Release Date: January 22, 2025
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 its highest quarterly profit to date at INR 342 crores, marking a 12% growth compared to the previous year.
- Total deposits grew by 6% to INR 1,05,387 crores, despite a reduction in bulk deposits.
- Gross advances increased by 12% to INR 86,966 crores, contributing to a total business growth of 9%.
- The bank's capital adequacy ratio is strong at 18%, with a Tier 1 ratio of 16.68%.
- Provision coverage ratio improved significantly, with a 465 basis point increase to 71.73% excluding write-offs.
Negative Points
- Net interest margin remained static year-on-year at 3.19%, with a sequential dip due to increased cost of funds.
- There is a concern about potential pressure on net interest margins if REPO rates decrease.
- Personnel expenses have been declining due to employee attrition, which could impact business operations if not managed carefully.
- The bank's cost-to-income ratio, although improved, still stands at 59.8%, indicating room for further efficiency improvements.
- Slippages were noted in the credit card and personal loan segments, indicating potential risk areas.
Q & A Highlights
Q: Within the retail credit segment, how is the housing and mortgage business growing, and do you foresee any decline in yields with potential rate cuts? Will there be pressure on NIMs from the retail segment?
A: These loans are largely linked to the REPO rate, so if REPO rates decrease, yields will also decrease. We are managing the proportion of our book linked to REPO to mitigate this impact. However, a drop in REPO rates would impact NIMs.
Q: Which segments are contributing to incremental slippages, especially in the personal segment? Are vehicle loans showing any distress?
A: Slippages are largely from credit cards and personal loans. The auto portfolio is performing well without signs of distress.
Q: Operating expenses are declining due to employee reduction. Could you clarify if this involves mid-level or lower-level employees, and which departments are experiencing the highest churn?
A: Most departures are at lower levels, particularly customer-facing roles. We are managing costs tightly and allowing attrition without replacement, focusing on productivity enhancements.
Q: NIMs are decreasing contrary to guidance. Is this due to growth in the retail loan book driven by lower-yield mortgage loans?
A: The decline in NIMs is due to a 7 basis point increase in funding costs and the structure of our low-yield book not changing significantly. We aim to grow higher-yielding books and manage funding costs.
Q: Deposit growth is low at 6%, partly due to a decrease in bulk deposits. What is the strategy going forward?
A: We aim to maintain a cost of funding advantage and grow deposits at 8-10%. We are confident in managing deposit flows to support asset growth and maintain CD ratios.
Q: Employee costs are declining. Will this continue, and could it impact business growth? Also, what are the strategic initiatives to improve the cost-to-income ratio?
A: We aim to keep costs static while growing revenues to improve the cost-to-income ratio. We believe there is still some headroom for further employee reductions without impacting business.
Q: Fresh slippages seem high despite a small old book. When can we expect this to decrease, and are there any expected recoveries?
A: Old book NPA accretion is decreasing, and recoveries have been strong. We expect this trend to continue, improving our overall NPA situation.
Q: On the new corporate book, there are slippages this quarter. Is this a trend or a one-off event?
A: The slippages are isolated incidents with no commonality or trend. We do not expect this to be repeated and are monitoring the corporate book for any signs of stress.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
