South Indian Bank needs to curtail provisions & expand to strengthen credit growth; Hold
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South Indian Bank reported mixed third quarter numbers with PAT & Net Interest Income rising 9.6% & 3% respectively and Net Interest Margin (NIM) declining 26 basis points YOY. Profit After Tax stood at Rs. 1114 Mn for the quarter against Rs. 1016 Mn in the same period previous year. Net Interest Income stood at Rs. 4180 Mn compared to Rs. 4070 Mn in the corresponding quarter previous year, growing 3% YOY and declining 6% QOQ. Net Interest Margin (NIM) was 9 basis points lower QOQ and was reported at 2.66% in the current December quarter. Other income was the star performer soaring 69%YOY from Rs. 1533 Mn to Rs. 2585 Mn in the current December quarter. Compared to the previous September quarter, other income jumped at even higher rate of 77% in the current Q3 FY17. Asset Quality deteriorated with Net NPA ratio rising 72 basis points YOY and Gross NPA ratio jumping 123 basis points in Q3 FY17 compared to same period previous year. Gross NPA & Net NPA ratio stood at 3.98% & 2.52% in the current December quarter FY17. On sequential basis, Net NPA ratio improved 25 basis points whereas GNPA ratio rose 2 basis points. Provisions almost doubled YOY and stood at Rs. 2066 Mn compared to Rs. 1064 in Q3 FY16. All segments except corporate exhibited positive growth YOY. CASA ratio stood at 25.90% climbing phenomenally by 290 basis points YOY and 310 basis points on quarterly basis exhibiting demonetization impact. One basis point is 1/100th of a percentage. Deposits witnessed QOQ growth of 5.65% whereas Advances were at a dismal 2%. Advances & Deposits stood at Rs. 452340 Mn & Rs.635950 Mn with yearly rise of 11% & 19% respectively.
South Indian Bank has around 455 branches in Kerala with a total of 840 branches & 1313 ATMs as on 31 st December 2016. The bank seems to be strong on profitability in the current December quarter but weak when it comes to asset quality & credit growth compared to other private sector competitors. The bank needs to curtail its provisions and expand aggressively to strengthen its credit growth in the long run. With new banks already in the fray along with small & payments bank, Indian banking sector is becoming more & more competitive. We recommend HOLD for the stock for medium and long term investment.
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Suhani Adilabadkar is a Research Analyst registered with SEBI ((INH200003240)) She has done PGDBA (Finance), MS (Finance) and a Fellowship from Insurance Institute of India. She maintains a blog where she publishes research reports across industries - oasisfundamentals.blogspot.in.
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