, while the Tier 1 ratio was at 18.25%. CASA deposits grew by 9% year-on-year.

Notably, gross NPA reduced to 3.15% from 4.5%, and net NPA dropped to 0.68% from 1.44%. Management emphasized the improvement in the provision coverage ratio, which had a significant enhancement of 988 basis points year-on-year.

A strategic focus on growing the MSME and retail loan segments was reinforced, with confidence in achieving 15% to 18% growth in MSME loans. Management aims to maintain positive operating leverage with revenues growing faster than expenses, despite an expected increase in hiring to bolster sales capacity.

Overall, management expressed optimism about leveraging new systems and processes to drive customer acquisition and sustain growth momentum in the upcoming quarters.

Questions and Answers from the Q&A Section

Question 1: "How do you plan to balance the need for continued cost discipline with the imperative to invest in sales capacity to drive high-yield loan growth?"

Answer: I acknowledge that we have reached a limit on cost cuts without harming business, primarily due to attrition in customer-facing roles. We are now contemplating renewed hiring that aligns with revenue growth. We will ensure that new hires contribute quickly to earnings by optimizing our new systems and processes for customer onboarding. This balanced approach aims to enhance both operational efficiency and business growth.

Question 2: "Could you elaborate on the early-stage adoption and utilization rates of the new platforms at the branch level for MSME loans?"

Answer: Adoption of our new products like GST Power has been strong across branches. Our branch productivity metrics show a 60% increase from Q4 FY24. Although our MSME portfolio's growth has been flat, we anticipate change in the coming quarter as we leverage this productivity and enhance customer engagement through our technology-enabled platforms.

Question 3: "How do you expect the overall operating leverage to benefit from new initiatives on the MSME and corporate side, and how do you see overall ROA numbers?"

Answer: Operating leverage remains positive, with revenue growth outpacing flat expense levels. We target credit growth above 12% for this year. Regarding ROA, with controlled credit costs and improving asset quality, we expect to maintain a RoA close to 100 basis points this fiscal year, potentially rising to 115 basis points next year.

Question 4: "Is it fair to say that in this quarter, we had some treasury income used to increase our PCR?"

Answer: Yes, we recorded INR 256 crores in treasury income this quarter. We used this income strategically to bolster our provision coverage ratio, ensuring our books are clean and well-prepared for future growth.

Question 5: "Could you please share the write-off pool amount this quarter and income recovered from it?"

Answer: The amount written off this quarter was approximately INR 2,400 crores, with INR 37 crores recovered. This recovery significantly contributes to our net income from write-off pools.

Question 6: "What is the plan for branch expansion going forward?"

Answer: Currently, we are not considering branch expansion. We want to optimize our existing branches before adding more. When we do expand, it will focus on regions like Maharashtra, Gujarat, and the National Capital Region.

Question 7: "Can you provide the breakup of your loan book by benchmark and NIM expectations?"

Answer: Roughly 40% of our loan book is tied to repo rates or T-bill rates, while nearly 50% is fixed-rate. We expect NIM to bottom in Q2 unless there are unexpected changes in interest rates; afterward, we anticipate an improvement as we reprice deposits and improve asset quality.