South Indian Bank has been growing considerably with the asset quality woes well-contained for the past many quarters under chief executive PR Seshadri who’s been at the helm of the bank since October 2023. In an interaction with Benn Kochuveedan, Seshadri tells during the nine months to December, the Thrissur-based lender has seen net income crossing the `1,000 crore mark for the first time, and Q3 net income clipping at 9% to `374 crore on the back of the lowest NPA ratios in decades and robust credit growth, underpinning the strong business performance in recent years. Edited excerpts:
Yours is among the very few private sector lenders which could grow the low-cost Casa book in Q3. How could you manage that given record low interest rates that has led to flight of deposits out of banks to other better yielding asset classes... Are they driven by NRI deposits?
First of all, our customers have rewarded us by continuing with us and continuing to show their trust in us. We’ve a robust deposit franchise, and our engagement with customers has been increasing steadily over the years wherein or focus has been on institutional accounts and on those customers who’ve large current account requirements.
Of course, NRI deposits have helped us, but majority of the Casa growth was from domestic deposits. Our Casa book has grown by 15 %, while current account balances have grown 20%.
Our retail deposit grew 13% to `1,15,563 crore, NRI deposits grew 15% to `33,965 crore and Casa grew 15%, of which savings deposits grew 14%.
Apart from technology, we’re doing a lot of work at the branch level to enhance and improve customer engagement. And most importantly, we’re very lucky to have reasonably loyal customers.
Your bad loan piles are still higher than the system-wide average. Of course, there is an improvement... where is the stress coming in from or are these from ageing assets?
Yes, old assets, because we’re a bit slow to start the balance sheet clean-up compared to other banks. As a consequence, our gross NPAs are higher than many other banks but our net NPAs are in the same range at 45 bps and it’s been coming down sequentially. On annnualised basis, net NPAs fell 80 bps in Q3 from 1.25% and gross NPAs came down by 163 bps to 2.67% from 4.30%. And these are all historical NPAs that are slowly being pushed out.
But if you look at fresh slippages, we’ve the lowest fresh slippages, which printed in at low 16 bps in Q3. If we annualise it, it gets to 64 bps. I don’t know if there are any other banks that are in the same ballpark.
In the past quarter, our fresh slippages were at 20 bps and in the quarter before at 24 bps and now it’s 16 bps. And we are quite happy at 16 bps and it’s not a bad number.
Do you expect this downward trend to continue in Q4 as well or are there some new pain areas? What is your guidance for the fourth quarter?
I think we should be ball-parked in the same neighbourhood. We may not repeat the 16 bps. We’ve been at the 20 bps level for for three quarters now and we expect the same to continue. We don’t have any visibility that is materially different at this point in time. So, we think that this trend line should hold.
In fact, we don’t really have a target for gross and net NPAs as we target slippages. Of the NPAs of `155 crore, `106 crore are from the personal segment- credit cards, personal and housing loans, and `34 crore are from business loans, mostly MSMEs and only `15 crore are from agriculture.
Hopefully, your total business would be crossing the `2 trillion mark in March. Do you see it crossing the `2.5-trillion mark next fiscal and when do you see it crossing the Rs 3 trillion milestone?
I don’t think we will get to `2.5 trillion next fiscal. But our first priority is to ensure quality growth. Though, we’re not publicly saying we want to get to the `2.5 trillion mark, yes, that’s an ambition that we do have. I think our total business should be crossing `2.5 trillion by FY28.
Your gold loan book has been growing very fast. Is there a concentration risk there?
Currently gold loans constitute a substantial portion of our assets as it is a tad over 22% of the total assets but I think there is still some room for it to grow as we keep a tight watch on price volatility. But our assets growth is coming from other sources as well. Our MSME and retail books are also growing well. So, it's a multi-fold growth that is happening.