South Indian Bank to raise Rs 7 bn via QIP to fund its 20% growth target

Lender may look at diluting 10-12%, will focus more on retail, agriculture and MSME (RAM) and reduce dependence on its corporate book

Kerala-based South Indian Bank (SIB) is planning to raise Rs seven billion through Qualified Institutional Placements (QIP) to support its 20 per cent growth target.

The bank's Managing Director & CEO, V G Mathew, told Business Standard that the lender may look at diluting 10-12 per cent to raise around Rs 6-7 billion through the QIP route.

"We will be looking at raising capital this year itself to support our growth," said Mathew.

The bank, whose base is currently at around Rs 550 billion, is confident on growing at around 20 per cent, while its desire is to grow at around 25 per cent.

The lender plans to raise the money through equity placement (200 million shares) to Qualified Institutional Buyers (QIB). Currently around 40 per cent of the capital base is held by various investors and of this 30 per cent is held by foreign investors including Lavender Investments, First Carlyle Venture, IVA International Fund and Acacia Partners.

As part of its growth plan, the bank has decided to focus on retail, agriculture and MSME (RAM) and reduce dependence on its corporate book, which has been under pressure for a few years now.

At present, it is 66:34 (retail:corporate) as against 60:40 earlier and the bank want to make it 70:30, said Mathew, adding that the bank has put structure, systems, people and processes in place to grow the non-corporate business.

South Indian The Bank has created separate verticals/ centres to address the asset side. Its 850 existing branches and another 50 extension counters will be supported by technology .

On CASA, Mathew said the desired target for the bank is to reach 30 per cent from less than 25 per cent now. The lender is trying to tap the 5.6 million existing customer for its retail products.

The bank has set a target to bring down NPAs (non-performing assets) to 2.5 per cent in the next 18 months from the current 3.5 per cent on the back drop of high recovery, less slippages, selling NPAs to ARCs.

"We are confident that GNPA will remain at stable level for time being and it will reduce as we going forward."

With most of the provisioning of stressed assets behind it, South Indian Bank is focusing on aggressively growing its retail book. Ventura Securities expects the loan book to grow at a 16 per cent CAGR to Rs 728 billion by FY20, driven by a 21 per cent CAGR in the retail book.

The broking house added in a report in the middle of April, 2018, that the NPAs are expected to normalise to historical levels and, as a result, earnings are expected to grow at 28.6 per cent CAGR to Rs 8.34 billion over the same period.