Release Date: July 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- The South Indian Bank Ltd (BOM:532218, Financial) reported a net profit of 294 crores, marking a 45% growth compared to the previous year.
- Total deposits grew by 8% year-on-year to 1,03,532 crores.
- Gross advances increased by 11% to 82,580 crores.
- The bank's capital adequacy ratio (CRAR) stands strong at 18.11%, with Common Equity Tier 1 at 16.71%.
- The gold loan business showed robust growth, increasing by 13% year-on-year to 16,317 crores.
Negative Points
- Net interest margin (NIM) for the quarter was 3.26%, slightly lower than the previous quarter.
- The cost to income ratio remains high, despite efforts to improve it.
- Gross NPA reduced by only 63 basis points year-on-year to 4.5%, and remained static on a sequential basis.
- The bank's yield on advances decreased due to higher agri slippages and interest reversals.
- Slippages from the old book remain a concern, with significant contributions to the overall NPA.
Q & A Highlights
Q: One of the challenges for the bank historically was a high cost-to-income ratio. What more can we do to improve this ratio?
A: We are rebalancing our portfolio by growing higher-yielding retail and MSME loans, such as housing, auto, and mortgage loans. This shift will increase our net interest margin (NIM) over time, but it will take a while for the balance sheet structure to change.
Q: What type of segment are we focusing on for the mortgage business?
A: We are targeting a mix of super-prime customers and those in the affordable housing segment. Our goal is to achieve spreads of 400-450 basis points, which is significantly higher than our current corporate asset book.
Q: Can we assume that the old book will be completely run down in the next two years?
A: The old book is winding down, and as it matures, the loans that are going to go bad will do so. We are focusing on growing the new book, which has shown better performance.
Q: What are the top three focus areas for improvement in growth over the next two years?
A: We are focusing on making our branches more efficient, building digital assets to transition to a more digital-based institution, and ensuring high-quality asset growth to provide reasonable returns to shareholders.
Q: What is driving the improvement in productivity metrics like business per employee and business per branch?
A: We have implemented a system called SIVAX to measure branch performance based on the net present value of products sold. This allows us to compare performance across branches and incentivize higher productivity.
Q: What is the explanation for the increase in other income this quarter?
A: The increase in other income is mainly due to recoveries from written-off accounts, PSLC fee income, and recovery from FLDG.
Q: Why did the yield on advances go down this quarter?
A: The decrease in yield on advances was primarily due to interest reversals from higher agri slippages. The impact of penal charge reversals will also start affecting from this quarter onwards.
Q: How should we model the NPA levels in the new book?
A: The new book, which is roughly three years old, currently has a gross NPA of 37 basis points. We will provide more detailed cohort analysis in our next investor deck.
Q: What is the aspirational ROA and ROE for the next two years?
A: In the short to medium term, we aim to maintain an ROA of around 100 basis points. For a structural shift in ROA, we need to grow higher-yielding assets, which will take time.
Q: How are we addressing the uptick in agri slippages?
A: We are focusing on collections and maintaining portfolio quality. We believe a significant portion of the pain is behind us, but we continue to work hard to manage this area.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
