NIM to face downward pressure in Q4, says South Indian Bank MD & CEO

South Indian Bank expects loan growth above 12% by shifting focus from corporate lending to retail, MSME and agriculture, while margins face short-term pressure amid rate cuts

Private sector lender South Indian Bank hopes to see loan growth momentum continuing by rebalancing its loan portfolio away from corporate lending toward higher-yielding retail, agriculture, and MSME (RAM) segments, said P R Seshadri, managing director (MD) & chief executive officer (CEO) in a telephonic interaction with Anupreksha Jain and Aathira Varier. Edited excerpts.

 

There has been a significant compression on your margins which fell to 2.86 per cent in Oct-Dec quarter as compared to 3.19 per cent during the same period of last year. Where do you see your net interest margin (NIM) during the last quarter of the financial year?

 

In December, there was a policy repo rate cut. While we did have a six basis point sequential increase during this quarter, the full effect has not yet flown through our P&L. There will be some downward pressure on NIM due to re-pricing of loans. However, about 15-18 per cent of time deposits will re-price by about 80 bps, partially offsetting the impact. There will be downward pressure on NIM in this quarter, although not very significant. If there is a rate cut in February it will obviously have a negative impact. So in the current rate cut scenario, when the rates stabilise, we will see a gradual recovery of NIMs. 

 

The bank has reported 12 per cent year-on-year growth of advances till December. Do you expect loan growth to remain healthy?

 

We are confident about credit growth remaining north of 12 per cent on an annualised basis. The growth could exceed this level if operating conditions remain favourable. Growth in housing, commercial vehicles, MSME will drive the credit demand. We will be able to de-emphasise corporate books and as we do that, it will have the positive impact of actually aiding our NIMs as we go forward. The bank plans to reduce the share (of corporate book) to approximately one-third (from 40 per cent now) while expanding its retail, agriculture, and MSME (RAM) portfolio.

 

There has been a 19 per cent growth in non-interest income this quarter, aided by treasury 35 per cent to ~ 77 crore. What is the outlook for treasury income and the overall non-interest income?

 

There are some opportunities that might happen in Q4. We think that open market operations will increase and RBI will infuse more liquidity into the system which will create more opportunities. We are a bit more bullish on treasury in Q4 as opposed to what we were in Q3. In Q3, our treasury revenue was about ~77 crores against ~129 crore in the prior quarter. But we think that Q4 will be a more solid quarter from a treasury revenue standpoint.

 

The bank reported 26 per cent year-on-year growth of gold loan portfolio to ~21, 303 crore. How do you see the RBI’s latest gold loan guidelines?

 

I think the gold loan sector is very buoyant right now and that is more driven by gold prices as opposed to regulations. Gold loans for us have grown year-on-year 26 per cent. There has been very significant growth and we think it will continue as we go into the new financial year. With respect to policies, the Reserve Bank of India new policies on gold loans come into effect on 1st of April 2026. And we are working to ensure that we are fully compliant as we get into the 1st of April.