Captains Speak

Published: Dec 29, 2021
Updated: Dec 29, 2021

Gateway Distriparks: Logistics business is on the rebound

Maintaining that “South Indian Bank has conducted restructuring of loans of Rs 44 crore during Q3FY21 under a one-time restructuring framework of the RBI for Covid-19 stress,” Murali Ramakrishnan, Managing Director and CEO, adds, “We expect further restructuring of Rs 850 crore in Q4FY21, which is likely to be contributed by segments such as corporate, business banking and personal. The bank expects a slippage rate of 25-35% for its restructured loan book.” According to him, the bank will continue to focus on growing in four areas; viz., low-cost CASA, gold lending, NRI deposits and improving efficiency. Under Vision 2024, the bank expects loan growth to be slow initially and pick up as it gets traction. Reviewing the performance of the bank during Q3FY21, Mr Ramakrishnan says that the bank has reported a 1% decline in net interest income (NII) at Rs 596.39 crore for the quarter ended December 2020. Interest earned declined 8% to Rs 1,811.96 crore, while interest expenses dipped 11% to Rs 1,215.57 crore in the quarter. The non-interest income of the bank surged 23% to Rs 270.12 crore in Q3FY21 as treasury income zoomed three times to Rs 96 crore and forex income moved up 9% to Rs 12 crore. However, the core fee income fell 3% to Rs 104 crore in Q3FY21 and other income declined 18% to Rs 58 crore in Q3FY21. Net total income rose 5% to Rs 866.51 crore in the quarter ended December 2020. The operating expenses of the bank moved up 11% to Rs 489.05 crore during the quarter. The expense ratio rose to 56.4% in the quarter ended December 2020 from 53.4% in Q3FY20. The operating profit declined 1% to Rs 377.46 crore in Q3FY21.

According to him, the provisions and contingencies increased 91% to Rs. 499.48 crore in the quarter under review. The provisions for NPAs moved up 40% to Rs 284 crore and standard assets jumped 592% to Rs 166 crore, while investment provisions also doubled to Rs 45 crore in Q3FY21. With the rise in provisions, the bank has posted a pre-tax loss of Rs 122.02 crore in the quarter. The bank has written back tax provisions of Rs 30.40 crore, helping it reduce net loss to Rs 91.62 crore in the quarter. DIP IN NET PROFITFor the nine months ended December 2020 (9MFY21), the bank posted a 78% dip in net profit at Rs 55.12 crore. The net interest income rose 7% to Rs 1,846.39 crore, while non-interest income moved up 22% to Rs 795 crore in 9MFY2021. The operating expenses increased 15% to Rs 1,446.28 crore, while provision and contingencies moved up 45% to Rs 1,118.96 crore in 9MFY21. The profit before tax declined 78% to Rs 76.15 crore in 9MFY21. The expense ratio rose to 54.8% in 9MFY2021 compared to 53.1% in 9MFY20. After considering a 27.6% effective tax rate, up from 27% in 9MFY20, the net profit declined 78% to Rs 55.12 crore in 9MFY21.

The bank witnessed net losses in Q3FY21 on account of recognizing interest income reversals of Rs 73 crore on pro forma NPAs and a 100% provision of Rs 67 crore for fraud incidents relating to one infrastructure account. The bank has made provisions of an entire 100% on fraud incidents, instead of spreading it over four quarters. On the advances front, the sharp decline in the corporate book has led to a decline in the overall loan book. The share of the corporate loan book has declined to 24% from 30% a year ago. The bank will continue to be selective in the corporate segment and remains focused on agriculture, MSME and gold loans. According to Mr Ramakrishnan, the bank has improved its CASA ratio to 27.9% and recorded 12% growth in NRI deposits, which form 31% of deposits. It has sharply improved the provision coverage ratio to 72% at endDecember 2020. The provision coverage ratio, excluding technical write-offs, has improved to 58% at end-December 2020 from 48% a quarter ago and 32% a year ago. The bank has created a provision of Rs 154 crore for pro forma NPAs in Q3FY21, in addition to Rs 22 crore in Q2FY21, while it continues to hold Covid-related provisions of Rs 105 crore. This Rs 275 crore of provisions is not used in the calculation of provision coverage ratio. The management expects to maintain a provision coverage ratio above 60%. The bank has recognized pro forma slippages of Rs 1,379 crore in Q3FY21 after Rs 130 crore in Q2FY21, and the credit cost is estimated at 2.2% for FY21. Of the proforma slippages of Rs 1,379 crore in Q3FY21, Rs 544 crore came from two large corporate accounts. However, the bank is expecting recoveries of Rs 285 crore from one of these accounts and upgradation of the sector account of Rs 115 crore in Q4FY21. For Q4FY21, the bank expects further pro forma slippages of Rs 550 crore.

MARGINS IMPACTED

According to the bank MD and CEO, the margins of the bank have been impacted by high interest income reversals. With high pro forma slippages expected for Q4FY21, the margins will remain under pressure on account of further interest income reversals. The collection efficiency stood at 89% for Q3FY21. The segment-wise collection efficiency stood at 93% for housing, 91% for mortgages, 94% for vehicles, 91% for corporate, 88% for business banking and 79% for others. On the capital raising front, the bank is currently looking at quantum, timing and mode of capital raising. The bank has a network of 877 branches, 51 extension counters and 1,443 ATMs at end-December 2020.