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The rise in net profit in Q1 by 75 per cent has facilitated the Thrissur-based South Indian Bank to look at good corporate deals depending on liquidity and profitability. “We expect some traction from the new initiatives which we have planned for this year, such as CE, CV, LAS, auto finance, PL on credit cards etc, says Murali Ramakrishnan, MD & CEO.
Your Q1 numbers are almost in sync with expectations. What is your liquidity management strategy?
We have been projecting a credit growth of 12 to 13 per cent for FY24. This quarter, the credit growth has been as per our guidance, and we expect the momentum to continue for the coming quarters also. We will target a CD ratio to be around 75 to 77 per cent for this fiscal year.
The fundamental strategy remains the same as profitability through quality credit growth. The transition of liquidity from plenty to scarce has also made banks shift their strategies to reduce the pace of credit growth. The credit growth has outperformed the deposit growth for the last financial year, creating a strong deposit demand. We are also growing our deposits in line with our credit growth. NRI deposits also contribute to the total deposit growth of our bank.
We have a good liability franchise that we will utilise for liability sourcing. Also, we hold the asset liability committee (ALCO) multiple times a month to price our assets and liability in line with our strategy. More than the rate hike, liquidity is another major factor driving credit growth going forward. The deposit growth has been consistent for us.
Your CASA growth has moderated in Q1. How do you plan to reverse this trend?
On a Q-o-Q basis, our total CASA has increased to Rs31,166 crore from ₹30,227 crore. The moderation in the CASA percentage is mainly due to the rising interest rate scenario and people moving funds from their savings accounts to term deposits preferring higher interest rates, The issue is common with most of the banks.
We expect the trend to reverse during the second half of this financial year once the rate hikes are paused, and once the liquidity eases in the market, we will see a reversal. Last year, we saw credit growth outpacing deposit growth. Also, we are seeing some low-cost funds being moved to mutual funds and the equity market providing better yields for their savings.
RBI has recently flagged the growth in unsecured advances by commercial banks. Are you seeing any stress in this segment?
RBI has tightened the norms for banks on the unsecured lending portfolio due to the increasing risks of default. Even though they contribute largely to the margins of the banks, potential delinquencies are more in this segment. RBI might also develop measures to increase the risk weights on the unsecured PLs and credit card segment.
We are not facing any stress from this segment as we have put in stringent measures for underwriting the loans on a case-to-case basis which includes CIBIL check, NEO score check for understanding the credit score of the customer and also by having various data analytics on the existing liability customer base and bringing out pre-approved PL and CC.
Our total book of unsecured loans is within ₹3,000 crore. For CC, we are targeting individuals with higher credit bureau scores through our co-branding partner. We also do regular portfolio reviews to ensure the actual delinquency is within the targeted delinquency levels. While the caution of regulators is well placed, we are vigil on all of our portfolios, including this one.
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