| 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 Limited (SIB).
The rating continues 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 profile of SIB. |
Key Rating Drivers & Detailed Description Strengths:
SIB has an adequate capital position with regard to its scale of business. As on June 30, 2023, networth stood at Rs 6,877 crore with Tier-I and overall CAR of 14.0% and 16.5%, respectively, supported by rise in positive internal accruals. Bank’s networth coverage for net NPAs stood at 5.2 times as of June 30, 2023 (5.2 times as of March 2023) as compared to 3.3 times as of June 30, 2022. The bank had last raised equity capital of Rs 240 crore in fiscal 2021 and has board approval to raise another Rs 1,000 crore in fiscal 2024. CRISIL Ratings expects the capital position of the bank to remain comfortable over the medium term Nevertheless, the bank will need incremental capital to grow at a robust rate and the timely equity raise remains a key monitorable.
The deposit profile benefits from the stable pool of non-resident Indian (NRI) deposits and retail depositor franchise. While the deposit base of the bank witnessed a modest growth of 3% y-o-y during fiscal 2023, growing to Rs 91,651 crore as of March 31, 2023, which further grew to Rs 95,499 crore as of June 30, 2023. Amongst the total deposits, share of retail deposits (retail term deposits and savings) stood strong at 91% as of June 2023, as against 92.3% as of March 2023 (90.3% as on March 31, 2022). NRI deposits formed 29.7% of total deposits as on June 30, 2023.
For the first half ending September 30, 2023, deposits for the bank grew further at a healthy rate of 10% (annualized) to Rs 97,085 crore, supported by growth in term deposit base.
During fiscal 2023, cost of deposits for the bank rose to 4.3% which further rose to 4.85% in the first quarter of fiscal 2024 from 4.2% as of fiscal 2022, because of multiple interest rate hike. However, CASA ratio remained range-bound at around 32% as on September 30, 2023 (33.0% as on March 31, 2023 and 33.2% as on March 31 2022).
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.
Weaknesses:
Post pandemic, SIB revamped its credit underwriting practices in a move to improve the asset quality of its corporate and MSME advances book. Under the new underwriting regime, SIB made 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 book thus generated post September 2020, christened as ‘new book’, has performed relatively well in terms of asset quality with its gross NPA at 0.1%, as compared to gross NPA of the old book at 11.9%, as of March 31, 2023.
The share of new book to overall is also on a rising trend, as it rose from nil as on Sep-20 to 37% as on Mar-22 and further to 58% as on Mar-23. This has resulted in an improvement in overall gross NPA to 5.1% as of March 31, 2023, compared to 5.9% as of March 31, 2022. End quarter June 30, 2023, GNPA of the bank remained range-bound at 5.1%, while the GNPA of the new book remained comfortable at 0.2%. However, 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 65% on GNPA as on March 31, 2023, as compared to 51% as on March 31, 2022, leading to an improvement in overall net NPA ratio to 1.9% as on March 31, 2023, as against 3% as on March 31, 2022.
Given the improvement in asset quality profile, with the bank focusing on increasing exposure towards higher rated corporate borrowers, provisioning costs improved to 0.7% during fiscal 2023 (1.2% in fiscal 2022), which resulted in an improvement in the overall earnings profile of the bank as it reported net profitability of Rs 775 crore, translating to a RoA of 0.7% during fiscal 2023. Furthermore, end quarter June 30, 2023, bank reported a PAT of Rs 202 crore, witnessing a ROA of 0.8% (annualised). The improvement in earnings was also supported by rising net interest margins, with it improving to 3.3% in June 2023 (2.8%: March 2022), as incremental yield on advances outpaced the cost of funds.
Going forward, any significant impact on the earnings profile due to any unanticipated slippages thereby impacting credit costs, remains a key monitorable.
SIB operates as a mid-sized bank largely in and around Kerala. With gross advances of Rs 74,102 crore as on June 30, 2023, the bank had a small market share of ~0.5%. The Kerala region alone formed 37% of total advances as on June 30, 2023 (41% as on June 30, 2022), 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. As of June 30, 2023, around 60% of term deposits outstanding is due for maturity within 1 year. The quarterly average liquidity coverage ratio for quarter ending June 30, 2023 stood at 185.1%. 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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