The stock of Thrissur-based South Indian Bank outperformed its peers in the past year. While it is a small-cap stock with market capitalisation of just Rs 3,500-odd crore, the sharp rise of 118% to Rs 17.2 per share (on Thursday) has attracted brokerages towards it.
In a recent report, ICICI Securities has increased its price target on the stock to Rs 25 from Rs 14 due to its improved performance. Analysts attribute the stock performance to a shift in the bank’s strategy under managing director and chief executive officer Murali Ramakrishnan.
“He (Ramakrishnan) has improved the working of South Indian Bank, which is very positive for the bank. It has surprised everyone on the seat. I think the bank is still very attractive as a long-term investment bet,” Prabhakar AK, head of research, IDBI Capital Markets, said.
When Ramakrishnan took over as the top boss in September 2020, drawing from his stint at ICICI Bank, he formulated the ‘6C’ strategy with an aim to achieve ‘profitable growth through quality credit’. The strategy sought to focus on capital, CASA deposit book, cost-to-income, competency building, customer experience and compliance.
“We were also in the midst of COVID-19, and so we were expecting a lot more slippages to happen during the COVID period. With the capital level being low, we were in a challenging situation, wherein one side, your delinquencies will rise and you need to take more provisioning. On the other side, we had a book with huge NPAs impacting the profits,” says Ramakrishnan.
A few months after Ramakrishnan took over, he announced the Vision 2024 with an aim to hit a loan book of Rs 1 trillion, the CASA mix of over 35% and the provision coverage ratio of over 65% by 2023-24 (April-March). By his own admission, the transformation warranted a “surgery of every department in the bank”.
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As on December 31, 2022, the bank’s total loan book stood at Rs 70,117 crore while its CASA ratio stood at 33.81%. Including write-offs, the provision coverage ratio was at 74.51%. The gross non-performing asset ratio improved to 5.48% as on December 31, from 6.97% as on March 31, 2021.
In the next one year, the bank intends to foray into commercial vehicle, construction equipment financing, and automobile loan segments. It is also looking to offer variants on its credit cards.