South Indian Bank Limited

Financial Performance Highlights

Profitability Metrics:

  • Net profit: ₹378 crores for Q1 FY27, representing 17% YoY growth from ₹322 crores in Q1 FY26
  • Net interest income: ₹1,025 crores, highest ever, showing 23% YoY growth from ₹832 crores and ₹110 crores sequential growth from Q4
  • Return on assets: 105 basis points
  • Return on equity: 12.84%

Balance Sheet Growth:

  • Total deposits: ₹125,817 crores, 11% YoY growth from ₹112,922 crores
  • Retail deposits (excluding bulk): ₹124,306 crores, 14% YoY growth from ₹109,368 crores
  • Gross advances: ₹104,368 crores, 17% YoY growth from ₹89,198 crores (18% growth excluding technical write-off of ₹1,163 crores)
  • Total business: ₹230,185 crores, 14% growth

Margin Performance:

  • Net interest margin: 3.23% for Q1 FY27
  • Sequential improvement: 28 basis points from previous quarter
  • YoY improvement: 20 basis points
  • Management attributes NIM recovery to repricing of high-cost deposits and reduced bulk deposits

Asset Quality Indicators:

  • Gross NPA: 1.38%, improved 177 basis points YoY from 3.15%
  • Net NPA: 0.26%, improved 42 basis points YoY from 0.68%
  • Provision coverage ratio (including write-off): 94.51%, improved 569 basis points
  • Provision coverage ratio (excluding write-off): 81.40%
  • Slippage ratio: 12 basis points for quarter (48 basis points annualized)
  • Credit cost: 9 basis points for the quarter

Capital Adequacy:

  • Capital adequacy ratio: 19.62% as of June 30, 2026
  • Tier 1 ratio: 18.93%

Segment-wise Business Performance

Deposit Composition:

  • CASA: ₹41,496 crores, 15% YoY growth from ₹36,204 crores
  • Bulk deposits reduced by 50% YoY

Loan Portfolio Breakdown:

  • MSME/business loans: ₹14,391 crores from ₹12,660 crores YoY (18% growth excluding ₹554 crores charge-off)
  • Gold loans: ₹24,930 crores, 43% YoY growth with average LTV of 65.25% and average ticket size of ₹2.94 lakhs
  • Mortgage loans: 34% YoY growth
  • Home loans: 19% YoY growth
  • Auto loans: 34% YoY growth

Operational and Strategic Updates

Branch Expansion and Hiring:

  • Bank has resumed employee hiring and branch expansion in a "very small way" after 3-year freeze
  • Focus on key locations with careful selection to ensure quick revenue accretion
  • Aim to achieve positive operating leverage for full year

Fee Income Performance:

  • Core fee income: ₹179 crores, declined from ₹191 crores in Q4 and ₹188 crores in Q1 FY26
  • Management attributes decline to technical issues in product renewal processes and focus on NIM improvement
  • Expects improvement with new systems going live by end-September

Recovery Trends:

  • Total recoveries: ₹179 crores for Q1
  • Recovery from technical write-off accounts: ₹60 crores (similar to ₹57 crores in previous quarter)
  • Expects full-year recoveries of ₹800-1,000 crores

Corporate Strategy Shift:

  • Corporate book at ~40% of total loan book vs. strategic target of 30%
  • Management explains this as opportunistic deployment due to:
  • High-quality corporate offering lower risk amid West Asia uncertainties
  • Improved pricing on shorter duration corporate facilities
  • These are short-duration assets that can be wound down quickly

Regulatory and System Updates

ECL Implementation:

  • Expected Credit Loss implementation underway
  • Initial workings suggest no material change to effective interest rate or NII
  • Credit cost guidance: 9 basis points considered generous, expected to moderate

Gold Loan Business Impact:

  • QoQ growth only 0.8% due to RBI circular effective April 1, 2026
  • ₹270 crores runoff from co-lending and portfolio purchase arrangements
  • Underlying core branch growth remains solid

FCNR Deposits:

  • 6% QoQ growth in FCNR deposits
  • Expects strong flows in August-September as scheme open until September 30
  • Limited by lack of credit lines from external entities and no GIFT City presence

Management Commentary and Outlook

NIM Outlook:

  • Believes rate cycle has switched to increasing rather than reducing
  • Expects NIMs to harden as repo rate changes come into effect due to T+1 transmission
  • Positioned to benefit from rate increases

Credit Quality Outlook:

  • Expects slippages of ₹500-800 crores for full year
  • SMA-1 and SMA-2 increased by ₹80 crores QoQ, attributed to seasonal pattern
  • No material concerns about SMA constituents

Growth Strategy:

  • Plan to deploy excess capital for balance sheet growth at market rate + 2%
  • Change asset mix toward higher-yielding retail and MSME business
  • Target ROA migration from 100-115 bps to 120-125 bps over time

Management Transition

CEO Departure:

  • P.R. Seshadri announced this as his last conference call as MD & CEO
  • Tenure: 2 years and 9 months
  • Highlighted significant progress in products, systems, processes, organizational structure, and capabilities
  • Attributed success to Board opportunity and colleague collaboration

Q&A Session Key Points

Cost of Deposits:

  • Sharp decline driven by repricing of high-rate deposits (40-60 bps reduction)
  • Increased CASA balances (19% growth in average balances)
  • 50% reduction in bulk deposits
  • Most repricing impact already baked in

Employee Costs:

  • Actuarial provision of ₹84 crores in Q1 vs. ₹80 crores write-back in Q4
  • Back to normal provisioning pattern
  • Expect opex growth of 5-6% for full year

Corporate Book Strategy:

  • Long-term aim to reduce corporate book to 30%
  • Current growth opportunistic due to market conditions
  • Will continue corporate lending while remunerative