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The South Indian Bank Ltd (SIB) based out of Thrissur (Kerala) is one of the earliest banks in South India. The bank, after reporting subdued numbers in the recent past has now recalibrated its approach with the new management and redefined business strategies. This is evident from its recent performance in which the bank has successfully improved its CASA deposits stood at an all-time high CASA ratio of 29.7% along with simultaneously decreasing its exposure in the Standard Large Corporate Advances (INR 100 Cr and above) from 27% of total advances in FY15 to 5% of total advances in FY21.

Further, with the bank’s focus on retail banking (Deposits and Advances), growing its low-cost CASA and NRI deposits, coupled with change in business strategy from branch banking to establishment of verticals for each segment of retail assets, we expect a turnaround in this stock in the coming period.

We initiate coverage on South Indian Bank Ltd with a price target of INR 14.0 per share, which represents a potential upside of 30.8% from the CMP of INR 10.73 (FY24 P/Adj BV 0.75 x) over a period 24 months.

Our optimism stems from the following:

Advances for the year FY21 witnessed a de-growth of 9.9% YoY to INR 58,065 cr majorly on account of a decline in corporate book, which was inline with the bank’s strategy. Going ahead, we expect bank’s advances to grow by 15% CAGR for the period FY21-FY24 to INR 88,173 cr mainly aided by strong growth in Retail (17.2% CAGR) and Agri book (15.3% CAGR).

In-line with the bank’s strategy to reduce the exposure within the corporate segment, the bank’s corporate book declined by ~26% YoY to INR 14,721 cr as on 31st March 2021. Going ahead, we expect a growth in this segment to remain subdued at 4.3% CAGR for the period FY21-FY24 to INR 16,795 cr.

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