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Hidden Gem - South Indian Bank

ICICIdirect Research 03 Oct 2025 DISCLAIMER

South Indian Bank is old south based private sector bank headquartered in Thrissur, Kerala. Digitization, product and process innovation and granular sustainable growth remains a key focus, enabling resilient performance amid change in asset mix. Advances mix includes - Corporates – 42%, Retail – 27%, Agri – 17%, MSME – 14%, while distribution reach consists of 948 branches branch across 26 states and 4 union territories.
South Indian Bank's pre-2020 defaults in corporate exposures and Covid related delays spiked NPAs to 5.9% in FY22, forcing large provisions that hammered profitability. The bank has since derisked sharply—legacy stressed book down from ₹65,349 crore (63% of advances in FY22) to ₹16,973 crore (19% in FY25) via recoveries/exits—driving GNPA to 3.2%, NNPA to 0.9%, and PCR to 85%.
Management is driving a structural rebalancing of the loan mix, targeting a reduction in the corporate share from 42% to ~35% by FY27E, while scaling up MSME & retail (~41% in FY25) to improve yields from current 8.9% levels. On the liabilities side, reduction in bulk deposits (2.6% vs. 5.2% in FY21), CASA base of 32% and sticky NRI franchise (28.7% of deposits), enables competitive cost of funds (~4.8%), aiding margin expansion.
Digital-first model, with 98% of transactions now digital, supported by STP platforms, and fintech tie-ups enables faster turnaround and strengthen asset quality (new book GNPA <5%). Strong employee productivity of ₹20.6 crore per head — ahead of most peers — underscores scalability without heavy branch expansion. With opex-to assets steady at ~2.4% in FY25, operating efficiency is expected to remain intact even as the bank accelerates growth.
South Indian Bank offers a compelling re-rating opportunity, trading at just 0.8x P/B, a steep discount to regional private peers. Management’s strategic pivot towards higher-yielding retail & MSME lending alongside gradual rundown in legacy book is set to reshape the asset mix and aid yield profile. Expect advances to grow at 11.5–12% CAGR over FY26–27E, broadly in-line with industry, while asset quality improvement, margin stability, and digitisation-led efficiencies support a sustainable RoA of ~1%, making a case for re-rating.

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