Ladies and gentlemen, good day and welcome to South Indian Bank Q2 FY 2027 earnings conference call. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Aman Singh from ICICI Securities. Thank you, and over to you, Mr. Singh.
Thank you, Anju. Good afternoon, everyone, and thank you for joining the call. On behalf of ICICI Securities, we welcome you all to Q2 FY 2027 post-earnings conference call of South Indian Bank. From management side, we have with us Mr. Mahesh Muralidhar Pai, Managing Director and CEO, Mr. Dolphy Jose, Executive Director, Mr. Anto George , EVP and Chief Operating Officer, Mr. Vinod Francis, SGM and Chief Financial Officer, and Mr. Jimmy Mathew, SGM and Company Secretary, along with other senior executives of the bank. I will now hand over the conference to management for their opening remarks, post which we can start with the Q&A session. Thank you, and over to you, sir.
Good evening to all of you, and thank you for joining for the South Indian Bank's Q2 FY 2027 earnings conference call. I hope I am audible.
Yes, you are. Please go ahead.
Yeah. We are joined with my colleagues, Mr. Dolphy Jose, Executive Director, Mr. Anto George , EVP and Chief Operating Officer, Mr. Sony, Chief General Manager, Vinod Francis, SGM and CFO, Mr. Jimmy Mathew, SGM and Company Secretary, along with other executives. Let me start with the key highlights of the financial performance of the quarter ended September 26th.
The bank declared the highest of its quarterly net profit of INR 426 crore for the Q2 FY 2026-2027, registering a growth of 21% compared to INR 351 crore in the Q2 of FY 2025-2026. The total deposit of the bank grew by 19% to INR 137,279 crore from INR 115,635 crore on a YoY basis. The gross advances of the bank grew by 19% to INR 109,517 crore from INR 92,286 crore on a YoY basis. During the last financial year, we had done a technical write-off of INR 1,163 crore.
Excluding this, the YoY growth translates to 20%. Total business of the bank grew by 19% to INR 2,46,796 crore. Net interest margin for the quarter was at 3.33%, which was sequentially up by 10 basis points on a YoY basis, and the NIM was up by 53 basis points. The bank was able to show a healthy growth in the average advances during this period with a growth of 20%. Bank declared a return of asset of 1.08% and an ROE of 12% for the quarter ended Q2 FY 2026-2027. Bank declared its highest net interest income for the quarter of INR 1,116 crore, with a growth rate of 38% compared to INR 808 crore during Q2 of FY 2025-2026. Capital adequacy of the bank was at 19.40%, and the Tier I ratio stands at 18.71% as of the half year of September 30th, 2026.
CASA amount increased by 18% YoY to INR 43,310 crore versus INR 36,841 crore last year. The PCR, the provision coverage ratio, including the write-off, improved to 97.84% on YoY basis. This increased from 90.25%. The PCR excluding write-off improved to 92.42% from 81.29% during the year. Overall gross NPA reduced by 169 basis points from 2.93% to 1.24% on YoY basis. Net NPA reduced by 47 basis points from 0.56% to 0.09% on a YoY basis. The slippage ratio of the quarter was at 0.09%. Credit cost of the bank for this quarter was at 0.14%.
We will continue the momentum in the disbursements and collections in the coming quarters to achieve the desired targets. I will also take this moment to thank my previous MD and CEO, who was mainly responsible for this quarter, Mr. P.R. Seshadri, for this wonderful performance. With this, we will open the floor for questions.
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Akshat Aggarwal with Nirmal Bang Institutional Equities. Please go ahead.
Good evening, sir. Congrats on a strong set of numbers, and many congrats on your new role. Wishing you and the bank continued success and greater heights under your new leadership. I have some questions. Firstly, credit cost increased to 60 basis points on a calculated basis, and this looks mainly due to the strengthening of the provisioning coverage ratio to 92% from 81% prior quarter. What was the rationale for further increasing coverage from an already very strong PCR? If you could also help us with the non-specific provisions, including general provisions, floating provisions, or contingent provisions aside from the specific PCR.
Thank you for the compliments, first of all. To answer your question, there are no major concerns as such. If you see the bank's SMA or the NPA, we are at one of the lowest in the entire industry and for the bank it is one of the best you can get. There are no cause of concern for the credit cost to be slightly higher than 0.09- 0.12. There is no cause of concern at this point of time. Being conservative, we thought that this provision should be made. These are not the floating provisions or the specific kind of provision. These are all account-based provisions which has been made. There is no specific one-off provision which is created. I hope I have answered your question.
Right, sir. But aside from the PCR, do we have the provisioning which would include the contingent, floating, or standard provisions? What would be that amount on a percentage basis or-
We have not done that. We have not done any such provision. These are all provision for assets only.
Right, sir. Is there any potential impact of the ECL-based provisioning? In the past, it has been mentioned that there is not much impact, but is there any change in that versus what we have been told earlier?
No, absolutely no. Whatever has been told for a normal, whatever is the impact, because as I said, see the current SMA -1, SMA -2, and SMA -0 are one of the lowest. We do not have any concern in terms of the ECL provisioning at this point of time.
Right, sir. Secondly, on deposit current account balances increased by 20% QoQ. If we can understand what drove this sharp increase and how much of it is attributable to any specific or one-off flows towards the quarter end. Should we expect this momentum to sustain?
Yeah. There are a little challenge is there because these are not the stable flow which we have received. There were some one-off flows which of the current account which have come in due to some of the IPOs which were there at the last moment of September. It is not that it is going to be very stable. There could be some minor slippage in that current account number because it is a substantial number which you are talking about. But otherwise, the growth in the deposit and the CASA is stable. But there were some one-off in the IPO funds which we have received.
Thanks for that, sir. Sir, on the potential implications of the draft Bancassurance Circular, if the bank has done some assessment and if we could get some understanding of how much impact would be there. Some banks have told that it would reduce by 50%-60% of what they already had. Sir, on the same fee income part, we saw a recovery during 2Q after seasonally weak 1Q on the fee income. Should we expect further improvement over the coming quarters?
Yeah. There are two parts of your question. The first part constitutes to the third-party income which you are talking about. See, as a South Indian Bank, we do not have that kind of an impact compared to the other banks because the percentage of third-party income to our total fee income is maybe 5%-6% or maybe 7%. It's a very low number. Vinod can correct me if I am wrong.
Correct.
That's the number for that provision. We don't have that kind of an impact from the circular which has come out from [inaudible] Now t he second part of this question is about whether this will sustain. So, I am pretty sure that this momentum of income is likely to sustain in the bank. So, because there are no one-offs and these are core income which we have derived, and quarter-on-quarter there is improvement. So definitely there is going to be improvement from the position.
Thanks for that. Sir on the returns, we, I think, exclude the additional INR 70-INR 80 crores of provision, which would have strengthened the PCR. ROA would be around 1.3%, I mean if you exclude that. So with the potential for our NIMs to benefit from the upcoming rate cycle and even trading 4.5%, possibly, would we have, like, the same ROA at 1.3%, 1.4% level for the second half and for the next year as well?
You're talking about immediate next quarter. See, if you exclude that provision, what you are saying, the number could be right what you are saying. But presently the ROA stands at 1.10%. Of course, our medium-term target will be to reach the 1.25%-1.30% and obviously our final as a long-term target will be to reach that 1.5% mark. So you are right in saying that if you exclude that, the ROA could be slightly better. Yes.
Thank you a lot.
Coming to the-
Yes, sir. Go ahead, sir.
This was your second part of the question. In terms of NIM, we are currently at 3.33%. In the last few quarters, if you see, the NIM has been always on the upward trajectory. Even the guidance what we have given was around 3.25%. We have comfortably beaten it in the first half year itself, and it is a sustainable one because you see the net interest income which bank has got in the last three, four quarters. This is sustainable and definitely our endeavor will be to move towards 3.40%-3.50% in the medium to long term horizon.
Lastly, sir, some housekeeping questions. What was the retail and agri book this quarter? It's not disclosed, and the last quarter. If we can also get retail gold book, this and the last quarter.
Yeah, I think the gold part is disclosed there. Gold part is-
Sir, the retail gold part. I understand the whole gold portfolio, including the agri, is disclosed. But retail gold-
Yeah. Actually-
Yeah.
We will give you the exact retail growth maybe subsequently. But I can tell only one thing, that we have a 60% of retail book and a 40% of agri book in terms of gold loans. So that way we are better doing in retail.
Right, sir. FCNR deposits and swap leverage we got this quarter, sir?
As far as FCNR is concerned, see, we do not have an outside branch presence, so we are not a bank who has received the swap leverage part from that way. But we have got around $239 million, and out of that, almost 95%, 96% is through the direct deposit, not the leverage deposits.
Very well, sir. Sir, just last question. On the cost side, there has been We have restarted the employees, branches, and technology investment. With the rate hike, we would benefit from the operating income. So should we see a cost growth, a cost-to-income ratio going towards 50% next two years and cost growth remaining in single digit this year and early double digits next year?
I think you are right on that, because we should see the cost-to-income ratio coming down to 50 going forward. But definitely there has been some cost implications, you are right, because of the employee addition and the branch expansions. There has been some addition to the cost. But I feel that the income part should take care of that, and we should be able to deliver what the expectation is there from your side.
Sir, thank you very much for answering all my questions, and I will rejoin the queue. Thank you.
Thank you.
Thank you. A reminder to all the participants that you may press star and one to ask a question. Next question comes from the line of Michael Putra with SB Ventures. Please go ahead. Mr. Putra, please go ahead with your question. Mr. Putra, please unmute yourself and go ahead with the question. Since there is no reply from the line of Mr. Putra, we will move to the next participant. That is Unmesh Kantilal Shah from Hanumant Holdings Private Limited. Please go ahead.
Yeah. Good evening, sir. Thank you very much for giving the opportunity. I am audible, sir?
Yes, sir. You are audible, sir.
Yeah. Thank you very much for giving the opportunity to present before me, and congratulations for good set of numbers. It is really good start you are taking, sir, since you have just taken over from 1st of October. Sir, my first question is, how do you look the second two quarters, and are there any plan for raising the funds or things? Because the NPA is also at the lowest level of the history of South Indian Bank, what I understand. What is the coverage ratio and how we look forward, and are there any plans for raising the funds for the expansion or other things or Tier II Bonds or something?
Yeah. Thank you for the compliments. Yes, you are right, we are at one of the lowest part in terms of NPA is concerned. But the second part of the-
Probably, sir, it is the lowest in the industry, I think. The entire banking industry, I have not seen.
Yeah. It is one of the lowest. The lowest in the industry. Thank you for that. The second part of the question is the raising of capital. Currently, the board has permitted us to raise INR 500 crore of Tier II Bonds, and we are currently not expecting a raising of capital at this point of time. We are well capitalized at 19.40%. So at this point of time, we do not foresee any major capital requirements at this point in time.
Yeah. Thank you very much for the answer. What I personally feel, our capital also is at lower level. So we have got the scope for even expansion or to raise the capital, we should not be having restriction. That way we are in a comfortable post states. That's what I feel.
Absolutely. You are absolutely correct. At this point of time, the growth is priority. So once we have the growth numbers in hand, because if you see the historical averages, we have been growing slightly below the average or in line with the market averages. So our aim should be that we should slightly do better in that front, then definitely the capital requirement will come in picture.
Thank you very much for answering me, sir. Also we welcome you and you have started with the good beginning, at least in the first quarter or when you have taken over from October 1. So we welcome you and all the best to you. Let's see how things change.
Thank you.
Thank you. A reminder to all the participants that you may press star and one to ask a question. Next question comes from the line of Aman Singh from ICICI Securities. Please go ahead.
Hi, sir. Congratulations on the strong set of numbers. My first question is, we have sequential improvement in yield on advances. I wanted to understand qualitatively if there is any incremental increase in corporate books, in yields in two of our main segments, which is corporate and gold loans. If we have taken any price hike in both of those segments.
Yeah. The question comes in two parts. One, whether there is an increase in the corporate book in terms of yield. Definitely, because the corporate mainly it gets priced to the repo level. Currently the repo has increased 25 basis points. Mainly it is repo or T-BILL. These are the two aspects of corporate loan pricing. Both the aspects, if you see for the last three months, there has been upticks up to the extent of maybe 25- 30 basis points. To that extent, the new corporate bookings have started increasing. Also the general U.S. as well as the Indian yields have moved substantially up. In the last few days, it has substantially moved up. That pricing is getting affected in almost all the corporate loan segment. In terms of sustainability, I think we should do little better.
That is what I can say. In terms of gold loan, at this point of time, the repo price, what is there, that has been passed on to the new loans, but we have not thought of increasing the spread at this point of time. If it is felt that there is a need, definitely bank will not hesitate to take that call.
All right. Sir, can you give me a split between EBLR and MCLR loan book of the bank and EBLR repo and T-BILL linked separately available?
Yeah. So, total EBLR linked book will be around 43%. Out of that 43%, the ratio will be 20 : 23, you can say approximately, that is T-BILL and repo. In terms of MCLR, it is very negligible. It is around 5%.
Got it. Sir, last question on growth or disbursement. Growth has in-step materially in this quarter. Can you give some insight on which segments are driving this growth? Is it wholesale or there is some pickup in some retail segments as well in the disbursement?
The retail segment is currently outperforming the wholesale segment. I can tell you that there is significant amount of push happening and there is growth happening in retail side. Retail, when I say, it is MSME retail and then agri. These segments, there is uptick in disbursements. Whereas that much growth is not seen in the wholesale segment.
Right. Sir, just a clarification. You said EBLR book is 43% and MCLR is 5%.
Yeah.
It would be fixed. So 50% book is fixed, is it?
Yeah. EBLR T-BILL will be at 47%. Fixed is around 47%.
Fixed is 47%.
Yeah.
Got it. Thank you, sir. Thank you.
Thank you.
Thank you. A reminder to all the participants that you may press star and one to ask a question. Next question comes from the line of Karan, an individual investor. Please go ahead.
Hello, sir, can you hear me?
Yeah. Yes, sir. Please go ahead.
Yeah. Hi. First of all, congratulations on a great set of numbers. I just wanted to ask one question that, what is the outlook and guidance on loan and deposit growth for The South Indian Bank for FY 2027 and what is the medium-term guidance? Which segments do you expect to drive the major growth?
Yeah. So in terms of guidance, The South Indian Bank has already given a guidance of 15%-16% in terms of loans and deposits. I think we would like to stick on to that, but preferably it will be in the higher bracket of that guidance, what we have given. So overall, we should expect around 16% kind of a growth. But one thing when I talk about 16%, the market growth will be the factor for our growth benchmark. If the market is growing at slightly above that, SIB will try to do better than that. So that will be our guidance. But in general, we stick on to the guidance what we have given for the segments.
In which segment we are growing, of course, you are seeing the growth on the gold loan book, which we have already 41% growth, which we have seen. We will continue to focus on the gold loans. We will also focus on business loans and MSME loans. This will be the order of priority. We will not leave the personal loan segment as well.
Okay. Thank you so much. Thank you.
Thank you.
Thank you. A reminder to all the participants that you must press star and 1 to ask a question. Next question comes on the line of Jai Mundhra with ICICI Securities. Please go ahead.
Yeah. Hi, sir. Good evening. Thanks for the opportunity, sir. I wanted to understand broad strategy. Now you have a decent full term and maybe beyond that also. The bank has come a long way in the last three years from maybe one of the highest net NPA to lowest net NPA. The growth was also earlier single digit, and now at least the 2Q is above system. All the while, ROA have been maintained at more than 1%. I wanted to check, sir, you mentioned 15%-16% loan growth and within which you will try to outpace system. Are you confident of doing that along with sustaining ROA at, let's say, the current 1.1% and even increasing that? Wanted to check, sir, on loan growth.
Are you comfortable that now the bank will be at least doing similar to system or slightly ahead of the system, or you believe there is still some loan mix tweaking that needed to be done from current quarter onwards?
Yeah. I will answer the last question first. That means the loan tweaking of segments. The tweaking of segments is a continuous process. That needs to be done even today because currently we are at 39% corporate and 61% retail. Always we have been talking about the 35% kind of a range for corporate and 65% kind of range for RAM. There is some more work to be done in terms of tweaking, but the system has started tweaking by itself. That is why the NIM has started improving by its own in the last two quarters. That will continue. While I say that, I do not see that the ROA will be likely to remain at this level. I am pretty sure that this is likely to inch up from the 1.1%, which we are currently at to 1.20% and 1.25% levels very shortly.
Maybe in a year itself, we should see that kind of a movement. You should see sequential improvement in these numbers.
Right. The growth reset that we say of 15%-16%, that is even after including the thing that the corporate mix may come down-
Absolutely
-by 300-400 basis points, right? The rest of the-
Absolutely
-has to grow at a much faster pace.
Yeah. Retail should grow at a faster pace. Internally, we have taken a target that the growth in retail will be much higher than what we are talking in terms of corporate.
Right. Okay. And sir, now with this, the OpEx that last two, three years, I think the bank was a little bit, I would say, spendthrift in doing OpEx. Do you see a window to sort of start investing more in the branches or manpower or technology? Or you believe this 10%, 12% kind of an OpEx is sustainable at least for the next one, two year?
No. When I spoke about growth, we have already highlighted that there will be more number of branches. Bank has already opened around 11 branches in this last two quarters of this financial year. And if you can see the hirings also, there has been some additions in the hiring. So we will keep up the pace because when we are opening the branches, we can't say that we'll not hire the people. So that will also inch up. But one thing we'll assure you that there will not be any, what you can say, the ratios will remain the better for us rather than saying that OpEx will go up substantially. No, OpEx will not go up substantially, but in line with the branch expansion, the IT also needs to expand and things like that. So we will be in line with that.
Right. No, so the idea is, will OpEx be faster than loan growth or will it be similar or maybe much lower than the loan growth? That is the-
No. OpEx growth will be lower than the loan growth. There will be OpEx growth, but it will be lower than loan growth.
Right. Understood, sir. On gold loan, sir, corporate, you mentioned that maybe the idea is to move to 35% share. What is your thought process? The South Indian Bank is anyway great in gold loan, but you also have a very strong experience there. So what is your thought process as to how much could the gold loan share be over the next one year for this bank?
I am pretty confident. We are currently at 25% of the portfolio is under gold. So bank already is targeting to take it up to 35%. So I will stand by that as a first phase. Then let us see how the industry evolves, and then from there we will take on, but at this point of time, the focus will be to take it up to 30%, 32% levels immediately.
Right. And sir, this gold loan growth that is there at 40% odd-
Yeah
-that is coming across agri and retail or is this lopsided in favor of any of the retail or agri gold loan?
No, I think it is pretty much there in both the segments. I will put it that 60% of our gold loan book is coming from the retail segment and 40% is coming from the agri segment. In that case also, the growth is also towards the retail segment because there are a lot of restrictions which have come in terms of agri lending in terms of gold loan. There are more restrictions there. Generally, people will tend to keep where restrictions are less. The retail will be slightly outpacing the agri.
Right. Sir, do you have the number for the split between retail and agri for this INR 26,000 crore portfolio?
Yeah. INR 15,000 crore is around in retail and INR 10,000 crore is around agri.
Right. Sir, now the yield differential. Is there any yield differential in the way you charge retail gold loan and agri gold loan?
There is a minor yield differential in favor of retail. That means retail yields better than agri, you can say.
Okay. But that is like 25, 50 basis points only or is it like material?
Yeah. According to me, it will not be more than 25 basis points.
Okay. What is the blended yield on gold loans, sir? Because I think this proportion is going to rise. So I was just trying to understand, what is the blended yield that you charge on gold loan?
It is closer to 10%, I can say.
Okay. This is understood. The OpEx part is also good. Now, sir, your technology, your view on because you have also come from digital, you have had very good exposure to digital and technology. Do you suspect any major technological revamp or any tech exercise which may or may not involve OpEx, but may reset some of the growth journey? Or you believe tech will be minor changes here and there, and which will not jeopardize the ongoing growth trajectory?
No. See, for South Indian Bank, whatever journeys, whatever stories we are talking about, the tech has already been done in terms of technological advancement. Yes, but it is a refinement. It is a process of refinement and also whenever something new comes, the technology should be ready to go for it. So that way it is an ongoing process, I will say. But there is no major technological overhaul or any of that things are required. But our focus will be, as the tagline suggests, next-gen bank. So our endeavor to be, to provide the next-gen technology to the customers. Also as a part of that new segment which is evolving is the artificial intelligence segment in the banking. So there we will be focusing slightly more so that we can have more efficiencies in terms of processes and projects. So that is where we will be tracking.
Right. All right. Sir, it is a request, if you can add some of the loan book classification, which we used to have. Now, I think one, two quarters, that is not there, and there is not much detail on the fee income. If you can specify how much. So we have-
Yeah, we can provide you that.
-I wanted to know, sir, this INR 190 crores of fee. Sorry, which is other INR 190 crores. So INR 190 it is core fee, which is okay, core. INR 80 crores is treasury forex. But what is this other INR 190 crores?
Vinod, do you want to take it?
Yeah, I will take it up. Good evening, Jai.
Yeah, good evening.
Am I audible?
Yes, sir.
Yeah. This miscellaneous income, this INR 190 crores, that includes one of the major components is bancassurance income. That and the amount recovered from technically written-off accounts. These are the two major components that come into play of this INR 190 crores. This quarter for the amount recovery from technically written-off accounts amounts to INR 73 crores.
Great. B ank fee, sir?
Bank fees, that will be ranging around, say, INR 30 crores to INR 35 crores.
Okay.
Yeah.
Vinod, difficult to at least look into FY 2028, but this INR 73 crores and INR 30 crores-INR 35 crores numbers, these are broadly sustainable, at least for the next two quarters?
Definitely for the bancassurance, it is sustainable. For the recovery part, as we have already been mentioning, for the current financial year, we do not find any major threat for that recovery amount. Going forward, it will be declining because the stock under the recovery is also getting exhausting. As you know that our slippage is also on the lower side. That is there. On an average, we expect that INR 50 crores- INR 55 crores to continue.
Right. Understood. Lastly, sir, any broad you have, any three-year view or roadmap, if maybe this quarter or maybe next quarter, if you can provide a three-year roadmap, it will be really helpful. You have given some glimpse that over the next two, three years, you want to achieve 1.5% ROA. If you have slightly more detailed vision, it will be very helpful to understand the future journey.
Yeah. Sure. We will take it and we will provide. We will give you shortly or maybe it should be available very shortly.
Okay. Thank you and all the very best, sir.
Thank you.
Thank you.
Thank you. Next question comes from the line of Sandeep Joshi with Unifi Capital. Please go ahead.
Yeah. Hi, good evening. Most of my question has been answered. I just had a couple of data keeping questions. So within the movement of gross NPA, there's a deduction line item. I just need a breakup of that between recoveries and upgrades and write-offs. Would you have that handy?
Yeah. [inaudible]
Can you just come back on the question, Sandeep?
Yeah. So within the GNPA movement, I want the breakup of deduction, which is INR 188 crores. I want the breakup of that between recoveries and write-offs.
Okay. So the recovery from the technical write-off is around INR 73 crores.
Okay.
Right. And the normal recovery from the GNPA pool, that is around INR 55 crores. Then other cash recovery is also coming INR 58 crores. And the technical write-off, what we have done for the current quarter is INR 34 crores. That is the credit card pool.
Okay. Do you have same number for last quarter as well?
Last quarter, I don't have right now, but I can provide it later.
Sure. Okay. That was my question. Thank you.
Yeah, sure.
Thank you. Next question comes from the line of Parth Gutka with 360 ONE Capital . Please go ahead.
Yeah. Hi, sir. Thanks a lot for the opportunity. Sir, my first question is, on the cost to income, what are the steps that you will take to bring the cost to income down? That is my first question. And second is, within the cost line item, which line items do you think there are levers to bring those costs down going into over the next three to four quarters?
I think one of your earlier colleagues have told that this is a very spendthrift bank . So I think there is not much to control in terms of cost as such because we are talking about the growth and we are talking about employee additions and branch expansion. So cost, we do not expect that it will come down, but it will be stable and the income part will outpace so that you will have the better cost to income ratio in front of you.
Okay. Fine, sir. And my second question is, what are the three key immediate priorities for you for improving the ROE of the bank for the next one year?
The short-term priority is to continue what the previous management has been doing, which is the change of the mix which we are talking about from the retail to corporate. I do not want to give you a number, but the overall scheme of things, what we want to do is to shed the lower-yielding advances to increase it to the higher-yielding bucket. That will be the first priority which we would like to continue. On a sustainable basis, the average advances should grow. Then only the income can be increased. The portfolio mix change, the sustainable growth in the advances and also the gold loans. The focus will be again on the gold loans and there we would like to do better by making the customer experience better. That will be the priority.
Sure, sir. Thanks a lot.
Thank you.
Thank you. Next question comes on the line of Devesh Kayal with Boring AMC. Please go ahead.
I just want to understand, so basically our interest expenses growth over past two quarters have been around 5%. If you see your other peers from Kerala, South India, their interest expenses have been
Sir, can we pause you for a minute? We are not able to hear your question properly because there is a lot of echo in the call. Can you just reframe or can you just repeat?
Sure. My question is on the interest expenses growth. Hello.
Interest expense growth, sir?
Yes. Interest expenses growth for us have been around 5% for Q1 and Q2. It has been on the lower side versus our peers. That is a good thing. I just wanted if you can give some color what has driven this. We see that the bulk deposit has shot up in this quarter. How do we see it going forward?
Yeah. In terms of the pricing or the cost of deposit coming down is mainly due to the repricing effect which has taken place because last year whatever contracted were at a very high rate and now the deposit rate because of the liquidity has come down generally in the first two quarters. That is one of the reasons for lower deposit cost which is coming up and next is the bulk deposit which has increased. That was due to mainly the opportunity which was available because after the FCNR liquidity increase, the bulk deposits rates have been substantially lower even than to the retail deposit rate. Banks have taken some advantage of that and deployed it in a profitable manner. That is how that bulk deposit has increased.
Okay. Our cost of funds shouldn't materially increase from there?
No.
Okay. That's it from my side.
Yeah.
Thank you. Next question comes from the line of Saket Kapoor with Kapoor & Company. Please go ahead.
Yeah. Namaskar sir. Hope I'm audible.
Yeah, audible, sir.
Yeah. Sir, firstly, pertaining to this, that INR 190 crore other income number, I missed the calculation part. And what is the likelihood of the reoccurrence of the same, explaining the nature of the same?
Yeah. Vinod.
Yeah. I will take that. As I already explained, this INR 190 crores, we don't find any one-off items for the current quarter. We expect that this is a sustainable part. Only thing is that one of the component that comes into this is the recovery from technical write-off accounts. Currently, we are having a range of, say, INR 50 crores- INR 55 crores, which we expect to continue in the coming quarters also. But over a period of time, maybe after, say, four to five quarters or six quarters, this amount is likely to come down because of the non-existence of the NPA stock. There, we expect a slight decline over there. Otherwise, that will get compensated by the income increase in the other heads.
Definitely, this INR 190 crores, we expect that is sustainable and is expected to increase, because one of the another major component is the bancassurance income, which we are steadily focusing on.
Okay. Sir, taking into account how we have closed H1 on a very high note. Q1, Q also, the operating profit has gone up from INR 592 crore- INR 732 crore. Taking into account the improvement in the loan growth, what should investors expect H2 be on account of the high base of what we have reported for H1, sir, in the very likelihood?
See, certain things like your gross NPA and net NPA, there are very little chances of us to reduce it further. See, we are at one of the highest net NPA. That means the lowest, best, you can say, the net NPA bank in the country. So that way, further reduction from there is very challenging. Same is the case with some of the items like SMA. See, we have been doing very good, and the SMA has been coming down all along the last few quarters. So maintaining that will be the great opportunity and challenge for us. We will be trying to do that. Having said that, all other business parameters, as I was mentioning earlier, we were either slightly below the market or in line with the market. There we have scope for improvement, which will overall improve the income components of the bank.
Sir, taking into account the rate curve which has changed now on the higher side.
Yeah.
How likelihood is the interest income or the NII likely to shape up for H2? And with the hardening of the yields, what portion of our treasury book will get impacted and what was the impact for this quarter, sir?
So in terms of NII, I think the major portion of our hit has been changed on the T + 1 basis itself. As soon as we have mentioned earlier in some other reply that around 43% of our book is EBLR linked and which is repriced immediately upon the change of repo. Also, another 25%-30% of our book is in terms of gold loan, wherein the pricing will happen even though not on T + 1 basis, but new loans will be booked at the new rates. So there also we are getting the cost advantage. So all put together, you should see a positive impact for every rate hike which is happening in the bank's balance sheet. Now, coming to the, what was the last question?
Sir, impact of treasury impact.
Yeah.
Hardening of the yield.
So hardening of the yield, I can only tell that last quarter even from the yields have hardened from 6.80 to 7.19, the impact of that was very little compared to many other banks in our bank. So that way it was positive. And in terms of the rate going up from that 7.19 towards currently at 7.40 and all, every basis point will result in approximately INR 1 crore- INR 1.1 crore for us. So that is what the indication I can give you at this point of time. But it is not a phenomenon only for South Indian Bank, it is for the entire market.
Sir, you mentioned every basis point will result in a INR 1.5 crore MTM for us.
INR 1 crore- INR 1.1 crore.
INR 1 crore- INR 1.1 crore . That was the same number for the September quarter also, since the movement has been from 6.80 to 7.19 ?
Yes.
INR 1.1 crore
Yes, correct.
Okay. Sir, other parameters like our NPA, you have mentioned that we are on a solid track and there is very little room to improve on the same. But on the NIMs part, what other levers are there for us or what should be the trajectory on the NIMs and the ROA that we may transcend going into the H2 and the way forward?
In terms of NIM, currently we are at 3.33%, wherein the guidance was at 3.25%. So already we have crossed the guidance what we have given, and we believe that this repo rate what has hiked and the consistent churning what we are doing, the NIM should improve and move towards 3.36%- 3.38% levels in the shorter term. In the longer term, our 12 months or four quarter guidance will be around 3.45%- 3.50% we should aim. That is what the guidance for NIM. In terms of ROA, we are expecting that medium-term, we should reach somewhere closer to 1.25%, 1.30%, and from there we should move towards the higher levels.
Okay. Lastly, on the liability franchise, sir, how will our deposits are going to get repriced, or what percentage will come for renewal for H2, and what would be the likely impact on the picture of the cost to income because of the revision in the deposit rates also?
Yeah. In terms of deposit rates, still we are at a lower level than what it was in the last year, at this point of time. Whenever we are expecting, generally, our deposits are getting renewed in a year's time. If you consider that, I think these next two quarters may not have substantial repricing affectingly in terms of deposits. It's getting repriced at a lower rate.
Okay. So in totality, the working environment provides improved set of operating environment for the bank for going into-
Absolutely correct.
-Is that under
Absolutely correct.
Thanks. Okay, sir. Thank you, sir. Thank you for the opportunity.
Thank you.
Thank you. The next question comes from the line of Vivek Singh, Rise Securities. Please go ahead.
Hi, sir. Congratulations on the good set of number. My question is on the broader strategy part. Like you said, the focus will be on the RAM segment, and you want to take the RAM to 65%. But in past also, we have been focused on the MSME, but if you look at the traction, that has not been much traction. The large part of the growth has always been driven by the corporate loan. Even in this quarter, if you see corporate and gold, they contributed at around 80% of the incremental growth. So what are the segment that we are focusing on within the RAM segment to drive this mix and to drive the growth further soon?
You are right that we have been talking about the segment change and the segment change is not happening. That is what one of the concerns which you have raised. So I agree that it's a challenge. It's not easy that because you have to maintain the pace also. If you are to maintain the pace and then you are to change the mix, that means the retail should do much better. That means that other than corporate should do much faster than the corporate growth, which is not happened. That is the reason why we are able to show only this kind of movement where it is in and around 40%, the corporate segment. This will be a challenge, but definitely if we are able to deliver in the MSME segment, which we are confident that going forward, that opportunity will arise.
There are opportunities in the market, so we will definitely tap those MSME opportunities. I am sure that the verticals what the bank has created in the past, the mid-corporate vertical, the MSME segmentation of credit, all those things should fire up going forward.
Sir, has there been any changes made in terms of the structure of the branch or the underwriting strategy going forward? Because in past two years, there have been a lot of changes done on the branch level. Are we sticking with the same thing or we are looking to implement some new strategy?
Absolutely no change in the strategy, what we have been doing, we will continue to do better in that. We will not change the strategy, what the structure or strategy will not be changing. Only thing is that wherever little bit tweakings are required, we will do that rather than whenever new MD comes and if you start changing the system, it changes the whole ecosystem. I believe in that line. I believe in strengthening the existing ecosystem rather than making a change to the ecosystem.
Got it, sir. Sir, in terms of ECL preparedness, how are we placed? Will the bank be able to comply on the very first day of implementation or are we looking to take a glide path?
The glide path is provided to all the banks. Only thing is that we will have to take a call at that point of time, we will be taking a call, but at this time it is too early for me to give a comment on whether we will be going for a glide path or otherwise.
And sir, in terms of the total quantum of the requirement, any number?
It is not very substantial. That much I can say. It is not very substantial because you can see from my balance sheet itself, because the SMA numbers are at the lowest, the net NPA numbers are at the lowest, provisions have been kept for all the cases wherever required. Given these things, the numbers for ECL is not going to be very substantial.
Okay, sir. Thank you.
Thank you.
Thank you. Next question comes from the line of Aman Singh with ICICI Securities. Please go ahead.
Hi, sir. Sir, just a few clarifications. Firstly, on treasury, as you understand, most of the treasury gains are being rooted, treasury loss from MTM are being rooted through AFS reserve. Can you help me with what was the hit on AFS reserve during the quarter?
I will take this question.
Yeah.
AFS reserve, as on September 30, we have a debit balance of INR 43 crores.
And sir, what was the opening for the quarter so we can understand the impact in this quarter?
The impact for the current quarter was close to around, say, INR 52- INR 53 crores.
INR 52- INR 53 crores. Okay. And sir, just a clarification. The impact on the rate hike, yield hike of 1 basis point would be INR 1 crore is on MTM gains or is on NII?
It is on MTM gains. Gains or losses-
MTM
-for that matter.
Right. Lastly, we can see there is some IBPC book that the bank still has. What is your view on IBPC and DA? Will the bank continue to do that business or it will gradually go down?
See, it all depends on what rate we contract. It is not that we are allergic to IBPC or not allergic to IBPC. It is not like that. But if it is making a business sense, we will continue to hold on to that. If it does not make a business sense, we will be exiting that. But of course, currently it is a good number which we have. So it will be very difficult for us to entirely say that I will not hold any IBPC in the next quarter. That is going to be very challenging.
Got it. Got it, sir. Thank you, sir.
Thank you.
Thank you. Ladies and gentlemen, that was the last question for today. We have reached the end of question and answer session, and now hand the conference over to the management for closing comments.
On behalf of South Indian Bank, I would request our executive director to-
Yeah. Good evening to all. I heard most of the questions. Just to give a brief from my end is, yes, the effort to change the advances mix is still on, and we will pursue that for sure. The numbers may not be very encouraging when you see that, yes, we have one basis point down from the corporate share from 40% to 39%, and the retail agri and MSME segment has grown 61% to the overall advance contribution may not be very encouraging. But we are not really marginalizing corporate, but we are progressively improving the contribution of retail and MSME to The South Indian Bank, and The South Indian Bank's growth and earnings both. The objective is better balanced portfolio with stronger risk-adjusted returns.
Going forward, yes, there will be marginal growth of retail, agri, and MSME as a contribution to the overall advances, which you will see, but it will be gradual. But the focus is going to be on better balanced portfolio with stronger risk-adjusted returns. On the OPEX side, I have heard multiple questions on the OPEX side. Yes, whether we will need to invest for growth, we will. That is a no-brainer. We have to go to the next level of growth and we invest and then scale. There will be additional OPEX, but our intention is to ensure our operating profits will be always higher than the incremental OPEX. That is going to be there and we will very closely monitor this and take whatever judicious steps we have to take towards it. That is about all from my end. Thank you very much.
Thank you all for joining us.
Thank you. On behalf of The South Indian Bank, that concludes this conference. Thank you for joining us. You may now disconnect your lines.