12. Outperformer: The South Indian Bank

The South Indian Bank
CMP: 29
Outperformer


*Incorporated in the year 1928, South Indian Bank (SIB) is an old generation private sector bank headquartered at Thrissur in Kerala. Under the RBI Act, SIB was the first private sector bank in Kerala to become a Scheduled Commercial Bank in 1946. Moreover, SIB was the first private sector bank in India to open a Currency Chest on behalf of the RBI (1992), open a NRI branch (1992) and start an Industrial Finance Branch (1993). Out of the total 850 branches in India, the southern states make up for 709 branches indicating a strong foothold (83.41%) in South India and a dominant presence (54.47%) in Kerala itself.*

*Outlook*

The increase in advances towards retail sector is led by Manufacturing, Trading and Housing loan segment. Improvement in economic scenario, pick up in manufacturing activities and high retailing density ensures strong traction in credit off take. Moreover, population growth, urbanization, increase in disposable income, emergence of nuclear families, and upgradation in standard of living are positive signs for credit growth. In case of SME sector, SIB has a cluster based approach in industry hubs and focused ‘Green Channel’ branches to drive faster loan growth with a target to become banker of choice to SMEs thereby getting other business as well and becoming sole banker for all banking needs.

To expand other income, SIB is leveraging technology to introduce modern & new-age banking products along with a focus to enhance treasury capabilities. SIB has been constantly expanding their CASA as a share of total deposits through customer base enlargement, increasing branch network, competitive interest rates, new services and innovative technology. Enlarging the share of low cost CASA will enable LVB to bring down its overall cost of deposits ensuring an improvement in NIM.

A low percentage of advances are towards sectors that form a substantial portion of the stressed assets indicating stability in quality of assets. Power and infrastructure segment which contributes significantly to stressed assets has been at a low focus of SIB’s loan portfolio. For improving asset quality, SIB has a granular loan book that spreads out risk. A cautious approach on large corporate lending and special recovery cells for monitoring non-performing and restructured assets signify improvement in asset lending policies. With efficient branches for faster processing of loans, continuous training of work force and advanced technology for ease of customers, SIB has been investing in brand building. Also, in FY17 RBI approved opening of a representative office in Dubai, UAE which will boost NRI Banking efforts for the Bank and expand NRI Customer base. Moreover, SIB has introduced Aadhar-based payment in its UPI mobile application- SIB M-Pay which is a major step in offering simple and efficient payment methods, as the country moves towards a 'Cashless Society'.

With stable asset quality and enhanced risk management along with focus on improvement of profitability, SIB looks to improve its performance significantly. We recommend an *OUTPERFORMER* on SIB, currently trading at 1.1x adjusted book value.