The South Indian Bank Q1 FY26 earnings call

South Indian Bank reported a net profit of INR322 crores for Q1 FY26, marking a 10% growth compared to INR294 crores in Q1 FY25. Operating profit saw a significant increase of 32%, rising from INR508 crores to INR672 crores. The bank's total business crossed the landmark figure of INR2 lakh crores, reaching INR2,02,119 crores, representing a 9% growth. Return on assets stood at 1.01% and return on equity at 12.41% for the quarter.

The bank demonstrated strong asset quality improvement, with Gross NPA reducing by 135 basis points from 4.5% to 3.15%, and Net NPA reducing by 76 basis points from 1.44% to 0.68%. The provision coverage ratio (excluding write-off) improved by 988 basis points YoY to 78.93%, and (including write-off) to 88.82%. Slippage for the quarter was low at 20 basis points, amounting to INR182 crores. Management confirmed using INR256 crores of treasury income this quarter to make incremental provisions, ensuring the books are 'completely clean'.

Total deposits grew by 9% to INR112,922 crores, while gross advances increased by 8% to INR89,198 crores. CASA grew robustly at 9% YoY to INR36,204 crores. The bank noted its strong deposit franchise, particularly in the NR segment, which contributes over 30% of the total deposit base and is predominantly SA, a low-cost deposit. Despite falling interest rates, the bank's relationship banking helped maintain deposit growth, with peak rates offered at 12 months and 7 days, priced 10-15 basis points lower than competitors.

The bank continues to grow its gold loan business, which now stands at INR17,446 crores, growing 7% YoY with an average LTV of 61.99%. Home Loans saw significant growth of 66% YoY to INR8,518 crores, primarily in the prime segment with an average yield of 8.3-8.5%. Auto Loans grew 27% YoY to INR2,217 crores, and the personal loan book reached INR2,132 crores. The MSME loan book, however, remained largely flat at INR9,700 crores, though management expects a 15-18% growth going forward^⏳, driven by new systems and processes.

NIMs faced challenges in Q1 due to the unfavorable interest rate regime and the cost of money not yet fully flowing through. However, the bank passed on the entire 100 basis points of repo rate reduction on a T+1 basis. Management anticipates NIMs to bottom out in Q2 and spreads to widen in Q3, assuming no further RBI repo rate changes. The bank maintained positive operating leverage, with revenues growing 13% and expenses remaining flat, leading to a 32% increase in pre-provisioning operating profit.

Branch productivity, measured by value addition metrics, increased by 60% compared to Q4 FY24. The bank has implemented a branch-level incentive scheme, paid quarterly, which is contributing to this improvement. While not considering new branch expansion at this moment, the focus is on maximizing throughput from existing branches. The bank is building out new systems and processes to enhance efficiency in customer acquisition and onboarding, aiming to drive business growth more aggressively.