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Jesus replied: “ ‘Love the Lord your God with all your heart and with all your soul and with all your mind.’ This is the first and greatest commandment. And the second is like it: ‘Love your neighbor as yourself.’ All the Law and the Prophets hang on these two commandments.” Matthew 22:37-40

1 Feb 2016


Hi Friends,  South Indian Bank  (SIB) reported a moderate set of numbers for  3Q FY 2016.  Its net profit rose by 15.6% to Rs.101.6 Cr, helped by strong NII growth of 27.1%  yoy, thereby partially offsetting the impact of rise in provisions.  However, the asset quality continued to slide further with slippages increasing to 3.93% and with Gross and Net NPA ratios too rising sharply for the quarter.  Moderate growth in Advances:        The bank’s advances and deposits grew at a moderate pace of 9.7% and 10.3% yoy respectively, during the quarter.  The bank is shifting its focus to retail, SME and agriculture loans.  During the quarter, retail advances continued to dip; they declined by 4.6% yoy as gold loans continue its downward trend.      CASA ratio and NIM improve:     CASA  deposits grew by 18.1% yoy  and the CASA ratio improved to 23.0% , during the quarter.  The reported NIM for the quarter increased by 11 bp qoq to 2.92% while it increased by 42 bp yoy.  The bank reiterated its NIM guidance in the range of 2.75 – 2.80% for FY 2016.  Other income excluding treasury climbed 26.1% yoy to Rs.103 Cr, while treasury gains declined by 36% on a yoy basis.  The cost-to-income ratio for the quarter was at 53.0% and the Management expects to improvise on the same, going forward.      Asset quality slipped further:      On the asset quality front, the GNPA ratio increased by 51 bp qoq to 2.75%, while the NNPA ratio came in at 1.80% as compared to 1.39% in 2Q FY 2016.  SIB has been reporting high slippages from the corporate book since the last few quarters.  Slippages for 3Q FY 2016 were at Rs.367 cr which is essentially because of some trading accounts including gold and also some contracting accounts.  The bank has expressed that it has zero divergence with the regulator and it has completely reckoned and provided for fully as per the guidelines.  The bank did not participate in 5/25 refinancing in 3Q FY 2016, but has 1 account under SDR of Rs.150 cr.      Outlook  and valuation:      Issues pertaining to asset  quality continue to be a key concern for the bank.  Going forward, asset quality pressures could be detrimental to the bank’s growth.   Given the current macro environment, we may recommend a Neutral rating on the stock.  At the current market price, the stock trades at 0.7x FY 2017 E ABV.   Recently Govt. of India allowed Institutions including  FIIS to hold the stake of private  banks upto 74%.  Presently FIIs hold 9.3% shares  in South Indian Bank.  If any FIIs intend to purchase shares of South Indian Bank can purchase upto 54.7% more.  This is a chance for increase of shares price.  If we look the Bank, it is a  small well organised private bank. Chances for take over is higher in this Bank especially there is no promoter group for the bank.

Good Luck.                                                                      See You Later.

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