| The South Indian Bank Limited | ||
| Rating Reaffirmed | ||
| Rating Action | ||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||
| 1 crore = 10 million | ||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ‘CRISIL A1+’ rating on the short-term fixed deposit programme of The South Indian Bank Ltd (SIB).
The ratings continue to reflect SIB’s adequate capitalisation along with a stable resource profile as indicated by its high share of retail deposits. These strengths are, however, partially offset by improving, albeit modest, asset quality and earnings profile as well as bank’s modest scale of operations marked by high geographic concentration. |
Analytical Approach CRISIL Ratings has considered the standalone business and financial risk profiles of SIB |
Key Rating Drivers & Detailed Description Strengths: Adequate capital position SIB has an adequate capital position with regard to its scale of business. As on June 30, 2024, networth stood at Rs 9,154 crore with Tier-I and overall CAR of 16.7% and 18.1%, respectively, supported by equity infusion and internal accruals. Bank’s networth coverage for net NPAs stood at 7.9 times as of June 30, 2024 (7.8 times as of March 2024) as compared to 5.2 times as of June 30, 2023. The bank raised equity capital of Rs 1,151 crore in fiscal 2024 by way of rights issue and has received board approval to raise another Rs 750 crore in fiscal 2025. CRISIL Ratings expects the capital position of the bank to remain comfortable over the medium term. Nevertheless, the bank will need incremental capital for growth and timely equity raise remains a key monitorable.
Stable resource profile as indicated by high retail deposits The deposit profile benefits from the stable pool of non-resident Indian (NRI) deposits and retail depositor franchise. The deposit base of the bank witnessed growth of 11.2% y-o-y during fiscal 2024to Rs 1,01,920 crore as of March 31, 2024, which further grew by 6.3% on an annualized basis to Rs 1,03,532 crore as of June 30, 2024. Amongst the total deposits, share of retail deposits (retail term deposits and savings) stood strong at 89.9% as of June 2024, as against 89.0% as of March 2024 (91.6% as on March 31, 2023). NRI deposits formed 29.1% of total deposits as on March 31, 2024 and 29% as on June 30, 2024.
During fiscal 2024, cost of deposits for the bank rose to 5.1% which further rose to 5.4% in the first quarter of fiscal 2025 from 4.4% as of fiscal 2023, because of multiple interest rate hike. However, CASA ratio remained range-bound at around 32.1% as on June 30, 2024 (32.1% as on March 31, 2024, and 33.0% as on March 31, 2023).
While the high proportion of retail deposits provides stability to the resource profile, improving share of CASA deposits will play a key role in enhancing the overall deposit profile of SIB.
Weakness: Improving, albeit modest, asset quality and earnings profile The asset quality under the new underwriting regime post September 2020, christened as ‘new book’, has performed relatively well with its gross NPA at 0.4%, as compared to gross NPA of the old book at 15.8%, as of June 30, 2024. This is because SIB has been doing incremental disbursements primarily to corporate borrowers having a credit rating of A or higher, along with selective and conservative disbursements towards granular MSME, whilst increasing exposure towards gold loans and other retail segments gradually.
The share of new books to overall is also on a rising trend, as it rose from nil as on Sep-20 to 70% as on Mar-24 and further to 73% as on Jun-24. This has resulted in an improvement in overall gross NPA to 4.5% as of June 30, 2024, compared to 5.1% as of June 30, 2023. The ability of the bank to ascertain timely recoveries and controlled level of delinquencies from the old book remains a key monitorable.
Moreover, CRISIL Ratings notes that SIB has also increased its provisioning metrics, as it maintained a provision coverage ratio (PCR) of 69% on GNPA as on June 30, 2024, as compared to 65% as on June 30, 2023, leading to an improvement in overall net NPA ratio to 1.4% as on June 30, 2024, as against 1.9% as on June 30, 2023.
Given the improvement in asset quality profile, with the bank focusing on increasing exposure towards higher rated corporate borrowers, provisioning costs remained significantly reduced at 0.7% during fiscal 2023 as well as fiscal 2024 and further to 0.4% (annualized) during first quarter of fiscal 2025, which resulted in an improvement in the overall earnings profile of the bank as it reported net profitability of Rs 1,070 crore, translating to a RoA of 0.95% during fiscal 2024. Furthermore, in the quarter ended June 30, 2024, bank reported a PAT of Rs 294 crore and ROA of 1.0% (annualised).
Going forward, any significant impact on the earnings profile due to any unanticipated slippages thereby impacting credit costs, remains a key monitorable.
Modest scale of operations with geographical concentration SIB operates as a mid-sized bank largely in and around Kerala. With gross advances of Rs 82,580 crore as on June 30, 2024, the bank had a small market share of ~0.5%. The Kerala region alone formed 34% of total advances as on June 30, 2024 (37% as on June 30, 2023), although the bank has an established position in the state. Modest scale and limited geographic reach make operations susceptible to local regulatory concerns, economic environment, and other calamities such as the Kerala floods. |
Liquidity: Strong SIB runs a conservative asset liability management (ALM) profile with positive cumulative mismatches across buckets over the next 12 months. The treasury department estimates and closely tracks the cash flow of the next one month – current and next fortnight. The quarterly average liquidity coverage ratio for quarter ending June 30, 2024 stood at 132%. In addition, the bank also has access to systemic sources of liquidity |
Rating Sensitivity Factors Downward Factors
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About the bank SIB was set up in 1929, is a private sector bank. The Thrissur (Kerala)-based bank had a network of 941 branches and 1,296 automated teller machines as on June 30, 2023. Advances stood at Rs 74,102 crore as on June 30, 2023, with retail, small and medium enterprises, and agricultural advances accounting for 63% of the book. The proportion of corporate loan book stood at 37% as on June 30, 2023, increasing from 29% as on June 30, 2022. The management intends to focus on highly rated large corporate accounts as share of A+ and above rated above entities increased to 94% (as a percentage of large corporate advances) in June 2023, as compared to 88% in June 2022. Deposits stood at Rs 95,499 crore as on June 30, 2023, with those from NRIs accounting for 29.7% of total deposits. |
Key Financial Indicators
*annualised |
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
Criteria Details
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