The bank restructured approximately Rs 189 crore of accounts
The going of late has not been pleasant for the banking sector in India. Not only is the general economic scenario bad, but even some possible benefits for the sector, like capital infusion would be muted by other factors intrinsic to the sector.
It is in the wake of this that the latest set of numbers of South Indian Bank has to be looked at. “For Q1 FY2013, the banks’ growth remained healthy,” says Vaibhav Agrawal, VP Research – banking, Angel Broking. Thus, advances grew by 23.5% year-on-year and deposits grew by 17.5% y-o-y. Savings deposit growth was 8% on a quarterly basis. The savings account growth was mainly in the NRE segment. The management increased efforts, in customer acquisition as well as higher inflows due to rupee depreciation has helped in this regard.
But there is another aspect to the NRE story. “Considering upward re-pricing of NRE term deposits post deregulation, we were building in margin compression,” says Nilesh Parikh, of Edelweiss in a note on the bank. Simply put it means that term deposits are now more expensive for the bank.
NIM (Net Interest Margins – the difference between the interest a bank earns and the interest a bank has to pay out) stood at 3.15% a fall of 7 basis points (one basis point is one/hundredth of a percentage point), a fact that analysts had expected.
Another negative for South Indian bank was that asset quality of the bank did take a slight impact. Slippages or loans that are quite dicey increased to Rs. 91 crore, with the annualised slippage ratio being 1.3%. However most of the slippage was due to one single MFI account that accounted for Rs. 38 crore.
South Indian Bank restructured approximately Rs189 crore worth of accounts taking the total restructuring book to Rs. 1,195 crore. “The bank does not have any major restructuring in the pipeline currently,” Agrawal notes.
For the banking and general finance sector the Q1 FY13 period was challenging. Macroeconomic uncertainty and moderating loan growth hit the sector. Even some positives for the banking sector like the benefit of capital infusion would be negated by factors like reduction in lending rates, according to a general view of the banking sector by Motilal Oswal.
So how do things look for South Indian bank going forward?
“The bank’s asset quality which had held up pretty well till now, in spite of the macro headwinds (which have led to higher provisioning expenses for most banks) has started to witness signs of pressure,” says Agrawal of Angel Broking. “Aggressive yields (~12.8%) on non-gold loan portfolio could further increase provisioning expenses and hence provide downside risk to the bank’s ROA,” he continues. He has a Neutral stance on the stock.
“SIB’s loan growth has moderated in line with our expectations. With impact of NRE deposit deregulation already being felt in Q1 FY13, we are maintaining our NIM estimate at 2.9%,” says Parikh of Edelweiss. “Considering slippages in few chunky accounts along with granularity reflected in Q1 FY13, we are building in higher credit cost,’ he ends. He has a Hold/Sector performer recommendation on the stock.