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South Indian Bank (CMP - ₹38.8, Mcap - ₹10,158 crore, Target price – 38, Rating - BUY) – “Steep NIM pressure; change in asset mix on track…”

ICICIdirect Research 24 Oct 2025 DISCLAIMER

South Indian Bank posted a mixed Q2FY26 performance, as margin compression and slower MSME growth were offset by strong asset quality gains, healthy retail traction, and treasury income. Advances rose 9% YoY to ₹92,286 crore, led by robust growth in personal & gold segment, while deposits increased 10% YoY to ₹1,15,635 crore, with a stable CASA ratio.
NIM compression was primarily driven by full rate transmission of 100 bps repo cut and high proportion of short-duration corporate assets, which repriced faster as compared to liabilities. However, management indicated that the 2.8% NIM level likely represents the trough, as repricing benefits from bulk and retail deposits, along with improving mix toward higher-yield retail and MSME assets, are expected to support recovery ahead.
Gradual but clear shift in loan mix was visible during Q2FY26, as focus moved towards better yield retail & MSME segments. Retail advances grew nearly 22% YoY, supported by robust traction in gold and home loans, while MSME disbursement surged 127% YoY, reflecting broad-based momentum. Consequently, the share of corporate loans declined to ~40% of total advances (vs 42% Q1FY26), indicating execution of moving towards RAM being on-track. Basis this, we expect advances to grow at ~11–12% CAGR over FY26–27E, broadly in-line with industry and factoring RoA of ~0.9% FY27E, we maintain our positive stance on the stock.

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