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South Indian Bank (SIB) reported a moderate set of numbers for 3QFY2016. Its net profit rose by 15.6% to Rs101.6cr, helped by strong NII growth of 27.1% yoy, thereby partially offsetting the impact of rise in provisions. However, the asset quality continued to slide further with slippages increasing to 3.93% and with Gross and Net NPA ratios too rising sharply for the quarter. Moderate growth in Advances: The bank’s advances and deposits grew at a moderate pace of 9.7% and 10.3% yoy respectively, during the quarter. The bank is shifting its focus to retail, SME and agriculture loans. During the quarter, retail advances continued to dip; they declined by 4.6% yoy as gold loans continue its downward trend. CASA ratio and NIM improve: CASA deposits grew by 18.1% yoy and the CASA ratio improved to 23.0%, during the quarter. The Reported NIM for the quarter increased by 11bp qoq to 2.92% while it increased by 42bp yoy. The bank reiterated its NIM guidance in the range of 2.75-2.80% for FY2016. Other income excluding treasury climbed 26.1% yoy to Rs103cr, while treasury gains declined by 36% on a yoy basis. The cost-to-income ratio for the quarter was at 53.0% and the Management expects to improvise on the same, going forward. Asset quality slipped further: On the asset quality front, the GNPA ratio increased by 51bp qoq to 2.75%, while the NNPA ratio came in at 1.80% as compared to 1.39% in 2QFY2016. SIB has been reporting high slippages from the corporate book since the last few quarters. Slippages for 3QFY2016 were at Rs367cr which is essentially because of some trading accounts including gold and also some contracting accounts. The bank has expressed that it has zero divergence with the regulator and it has completely reckoned and provided for fully as per the guidelines. The bank did not participate in 5/25 refinancing in 3QFY2016, but has 1 account under SDR of ~Rs150cr. Outlook and valuation: Issues pertaining to asset quality continue to be a key concern for the bank. Going forward, asset quality pressures could be detrimental to the bank’s growth. Given the current macro environment, we recommend a Neutral rating on the stock. At the current market price, the stock trades at 0.7x FY2017E ABV.Download Full Report
|Investment Period||12 Months|
|MCAP BSE (Rs in Cr)||3,187.46|
|MCAP NSE (Rs in Cr)||3,187.46|
|Div Yield (%)||2.12|
Shareholding Pattern (%)
|Public & Others||36.0|