The June 2011 quarter financial results of South Indian Bank Ltd (SIB) are more or less in line with Street expectations, although analysts are slightly disappointed with the higher-than-expected decline in the reported net interest margins (NIMs).
While NIMs were stable on a year-on-year basis at 2.8%, they have fallen from what the bank had reported at year ended 31 March (3.1%).
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That’s mainly attributable to the 103 basis points sequential rise in the cost of deposits to 7.6%. One basis point is one-hundredth of a percentage point.
That resulted in a 7.5% fall in the net interest income (NII)—interest earned less interest expended—to Rs 205 crore, compared with the March quarter.
NII increased by 22%, compared with last year’s June quarter.
Despite the fact that employee cost and other operating expenses fell on a sequential basis, SIB’s pre-provision profit fell by 6.5% sequentially. That’s because other income, which is an important source of income for banks in general, posted a sharp 14.6% fall.
At the net level, a 21% decline in provisions helped net profit increase by around 1% to Rs 82.5 crore.
Net profit is up 41% on a year-on-year basis.
SIB’s current and savings account (Casa) ratio has remained stable on a sequential basis at 21.5%.
However, the metric is down from the June 2010 quarter when Casa was at 25.1%. That’s because Casa deposits increased at a comparatively slower pace of 16% on a year-on-year basis.
If one accounts for the non-residential external (NRE) deposits, the bank’s low-cost deposits stood at around 27%. That helps the bank in containing deposit costs. SIB’s asset quality remained broadly stable with the percentage of gross NPA (non-performing assets) and net NPA at 1.07% and 0.29%, respectively.
The Thrissur-based bank is considering raising Rs 1,000 crore capital through qualified institutional placement this fiscal to support growth in the next three years. Analysts are positive about this and say that should assist SIB in maintaining its strong growth.
In a post results note, analysts from Emkay Global Financial Services Ltd said, “A high tier-I CAR (capital adequacy ratio) and robust asset quality are strong positives in the bank’s favour.” However, they add, “higher concentration of gold loans (20%) in the loan portfolio is a key risk to the bank.”
Graphic by Sandeep Bhatnagar/Mint
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