NIM will be under pressure due to low market rates: Murali Ramakrishnan, MD & CEO, South Indian Bank

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September 04, 2021 12:30 AM

Compared to Q1, I am seeing growth in all the products. Among the products, corporate is showing growth in quantitative terms due to larger deals.

SIB MD & CEO Murali RamakrishnanSIB MD & CEO Murali Ramakrishnan

South Indian Bank (SIB) has announced an 87% year-on-year (y-o-y) decline in its first quarter net profit to Rs 10.31 crore, largely due to higher credit costs. Bad loans increased, with the gross non-performing assets (NPA) as a percentage of gross advances being reported at 8.02% for Q1FY22, from 6.97% in the preceding quarter, and the net NPA as a percentage of gross advances at 5.05%, against 4.71% in the preceding quarter. Murali Ramakrishnan, MD & CEO, speaks to FE’s Rajesh Ravi about the performance of the bank and impact of the pandemic.

NPA levels are seen on the higher side. What is your outlook for the fiscal?

This is due to COVID impact on the retail and the MSME segment. Entire Q1 got washed out due to COVID and we are seeing some residual impact in Q2. Hopefully, the second half will be better. For the full year, we expect slippages to be as high as last year. We are giving a guidance of Rs 2,500 crore for the fiscal.

You mentioned about residual impact of the pandemic in Q2.

Business is coming back. In number of applications, there is a revival when compared to April-May. We also have to factor in the impact of pandemic on the future of many businesses. But then there are two factors to be watched. One, my NPA is high and I don’t have any room for risk taking. Second, many banks are flush with funds and opportunity to lend is low. The rates they are offering now is unsustainable for the SME segment.

From which sector do you see growth coming in for your bank?

Compared to Q1, I am seeing growth in all the products. Among the products, corporate is showing growth in quantitative terms due to larger deals.

What about the gold loan portfolio given that competition is tough?

In gold loan, many banks which lend aggressively with higher LTV faced margin issues and NPAs went up. Auctions were also not happening and this lead to higher NPAs in gold loans. We are continuously growing the portfolio, but did not pursue it aggressively. Our LTV is around 70-71% level and so we did not have the challenge of margin getting eroded due to fluctuation. Our delinquency in the gold loan portfolio is only 0.03%. It is a clean book. The only problem is that there is continuous poaching happening in the segment. We are also tweaking our rates and we are seeing some stagnation. It is a desirable product and we expect a 15-16% growth year-on-year.

What is your outlook on NIM?

We are consciously improving the sourcing cost of fund. My operating profit has not gone down despite my total asset book de-growing. NIM will suffer due to the low predatory pricing in the market. It will be camouflaged in the big banks due to the total size of their asset books. For SIB, NIM will be under pressure due to the low market rates.

Your total business de-grew in Q1.What is your guidance for the whole fiscal?

I am actually doing a fundamental correction in terms of building a quality book. My addition may not compensate for the degrowth in my book. Continuing this over a period will change the complexion of my book. Total business was lower in Q1 and Q2 is better than Q1. H2 will definitely be better than H1 and we will try and go back to the last year’s level by March.

SIB has been talking about 6Cs strategy for Vision 2024. Are you happy with the progress?

We are seeing very good progress happening in every parameter of 6C. We have raised capital and CASA ratio has crossed 30% for the first time. Cost to income has improved. Compliance is a continuing affairs and competency building has also made progress. We have also invested in a treasury platform and vendor dealer financing platform with a reputed dealer.

Collaboration with fintechs and any new products?

We have tied-up with a fintech for credit card issuance and will launch it shortly.

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