The South Indian Bank has seen a significant increase in demand for gold loans due to the rising prices of gold, with its gold loan portfolio growing by Rs 2,236 crore in Q2, a 13% rise from the same period last year. However, the bank is exercising caution and reassessing margins and loan-to-value ratios to manage risks from the rapid price increase.
According to the bank’s CEO and MD, PR Seshadri, the net interest margins (NIMs) declined by 23 basis points to 2.8% in Q2, but the bank believes this marks the bottom and margins should start improving from here. The bank’s loan mix is changing rapidly, with MSME and retail disbursements growing sharply, which should lead to higher NIMs.
The bank is also seeing strong growth in its CASA (current account and savings account) ratio, which has been steady in the 30-32% range. The bank aims to move its CASA ratio into the high-30s over the next two to three years.
In terms of demand for loans, the bank expects momentum to pick up in Q3, especially in auto loans. The bank is also open to financing mergers and acquisitions, but its capital base limits its single-borrower exposure.
The bank has estimated additional provisions under the proposed Expected Credit Loss (ECL) norms, but does not expect a significant increase in provisions. The bank’s provision coverage ratio is over 90%, which is quite robust.
Finally, the bank’s NRI deposits have grown strongly over the two quarters, and the bank expects this growth to accelerate due to the rupee’s depreciation against the dollar and attractive domestic rates. The bank is optimistic of achieving double-digit growth in this segment during the year.
Overall, the South Indian Bank is seeing strong growth in its gold loan portfolio and other segments, but is exercising caution to manage risks. The bank is also focusing on improving its NIMs and CASA ratio, and is open to new opportunities such as financing mergers and acquisitions.
The bank’s CEO, PR Seshadri, expressed optimism about the bank’s future prospects, citing the strong growth in MSME and retail disbursements, and the bank’s robust provision coverage ratio. However, he also noted that the bank needs to manage the risks associated with the rapid increase in gold prices, and is reassessing its margins and loan-to-value ratios accordingly.
The bank’s strong growth in NRI deposits is also a positive sign, and the bank is well-positioned to take advantage of the opportunities in this segment. Overall, the South Indian Bank is well-placed to achieve strong growth and improve its profitability in the coming quarters.
The bank’s ability to manage risks and seize new opportunities will be crucial in achieving its goals. The bank’s focus on improving its NIMs and CASA ratio, and its openness to new opportunities such as financing mergers and acquisitions, are all positive signs.
The bank’s strong provision coverage ratio and robust balance sheet also provide a solid foundation for growth. Overall, the South Indian Bank is a strong and well-managed bank that is well-positioned to achieve strong growth and improve its profitability in the coming quarters.