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South Ind.Bank
Our verdict on South Ind.Bank isn’t the consensus take — see where we landed, and the one risk the bull case glosses over.
See the verdict — free →Does management do what it says?
The bank reported gross advances growth of 8% YoY for Q1 FY26, which is currently below the full-year target of 12%+, though management maintains the 12%+ guidance for the full year. (2 in progress across 2 tracked commitments)
“So I would say that we would be north of 12% growth assets for the year. Our hope would be that we beat that number by 3 or 4 percentage points. But as of now, we are targeting north of 12%.”
Management confirmed they are heading towards a 33% corporate mix in the medium term. Currently, the corporate book is around 40%, and they are seeing a realignment as retail and MSME grow faster. (2 in progress across 2 tracked commitments)
“Our ambition is to grow this as quickly as possible. We have to, as over the next 18 months or so, we would like to bring the corporate book down to about third of our total book.”
Management believes the Credit-Deposit (CD) ratio can be sustainably increased to 85-86%. — target: 85% to 86%
“We think that there is still some headroom available there. We can get to 85%, 86%.”
The bank is evaluating the establishment of a dedicated wealth management arm.
“We are in the process of thinking through whether we should set up an arm of the institution that actively makes available wealth products to our customers.”
The bank expects Gross NPA numbers to continue trending downwards in the near term. — target: Trending downwards (+2 more commitments)
“We expect these numbers to continue to improve in the near term, so, you will see them trending downwards.”
See the full cited Management analysis of South Ind.Bank
How durable is the business?
The bank's digital transaction share remains a dominant moat, expanding further to 98.2% of all transactions. (5 expanding)
“Digital Transactions 98.49% Q3FY26”
The 'Rest of India' segment is the primary driver of geographic diversification, expanding its share of the loan book from 31% to 37%. (5 expanding across 1 engine)
“Treasury & Forex Q3-FY26 77 Q3-FY25 57 Y-o-Y (%) 35%”
Treasury operations saw significant growth in Q4 FY25, acting as a major driver for the uptick in non-interest income alongside recovery income. (4 expanding, 1 contracting across 1 engine)
“Core Fee Income Q3-FY26 203 Q3-FY25 188 Y-o-Y (%) 8%”
Net Interest Income (NII) for the full year reached Rs. 3,486 crores, with Q4 NII at Rs. 868 crores. While the bank is prioritizing NIM over volume growth, the NIM for the year stood at 3.24%, showing expansion from previous levels despite industry-wide pressure. (3 expanding, 2 contracting across 1 engine)
“Net Interest Income Q3-FY26 881 Q3-FY25 869 Y-o-Y (%) 1%”
The CASA ratio, which represents low-cost deposits, improved to 31.84% from 31.15% YoY, helping the bank maintain a stable cost of funds in a competitive market. (1 expanding, 1 contracting, 3 stable)
“So if you were to look at our cost of money, it is actually lower than many of our peers. So, we have a natural funding advantage... Right now, we are priced 15 basis points lower than our larger peer in our main market.”
See the full cited Business Model analysis of South Ind.Bank
Where does growth come from?
NIM improved 6 bps sequentially despite repo rate cuts. Management expects NIM to stabilize or climb as the high-yield retail/MSME book grows and 20% of deposits reprice lower. (1 steady across 1 signal)
“We continue to grow our gold loan business, which now stands at Rs.21,303 crores... The gold loan book grew on an annualized basis by 26%.”
The bank has significantly cleaned up its loan book; 84% of current bad loans (NPAs) come from the 'Old Book' (pre-2020), while the 'New Book' shows very high quality.
“84% of Current GNPA is from Old book ... GNPA New book 0.49%”
The bank's credit card business is currently a growth bottleneck because fresh card issuances have been stopped due to regulatory or partner issues.
“from March of 2024 onwards, fresh issuances have been stopped... we have not had any success on that front.”
The bank is maintaining a high Credit-Deposit (CD) ratio, which measures how much of its deposits are lent out, indicating limited room for aggressive loan growth without new deposits.
“With respect to CD ratio, we are at approximately 82% or so in the last quarter. We think that there is still some headroom available there. We can get to 85%, 86%.”
MSME book was flat after technical write-offs (Rs. 546 Cr), but Q4 saw the highest booking in bank history, signaling a major growth push for FY26. (5 accelerating across 5 signals)
“The quantum of business that we booked in Q4 was the highest that we have ever done in the history of the Bank... we think that we are on the right path to get MSME growth going very considerably.”
See the full cited Future Growth analysis of South Ind.Bank
What could break the thesis?
Gold loan growth has moderated to 9% YoY. Management is awaiting final clarity on RBI's draft circular regarding gold loan processes but continues business as usual for now. (2 stable, 3 easing)
“And from March of 2024 onwards, fresh issuances have been stopped. We had engaged with both the counterparty as well as the regulator to try and have it restarted, but we have not had any success on that front.”
Slippages remain a concern in the 'new book' with 50% of retail slippages coming from the credit card business and Rs.17 crores from past portfolio buyouts (DA transactions). (1 intensifying, 4 easing)
“Now, majority of the losses that we had in the new book, roughly half of it is from the credit card business and a small portion of it is also from our portfolio buyout... Rs.17 crores is from portfolio purchases made”
The bank ensured full transmission of the 100 basis points cut quickly, leading to yield compression. Management believes they have now hit the bottom of the rate cycle. (1 easing, 1 stable)
“The net interest income, the yield compression that you saw was an account of the reduction of the external benchmark rates... we ensured full transmission as quickly as possible so that we got to the bottom of the rate cycle.”
The bank has still not been able to restart fresh card issuances despite engagement with the regulator and the external partner. They are now exploring alternate reentry strategies. (1 stable)
“And from March of 2024 onwards, fresh issuances have been stopped... we have not had any success on that front. So, we are at this point in time working on alternate strategies.”
The bank is successfully diversifying; the share of the loan book in Kerala dropped from 34% in Q1FY25 to 30% in Q1FY26, with 70% of the book now outside Kerala. (1 easing, 4 stable)
“70% book is Outside Kerala [Q1FY26] vs 66% [Q1FY25]”
See the full cited Risk analysis of South Ind.Bank
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