Motilal Oswal - South Indian Bank Ltd. (SOUTHBANK) MOSL: SOUTH INDIA BANK (Buy)-Retail segment gaining focus; Asset quality pressure to ease gradually

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Motilal Oswal

Nitin Aggarwal

MOSL: SOUTH INDIA BANK (Buy)-Retail segment gaining focus; Asset quality pressure to ease gradually

South India Bank: Retail segment gaining focus; Asset quality pressure to ease gradually

(SIB IN, Mkt Cap USD0.4b, CMP INR16, TP INR20, 24% Upside, Buy)

We met the MD & CEO and key management of South Indian Bank during our visit to their retail and IT hub in Kochi. Key takeaways:

Retail Banking gaining focus

Declining market share in its home state of Kerala has been a wake-up call for SIB. To recoup the recent loss in market share, SIB now aims to leverage its existing customer relationship by cross selling. The bank has constituted a separate ‘business development channel’ in addition to its existing branch network to speed up the sourcing of retail products. Also, the bank has centralized and automated its retail and SME lending operations, account opening operations and IT operations over the last two years.

Tie-up with DSAs and OEMs to augment retail loan sourcing

SIB has signed up with 200 Direct Selling Agents (DSAs) in six locations (excluding Kerala). For auto loans, SIB has added 76 people through Teamlease on an outsourced basis. SIB has also tied up with OEMs like M&M and TAMO for passenger vehicles and aims to significantly expand this relationship (186 branches identified) in different geographies.

Progress on key retail products

Home and Vehicle loans: On a monthly basis, the bank handles ~550-600 files in home and auto loans. Average Ticket Size in home loans is INR2.9m, which is expected to increase once the bank starts disbursing loans in the ex- Kerala market. Approval rates are 30-35% for DSAs, while it ranges between 70-75% for internally sourced customers. A few years ago, turnaround time (TAT) for auto loans was 3-4 days, which the bank has brought down to 24hrs.
Third party distribution: SIB has tie-ups with LIC, Kotak Life and SBI Life for life insurance, while it has tie-ups with TTK Cigna and Max Bupa for general insurance.
Credit card: SIB offers co-branded credit cards with SBI; in this arrangement, SIB earns the sourcing fee while all loans and liabilities are on SBI’s books.

14/12/2018 6 EN

Underlying

South Indian Bank Ltd.

South Indian Bank Limited. The South Indian Bank Limited (the Bank) provides retail and corporate banking, Para banking activities, such as debit card, third-party product distribution, in addition to Treasury and Foreign Exchange Business. The Bank's segments include Treasury, Corporate/Wholesale Banking, Retail banking and Other Banking Operations. The treasury services segment consists of interest earnings on investments portfolio of the Bank, gains or losses on investment operations and earnings from foreign exchange business. The Corporate/Wholesale Banking segment provides loans to corporate segment. The Retail Banking segment provides loans to non-corporate customers. The Other Banking Operations segment includes income from para banking activities, such as debit cards, third-party product distribution and associated costs. The Bank has a network of approximately 830 branches, approximately 40 extension counters and approximately 1,290 automated teller machines (ATMs) in India.

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INE683A01023 National Stock Exchange of India India

Provider

Motilal Oswal

Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.

Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.

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Analysts

Nitin Aggarwal

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MOSL: SOUTH INDIA BANK (Buy)-Retail segment gaining focus; Asset quality pressure to ease gradually

Increased risk weighs on SOUTH INDIAN BANK, penalising its rating down to Neutral

MOSL: SOUTH INDIAN BANK (Buy)-In-line operating performance-Asset quality broadly stable

MOSL: SOUTH INDIAN BANK (Buy)- Weak quarter-elevated provisioning to remain an overhang

MOSL : HOME FIRST FINANCE COMPANY: Earnings in-line with sustained improvement in asset quality

MOSL : SHOPPERS STOP: Ticking the right boxes

MOSL : ERIS LIFESCIENCES: Enhanced efforts toward product launch-related activities

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