SOUTHBANK - South Indian Bank Ltd. Share Price

Management provided a positive outlook for the financial year 2025-26, expecting overall asset growth to be north of 12%, with aspirations that it may exceed this figure by 3-4 percentage points. The bank's net profit for FY 2024-2025 reached Rs. 1,303 crores, reflecting a growth of 22% from Rs. 1,070 crores in FY 2023-2024. Notably, total deposits grew by 6% year-on-year to Rs. 107,526 crores, while gross advances increased by 9% to Rs. 87,579 crores.

Key forward-looking points highlighted by the management include:

1. MSME Growth: Management expressed confidence in significant growth in the MSME segment, which they believe will contribute considerably to asset growth in FY 2025-26.

2. NIM and ROA Expectations: The net interest margin (NIM) for FY 2024-2025 was 3.24%, and while management hesitated to provide specific guidance for the next year, they indicated that return on assets (ROA) would likely remain in the vicinity of 1% for the upcoming year, with potential for increases as the interest rate environment stabilizes.

3. Write-offs: The bank has implemented a strategy for accelerated technical write-offs, amounting to Rs. 900 crores in Q4, aimed at improving the gross non-performing asset (NPA) ratio, which decreased to 3.2%.

4. Deposit Growth: Management forecasts deposit growth to be over 10% in FY 2025-26, driven by a strategy to balance the asset mix and increase retail deposits while reducing reliance on corporate loans.

5. Product Development: The management is focusing efforts on wealth management products and enhancing cross-selling to existing customers as part of their growth strategy.

Overall, the management believes that the foundation for sustained growth has been laid, with an emphasis on modernizing systems and improving customer focus across operations.

Major Q&A from the Earnings Call

Question 1: "During Q4 '25, we were helped by strong revenue accruing from our treasury operations. Can you provide additional color on this other income line item?"

Answer: Thank you for the question. Our treasury operations indeed saw significant revenue growth, contributing notably to our other income. Additionally, we realized approximately Rs. 177 crores from recoveries that quarter, which also boosted our revenue figures.

Question 2: "Can you give insight on the MSME loan book growth?"

Answer: We were pleased to stabilize our MSME book this year, albeit with no significant growth due to a technical write-off of Rs. 546 crores, which may distort perceptions. Moving forward, we are optimistic about meaningful growth this year driven by our enhanced onboarding process.

Question 3: "What guidance do you have for FY '26 in terms of advance growth and profitability?"

Answer: Last year, we targeted 10% growth, and we achieved that. For this year, we're aiming for growth north of 12%, and we believe we could hit 20-30% growth depending on the environment. Our focus will be on MSME and retail assets for better yield.

Question 4: "What's your expectation on return on assets (ROA) for the upcoming years?"

Answer: We anticipate maintaining our ROA around 1.0% for the upcoming year, with potential improvement as our retail and MSME segments grow. Long-term expectations could push it closer to 1.15%-1.20% as the interest rate environment normalizes.

Question 5: "What is the guidance on deposit growth?"

Answer: We expect total deposits to grow by over 10% in the next year. As for advances, we are targeting north of 12%, given our strategy to shift towards higher-yield segments like MSME and retail loans.

Question 6: "Can you elaborate on the automation of loan processing in your LAP products?"

Answer: We've automated portions of the credit underwriting process, particularly analyzing income and cash flow. While property valuation and documentation still require manual intervention, we've improved efficiency in the initial stages to support loan processing.

Question 7: "What is the current mix of fixed and floating rate loans?"

Answer: Our fixed-rate loans comprise about one-third of the portfolio, and floating-rate loans also account for approximately 40%. The remaining balance consists of other reference-based loans, including MCLR and term loans.

Question 8: "How did the write-off impact your gross NPA figures?"

Answer: This quarter, we wrote off Rs. 900 crores, primarily impacting our MSME segments. This was a strategic decision to improve our gross NPA metrics while maintaining a stable provision coverage ratio.

Question 9: "What has been the contribution from recoveries to your other income?"

Answer: Yes, the recovery of Rs. 177 crores contributed to our other income. This reflects our ongoing efforts in asset recovery and credit management, positively impacting our financial results this quarter.

Question 10: "How do you view your branch value addition metrics?"

Answer: We've implemented a new system to calculate branch value addition based on historical sales data and their future cash flow potential. Increased sales, even if not reflected immediately in NII, will positively influence our revenue in time.

These responses represent key questions and clarifications shared during the earnings call, reflecting South Indian Bank's financial strategies and outlook.