MOSL: SOUTH INDIAN BANK (Buy)-Balance sheet growth picks up; asset quality under pressure

South Indian Bank: Balance sheet growth picks up; asset quality under pressure

(SIB IN, Mkt Cap USD0.5b, CMP INR19, TP INR26, 40% Upside, Buy)

• SIB's reported PPoP fell 29% YoY due to MTM losses and gratuity provisions (INR540m). Driven by higher-than-usual slippages (INR6.09b), provisions came in at INR2.3b (1.2% annualized credit cost), severely impacting PAT (INR230m, -77% YoY). While the bank has fully provided for gratuity provisions, it has to provide another INR458m toward MTM losses over the next three quarters.
• NII grew 0%/7% QoQ/YoY, even as advances increased 2%/19% QoQ/YoY. NIM shrank 13bp QoQ (9bp impact from interest reversals) to 2.6%, led by a 6bp sequential decline in reported spreads. CI ratio increased to 57.9% (v/s 53.7% in 3QFY18), driven by one-offs in opex and weak other income (-18% QoQ).
• Loan growth of 2%/19% QoQ/YoY was led by robust growth in retail (+10%/+27% QoQ/YoY) and MSME (+1.3%/+21.1% QoQ/YoY) loans, while the corporate book grew 14% YoY, in line with SIB’s retail-focused strategy. Corporate book declined to 36% of advances v/s 37% a year ago.
• Slippages were elevated at INR6.09b (INR6.14b in 4QFY18), led by elevated slippages in SME (~INR2.26b) and corporate (INR3.08b). Slippages in agri were controlled at 0.14% v/s 0.71% in 4Q. Recoveries and upgrades were weak at INR130m/INR240m, while there were no write-offs during the quarter. Absolute GNPA increased 28.9% QoQ to INR25.5b (4.54%, +95bp QoQ), while NNPA rose 28.1% QoQ to INR18.1b (3.27%, +67bp), with calculated PCR improving marginally to 28.9%. Total net stressed loans were up 24% QoQ at INR18.3b (3.3% of total loans v/s INR14.7b or 2.7% of loans in 4Q).