South Indian Bank Sees Higher Profits, Weakened Asset Quality In Q3FY13

South Indian Bank (SIB), one of the oldest private sector banks based in Kerala, declared its Q3FY13 results on Jan 15, 2013. The Profit After Tax (PAT) for the bank was up by 25% to Rs 128.25 crore on a yearly basis. The rise in the net profit was mainly due to the rise in net interest income (NII), which saw a healthy growth of 28% YoY to around Rs 353 crore. This has improved the bank’s returns on assets to 1.19% from 1.11% in Q3FY12. The stock price was up by 2.7% post the results announcement, but has cooled since then.

The bank would have posted better numbers had there been improvement in its asset quality. The total provisions of the bank doubled on a yearly basis and stood at Rs 46 crore for the quarter. The asset quality of the bank deteriorated on YoY, but this improved on a sequential basis. The Gross NPAs for the quarter ended Dec 2012 was 1.62% of its advances as against 1.74% in Q2FY13 and 0.94% in Q3FY12. The Net NPAs have slipped to 0.68% against 0.24% for Q3FY12 and 0.86% in Q2FY13.

There has been an improvement in the capital base of the bank, and its Capital Adequacy Ratio (CAR), according to Basel II regulations, stood at 13.85% against 12.03% in the same quarter last year.

The bank’s stock is currently trading at approximately 1.24x its book value, which looks attractive. Investors can enter the counter with a time horizon of at least one year and can expect capital appreciation of 15%-20%.

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