| The South Indian Bank Limited | ||
| Rating reaffirmed at 'CRISIL A1+ ' | ||
| Rating Action | ||
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| 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 rating continues to reflect the adequate capitalisation in relation to scale and nature of operations of SIB and its stable resource profile as indicated by the high retail deposits. These strengths are partially offset by the modest scale of operations marked by high geographic concentration, modest asset quality metrics and the subdued earnings profile. |
Analytical Approach CRISIL Ratings has evaluated the standalone business and financial risk profile of South Indian Bank |
Key Rating Drivers & Detailed Description Strengths: * Adequate capital position SIB has an adequate capital position with regards to its scale of business. As on June 30, 2022, networth stood at Rs 6,022 crore with Tier-I and overall CAR of 13.6% and 16.3%, respectively. The bank had raised last equity capital of Rs 240 crore in fiscal 2021 and has board approval to raise another Rs 2500 crores. With the improvement in the asset quality metrics, the networth coverage of net NPAs improved to 3.3 times as of June 2022 as compared to 2.1 times in March 2021. 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.
* 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. As of June 30, 2022, overall deposits stood at Rs 88,916 crore as compared to Rs 89,142 crore in March 2022 (Rs 82,711 crore in March 2021). However, there was a reduction in bulk deposits which has resulted in the share of retail deposits (retail term deposits and savings) improving to 91.9% as of June 2022 against 89.6% as on March 2022 (88.3% as on March 31, 2021). NRI deposits formed 31.2% of total deposits as on June 30, 2022.
Share of current account and savings account (CASA) deposits also rose to 34.4% as on June 30, 2022 from 33.2% in March 2022 (29.7% in March 2021). Cost of funds dropped to 4.35% in the first quarter of fiscal 2023, from 4.96% during the same quarter previous fiscal. While the high proportion of retail deposits lends stability to the resource profile, improving share of CASA deposits will play a key role in enhancing the overall deposit profile of SIB.
Weakness: * Weakened asset quality metrics Asset quality of the bank was impacted amidst the impact of the Covid waves with GNPA rising to 6.97% as of March 31, 2021 peaking at 8% as of June 30, 2021. However, during the second quarter, the bank undertook an ARC sale of Rs 1049 crore, which has led to higher reduction which in sync with the improvement in the macroeconomic environment improved the GNPA to 5.9% as on March 31, 2022; which has remained stable as on June 30, 2022. Additionally, bank has disbursed around Rs 10,000 crore in corporate loans predominately in A and above rated corporates in fiscal 2022. With this the share of A rated and above corporates has improved to 88% in June 2022 as compared to 56.2% in June 2021 which will support the corporate asset quality.
As of June 2022, the bank has a restructured portfolio of Rs 2,198 crore which account for 3.4% of the overall advances, the performance of which remains a key monitorable. CRISIL Ratings notes that the moratorium period for the restructured book is expected to conclude in January 2023 and bulk of the book has started timely repayments. Consequently, the performance of the restructured portfolio remains a key monitorable.
* Subdued earnings profile Profitability has been subdued over the last 4-5 fiscals on account of increased provisioning requirements. While pre provisioning operating profit (PPOP) has remained steady over the quarters, higher credit cost has led to a moderation in overall profitability.
The provisions as a % of average total assets for the bank stood at 1.4% in fiscal 2022 as compared to 1.7% in fiscal 2021 amidst the deterioration in the asset quality metrics due to covid. However, with the improvement in the asset quality metrics, the provisions have improved to 0.6% (annualised) for the first quarter of fiscal 2023 which has resulted in an improvement in the overall earnings profile of the bank. In Q1 2023, bank reported a PAT of Rs 115 crore translating into ROA of 0.46% (annualised) as compared to Rs 45 crore and ROA of 0.05% in fiscal 2022. PCR also improved to 52.6% in June 2022 as compared to 51.3% in March 2022 (34% in March 2021).
Going forward, operating margin is likely to sustain, supported by a steady net interest income (NII) and fee income. Any significant impact on the earnings profile due to any unanticipated slippages and therefore credit costs remain 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 64,704 crore as on June 30, 2022, the bank had a small market share of ~0.5%. The Kerala region alone formed 41% of total advances 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 2022, around 64% of term deposits outstanding is due for maturity only after 1 year. As on June 30, 2022, the bank had a liquidity coverage ratio of 325%. 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 926 branches and 1,272 automated teller machines as on June 30, 2022. Advances stood at Rs 64,704 crore as on June 30, 2022 with retail, small and medium enterprises, and agricultural advances accounting for 71% of the book. The proportion of corporate loan book at 29% as on June 30, 2022 has increased from 24% as on June 30, 2021. The management intends to focus on highly rated large corporate accounts as share of A rated above entities increased to 88% in June 2022 as compared to 56.2% in June 2021. Deposits stood at Rs 88,196 crore as on June 30, 2022, with those from NRIs accounting for 31.2% of total deposits. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: CRISIL Ratings will disclose complexity level for all securities – including those that are yet to be placed - based on available information. The complexity level for instruments may be updated, where required, in the rating rationale published subsequent to the issuance of the instrument when details on such features are available. For more details on the CRISIL Ratings’ complexity levels please visit www.crisil.com/complexity-levels. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
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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