South Indian Bank to focus more on retail loans, says MD

VG Mathew took over as MD and CEO of South Indian Bank on October 1, 2014, after serving as Executive Vice-President for nine months as part of a succession plan. He was earlier Chief General Manager at SBI. The first year at the helm has been a bit of a rollercoaster ride for Mathew. Profits dipped by 40 per cent or ₹200 crore in March 2015, and by nearly 50 per cent in the first quarter of this fiscal. Like many banks, SIB has been impacted a bit by the rise in non-performing assets as well as rising wage costs. Mathew is, however, confident that the performance will pick up as the economy improves, and he is steering the bank towards rediscovering its strong retail moorings. Excerpts from an interview:

How has your first year been?

It has been challenging — a rollercoaster ride. The macroeconomic situation has also been tough. Profit at the operating level has been consistent, but at the net level it was down from ₹507 crore in March 2014 to ₹307 crore in March 2015. That decline was essentially due to loan-loss provisions and additional employee costs.

The IBA (Indian Banks’ Association) wage accord led to a 15 per cent increase in staff costs. We were paying 10 per cent, but the extra 5 per cent had to be accounted for at that time because the settlement had been concluded. Therefore, we had to make provisions for the whole period from 2012 onwards.

Apart from this, interest rates have come down. So, while there have been some gains on the treasury side, on the liabilities side, for example, in pensions and gratuity funds, we need to top up. Then, of course, there is the NPA component.

Would you say these are one-off instances?

Yes. It is substantially one-off as far as employee costs are concerned. When it comes to NPAs, the economy is going to improve and we see some stability coming in. Stressed assets resolution is happening and the RBI measures have helped stabilise our portfolio, especially on the corporate side. These are all consortium loans, where we have a small share. Simultaneously, we are rediscovering our retail strength.

In the last few years, we moved a little more towards the corporate sector and we have a good portfolio there. Now we want to focus more on the retail segment — MSMEs (micro, small and medium enterprises), and agriculture, home, auto, property and gold loans.

Your gold loan portfolio has come down significantly over the last four quarters. Why?

Gold prices have come down significantly over the last year. That itself led to a 10 per cent decline in the value of loans that are renewed. And some did not want to renew their loans, because the prices had come down so much. Additionally, the RBI came out with some restrictions on loan-to-value ratios.

Now we have made some product changes. We have got products for three-, six-, and nine-month periods. We have also got working capital-linked products. Several product variants have been introduced. We are getting new customers. It has been a major portfolio for us — stable and with very low defaults. We would like to refocus on this segment.

We have 150-odd branches that are strong on gold loans. We are targeting a 20 per cent growth this fiscal. The entire portfolio, which was around ₹5,905 crore last June, has come down to ₹4,268 crore this June. We can make up that decline. It will pick up again.

Will your NRI deposit inflows be affected if the US Fed starts hiking rates?

Our NRI deposits constitute 20 per cent of our deposits and they grew 29 per cent year-on-year in June. It is a strong portfolio and will not get impacted. These deposits are mainly from West Asia. The advantage is that these are stable — they are household savers and not arbitrage investors.

So, when there is a problem in West Asia, more money actually comes in because people tend to save a bit more rather than spend on luxuries. With the onset of Onam season, more deposits start coming in.

Why have you not cut your lending rates?

We have brought down our base lending rate to 10.20 per cent from 10.50 per cent. Similarly, on the liabilities side, we have realigned our rates in line with those operating in this geography. The real change happens when there is re-pricing of liabilities (deposits) at maturity — and that takes time. Bankers are waiting for this adjustment to take place and then they will pass on the benefits.

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