Retail investors prefer this private bank, but its recovery is on hold “South Indian Bank @ Rs 9.05 today.Issue price IPO at Rs 60 +”
NSE -2.09 %, where half of the shareholding is with small investors, is in the bear grip, after falling over 28 per cent from its June highs. Analysts said the regional bank’s recovery story has got delayed a bit. They believe higher slippages and a weak coverage ratio suggest s provisions could be higher in the next couple of quarters, which would constrain earnings. They largely have a ‘hold’ rating on the stock.
Retail investors held 51.78 per cent stake in the Kerala-based bank as of June 30. High net worth individuals (HNIs) owned another 9.80 per cent stake in the bank.
The private lender’s MD & CEO Murali Ramakrishnan said his bank’s CET 1 (common equity Tier 1) stood at 11.7 per cent as of June 30 and that it would be looking to raise additional capital to the tune of Rs 510 crore in FY21-22.
Speaking at an event, Ramakrishnan said his bank has no intention to onboard a strategic investor with a majority stake, even as it maintained its long-term strategic intention to improve credit quality, CASA, customer experience and compliance.
Ramakrishnan said the strategy to reduce lumpy advances has continued and the share of corporate advances now stands reduced at 24 per cent. The bank, he said, aspires to grow its retail and MSME assets, with a calibrated approach toward corporate assets.
We believe Covid could delay, if not derail, the bank’s turnaround story. The bank would require frequent capital infusion for clean-up and then growth, calling for continuous dilution”
Investec said there is divergence in terms of stress formation so far, with regional banks such as Federal Bank, Karur Vysya and CSB Bank delivering a moderate increase in stress levels, in line with larger private banks, while banks such as South Indian Bank suffering higher net stress addition of more than 6 per cent over the last 5 quarters.
The brokerage said, except for South Indian Bank, a common theme across most regional banks is that the lead indicators for asset quality in the form of low special mention account (SMA) gives confidence that the stress formation has peaked — this is even as profitability will remain muted for the rest of the year as banks will be looking to build higher provision coverage.
Investec has a ‘hold’ rating on South India Bank with a target of Rs 12.
Ramakrishnan said the SME space is witnessing major price disruption from large players given their excess liquidity and quest to grow. The bank saw higher slippages in June quarter, as gross NPAs touched 8 per cent, with 80 per cent slippages being from MSME/Retail. The bank is expecting full-year slippages to be in the range of 2-5-2.7 per cent for FY22.
Analysts appreciated that the bank has been successful in bringing bulk deposits down by 52 per cent YoY and has also improved the CASA ratio to 30.4 per cent compared with 29.7 per cent in the March quarter and 26.9 per cent in the year-ago period.
Improving CASA mix is aiding bank to cut down its cost of fund, helping it to improve the margins. The management has also been keen on bringing down corporate lending and has shifted focus to retail segments,”
Huge stress book and lower coverage, higher provisions would keep FY22 earnings subdued, Anand Rathi said. This brokerage has a ‘sell’ rating with a target of Rs 9 on the stock. With outlook uncertain, high provisions and high slippages will keep return ratios subdued in near to medium term.
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