It has been nearly 10 months since Murali Ramakrishnan assumed charge as managing director and CEO of the South Indian Bank. In an interview to TNIE's Rajesh Abraham, he discusses plans for the Thrissur-headquartered private bank. Excerpts.
Q. The South Indian Bank reported a sharp decline in net profit for the first quarter (88% fall year-on-year). Where do you see the bank in the next five years? The bank's stock price has fallen below Rs 10/share. When do you see a turnaround?
A: The bank has clearly communicated its medium-term strategy of 'profitability through quality credit' through our Vision 2024 document published in December 2020. Our strategy is built on 6Cs, that is Capital, CASA, Cost-to-Income, Competency building, Customer focus and Compliance, with clearly articulated destination for each of them. As far as business activities are concerned, the bank has decided to rejig the existing portfolio with the focus on diversifying risk, both in assets and liabilities. We are replacing bulk deposits with retail deposits and lumpy corporate exposures with diversified retail exposures. The Vision 2024 strategy has laid down key milestones in critical areas including
advances of more than Rs 1 lakh crore, CASA (current account savings account) of 35+%, NIM (net interest margin) of 3.5%+, Provisioning Coverage Ratio (excl write off) of 65+%, Returns On Assets of 1+% and Return on Equity of 13+%. The movement in stock price is a function of multiple factors. We believe that with the right set of plans and people in place, the market will recognise the efforts in implementing our stated strategy and deliver the desired performance in the coming quarters.
Q. Bad loans are another area of concern. SIB continues to struggle with a lower provisioning coverage ratio (PCR) of 39% (60% including write-offs) and the outlook on asset quality remains grim. Your comments.
A: I agree that SIB has been seeing stress in advances portfolio for a while. For the past few years, the addition in stress was predominantly due to lumpy corporate exposures. However, our calibrated approach towards corporates has significantly brought down the share of large corporates (exposure of Rs 100 crore and above) from 25% in Mar 2016 to 5% in Mar 2021. While we were calibrating our corporate exposures and strengthening retail portfolio, the Covid outbreak in March 2020 resulted in the nationwide lockdown impacting the economy as a whole. We are closely assessing the impact
of the second wave on our borrowers and wherever we feel there is any need, we are extending full support through restructuring. The bank had done a detailed analysis of the loan book and came up with guidance on slippages of Rs 2,500 crore for FY2022. I would like to highlight that the Covid pandemic had impacted the functioning of the courts and regulatory bodies responsible for resolutions of stressed assets. We are hoping of meaningful recovery in business activities in the second half of FY2022. With the opening of the economy and the better functioning of courts, we expect to see improvement in our recovery of bad loans portfolio. As far as PCR is concerned, the bank is working towards beefing it up in the coming quarters. If you see our Q1-2022 results, our PCR excluding write off had improved from 34% as on March 31, 2021, to 39% as on June 30, 2021.
Q. What are your plans on growing your digital capabilities? Can you elaborate on the Digital Retail Plan?
A: South Indian Bank has always been known for its digital capabilities. We have been consistently ranked within the top 10 digital banks in the country. As a strategy, we also have a philosophy of "Nudge" wherein we empower our branches with digital solutions powered by Robotic Process Automation and use of AI to handhold new digital customers to start the digital journey. The digitally native Gen Z customers are offered comprehensive solutions for transacting, investing in a self-service mode. The bank has also set up a separate data science division to strengthen our data analytics capabilities in the area of assets, liability, collection etc. Through data analytics, the bank will be able to offer customised solutions to our existing customers and target new customers in a meaningful way. We also strongly believe in the power of partnerships, especially with fintechs and startups. We have just launched a pilot project of exclusive South Indian Bank Credit Card, in collaboration with a fintech
firm.
Q. Recently, you received the board approval for capital raising. What's the size of the fund you are looking to raise? Will it be a rights issue? Or bonds? What will be the timeframe?
A: The shareholders in the recently concluded 93rd AGM of the SIB approved the enabling resolution to raise Rs 2,000 crore through equity and Rs 500 crore through debt instruments. The bank intends to raise proposed equity capital in multiple tranches. Further, our near-term priority is to strengthen the balance sheet by increasing Tier I capital through equity capital. We expect the interest rate to remain subdued till the end of Mar 2022. Hence, we will look at raising capital through debt somewhere closer to the end of current financial year if required. The route and timing will depend on the market conditions and investors' preferences. However, our endeavour is to raise first tranche of about Rs 500 crore by December 2021.
Q. What's the impact of the bankruptcy resolution system on banks like SIB? Were you able to sell off your bad loans to a new buyer, and recover the funds? Can you give some examples where you could recover the money?
A: Following the first lockdown, the government had suspended insolvency provisions from Insolvency and Bankruptcy Code for one year that ended in March 2021. Further, the NCLT courts were shut for a major part of the year. Resolutions under IBC have become tough to get after the onset of the Covid crisis as there is a fear that winning bidders will review their interest in bankrupt companies and renegotiate bids or pull out altogether. Given the tight liquidity condition, we are witnessing a decline in the number of interested bidders. We don't have many cases under IBC in our books. Apart from direct IBC cases, there were a few exposures which were sold to ARC and are now under IBC for resolution. In March 2021, we recovered Rs 160 crore from resolution of a large corporate (Bhushan Steel) NPA, which was earlier sold to ARC. With regard to the sale of NPA, the bank is witnessing an improvement in valuation with limited haircuts and therefore exploring opportunity for sale of NPAs to ARCs for faster resolution.
Q. Is the bank vulnerable for a takeover in the future? Is the bank ready for acquisition by another bigger bank? What will be your approach?
A: If you see our shareholding, not a single shareholder holds more than 5%. Further, the bank has more than 6.5 lakh retail shareholders holding more than 70% shareholding. The bank does not have any promoter or promoter group that holds any majority stake. On acquisition, we have not received any such interest from other banks so I can't comment on that.