SIB Bets On Retail Loans, Increase In Fee Income

While seeking to lower its bad loans and raising the share of low-cost deposits, Thrissur-based South Indian Bank (SIB) plans to concentrate on retail loans this year.

"Currently, our retail portfolio is about 58.75 per cent while corporate portfolio is 41.25 per cent. We will attempt to grow the retail share to over 60 per cent by the end of the year," said a top official of South Indian Bank.

The bank, which saw second-quarter profit nearly double to Rs 35.69 crore, will also seek to lift its fee-based income by going for more corporate tie-ups and distribution of third party products.

While SIB's gross NPAs have slid to 3.41 per cent (as of end September 2007) from 5 per cent a year back, net NPAs have fallen to 0.71 per cent from 1.69 per cent.

"Small retail loans had contributed to our non-performing assets. We have put in place a strong credit recovery system to handle NPAs. We should be able to bring down our NPAs to below 0.45 per cent by March 2008," said the bank official.

Towards increasing the share of current and savings account (CASA), SIB plans to widen its branch network. "Our CASA stands at 22.87 per cent and we are looking to raise it to 30 per cent this year. We are opening 15 new branches this year, taking our network to 500," said the bank official.

Analysts feel the retail focus will boost the bank's profitability. "Greater focus on retail advances will enable the bank to earn a higher yield on its business," said an analyst.

While total business rose 29 per cent to Rs 23,079 crore in the second quarter, the bank is aiming at business volumes of Rs 25,000 crore by the end of March 2008.

The bank's net interest margins (NIM) have also been stable. There has been a slight increase in our net interest income from Rs 167.27 crore as on September 2006 to Rs 187.92 crore as on September 2007. "Last year, our NIMs were 2.91 per cent, which has risen to 2.93 per cent this year. We expect our NIMs to be at similar levels for the rest of the year as well," said the bank official.

"Better asset quality ensures the bank to keep its provisioning requirement low, which will boost the profit margin. Further recovery of the NPAs will make addition to the top line," the banking analyst said.