South Indian Bank to vend LIC products

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Dr V.A. Joseph
Dr V.A. Joseph

Our Bureau

Bangalore, June 26 Private sector South Indian Bank has ended its bancassurance arrangement with ICICI Prudential Life Insurance Company.

SIB is now partnering with the public sector Life Insurance Corporation of India for vending the latter’s policies through its 540 branches in the country. Speaking to Business Line, its Managing Director and Chief Executive Officer, Dr V. A. Joseph, said, “We ended the partnership as ICICI has off loaded its stake in the bank.”

SIB also has bancassurance arrangements with both Bajaj Allianz General Insurance Company Ltd for distribution of non-life insurance products and the Export Credit Guarantee Corporation of India for distribution of export risk cover. Dr Joseph said the arrangement with LIC included collection of premium from policy holders on behalf of LIC from its 540 branches in the country. SIB, he added, also intended to partner LIC’s credit card business.

LIc stake

LIC has also picked up 1.9 per cent stake in SIB. Asked if there was any proposal to further increase LIC stake in the bank, Dr Joseph said, “It is up to LIC. As of now, we have no requirement for capital. We already have a capital adequacy ratio (CAR) of 13.89 per cent.” CAR measures the amount of a bank’s capital against its risk-weighted exposures.

Besides, he added, SIB had sufficient flexibility to raise capital through the Tier-IIroute in the form of subordinated bonds. “If capital is required, we can always use the Tier-II route, since we have not used this option for some time.”

This year, he said, the bank hopes to rake in net profits of Rs 230 crore this financial year. “This is our target, since we have traditionally increased our profits by Rs 50 crore every year.” Last year, SIB’s net profits were Rs 195 crore. The profits would also help the bank boost its Tier-I capital, comprising net-owned funds for the current year, he added.

Part of the profits, he said, would also come from write-back of depreciation provisions made during last year, due to diminution in the value of investments. “Our investments, both debt and equities, have appreciated.

Referring to interest rates, he said, SIB would bring down both its deposit rates and rates on advances. However, SIB would ensure that its net interest margin is protected at 3 per cent. The bank already has low-weighted average cost working funds. This was in view of the large depositor base of non-resident Indians. NRI deposits currently comprise about 20 per cent of the gross deposits of the bank. “NRI deposits cost only about 4 per cent,” he said. As a result, the bank’s weighted average cost of working funds is currently lower than the banking industry’s average that ranged between 6.5 and 7 per cent.

Asked whether the risk of an escalation in non-performing assets would impact earnings, he replied, “We are careful about asset acquisition.” SIB had reported a gross NPA of Rs 260 crore or about 2.18 per cent of its gross advances. This year, the bank intends to add another 35 more branches to its networkand step up its business volume to Rs 75,000 crore by 2013.

(This article was published in the Business Line print edition dated June 27, 2009)
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