MOSL: SOUTH INDIAN BANK (Buy)-PPoP growth marred by provisions-balance sheet clean-up accelerates
​South Indian Bank: PPoP growth marred by provisions; balance sheet clean-up accelerates
(SIB IN, Mkt Cap USD0.6b, CMP INR28, TP INR34, 21% Upside, Buy)
- South Indian Bank (SIB) reported PAT growth of 34%/7% QoQ/YoY. PPoP growth stood at 35%/46% QoQ/YoY, led by high trading gains (~44% of total other income – second highest in 13 quarters, barring 3QFY17). However, provisions soared 36%/97% QoQ/YoY, restricting YoY PAT growth.
- NII grew 5%/23% QoQ/YoY on the back of advances growth of 0%/13% QoQ/YoY and NIM expansion of 6bp QoQ/YoY to 2.8%. Opex growth was controlled at 2%/4% QoQ/YoY. CI ratio declined to 44.2%. The bank has guided to CI ratio of 47%-48% for FY18.
- Loan growth of 0%/13% QoQ/YoY was led by robust growth in retail (+4%/20% QoQ/YoY) and SME/agri (+1%/+11% QoQ/YoY) loans, while corporate book grew -2%/10% QoQ/YoY, as per the bank's retail-focused strategy.
- Asset quality deteriorated as the bank's absolute GNPA/NNPA soared 48%/75% QoQ to INR17b/INR11.8b (3.61%/2.54%, +116bp/+109bp QoQ). However, the bank recognized its entire watch-list (INR6.1b at end-4QFY17) as NPA, leading to a clean balance sheet with no watch-list. Total net stressed assets of the bank stood at 3.06% (v/s 3.43% in 4QFY17).
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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