‘Inflow of NRI funds in the last couple of years has been excellent’

Consistent improvement in operating profits, treasury operations and other income have significantly contributed to South Indian Bank achieving a net profit of ₹93.38 crore in the second quarter, a 22 per cent growth over the corresponding period last year. Emphasising that the bank has maintained its asset quality in a challenging environment, VG Mathew, Managing Director and CEO, said the focus on various retail sectors for asset growth has started yielding results. In an interaction with BusinessLine , Mathew said that the total business also increased by ₹10,687 crore to ₹93,251 crore, registering a 13 per cent growth. He, however, pointed out that the adverse performance of certain sectors, such as infrastructure, power and steel, has seen net non-performing assets go up to 1.39 per cent in Q2 against 0.90 per cent in the corresponding period last year. Maintaining that the bank is making efforts to recover the loans extended to these sectors, he said it will be reflected in the next quarter.  Edited excerpts from the interaction:

Why was there an increase in net NPAs this quarter?

Pressure on the large corporate loan book resulting from the macroeconomic situation has not eased yet. This quarter, a large corporate account slipped from restructured standard asset to NPA, which contributed mainly to the incremental NPA.

Besides, the results of some of our recovery efforts are spilling over to the third quarter. Our focus on recovery and rehabilitation, coupled with consistent growth in the retail portfolio, will improve the asset quality position, going forward.

Why is there a delay in reducing interest rates following the RBI directive?

We had reduced the base rate by 30 basis points fairly recently. Our ALCO (asset-liability committee) is evaluating the rate movements on the liability side, and a decision on further cut in base rate will be taken shortly.

Have you seen deposit inflows improve in the last few weeks after a few other banks cut deposit rates?

The shifting of term deposits in response to interest rate movements will take time because of the maturity profile of such deposits. Over a period of time, we have seen regular and consistent growth in our core term deposits due to various efforts of the bank, including the pricing strategy adopted by us.

The exercise of choice by depositors is not based on interest rates solely. It also depends on various other factors, such as age, knowledge level, liquidity needs, tax issues, alternative opportunities, etc.

Has credit picked up with the commencement of festival season?

The second half is the better period for us traditionally. Overall credit picks up and proposal flows in the retail sector reflect this trend.

Has there been any delay in agriculture repayments due to monsoon shortfall?

Our agriculture business is predominantly in the southern States and we have not seen any major default issues or restructuring requirements from the sector.

NRI deposits seem to be showing good growth. How have you done so far on th at front?

There was a near-26 per cent growth in NRI deposits, touching ₹12,904 crore, against ₹10,252 crore in the corresponding period last year.

The inflow of NRI funds in the last couple of years has been excellent, especially from GCC countries, due to attractive rupee interest rates coupled with tax and repatriation benefits. We have seen higher inflow in rupee deposits as compared to FCNR deposits.

What would be the impact of lower commodity prices on borrowers and loan quality?

Low commodity prices has not led to stress in the loan book in general. But the pace of CASA (current account, savings account) accretion has slowed in some regions in Kerala. Apart from this, the improvement expected in some of the restructured accounts, which have a direct/indirect linkage to commodity prices, has been impacted to some extent.

Given the decline in exports in the past nine months, has there been any drop in credit offtake by exporters?

Our export clients are predominantly from seafood and agro-based industries. There is no major change in their utilisation pattern if the seasonality factor is reckoned.

Why are the reasons for the drop in gold loans?

The decline in gold loans was essentially because of the significant fluctuation in gold prices during the period as well as the reduction of about 10 per cent in the LTV (loan-to-value) ratio based on the revised regulations. The decline has slowed down consistently over the last three quarters and we expect a modest growth, going forward.

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