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South Indian Bank reported a significant increase in its second-quarter net profit, driven by strong performance in treasury and forex operations. The bank's net profit for the quarter ending September 2024 rose by 18% to Rs 325 crore, showcasing a positive trend in its financial performance. This growth can be attributed to substantial gains from treasury and foreign exchange activities, which contributed significantly to the overall profitability.
Despite the robust profit figures, the bank also announced a reduction in its employee base. This decision was attributed to the implementation of automation initiatives, which are streamlining operations and reducing the need for human intervention in certain tasks. While automation is often seen as a way to improve efficiency and cost-effectiveness, it also raises concerns about job displacement. The bank's move to reduce its workforce due to automation reflects the ongoing trend of businesses adopting technological solutions to enhance their operations.
The bank's core net interest income, a key indicator of its lending profitability, grew by 6% to Rs 882 crore. This growth was driven by a 13% increase in advances, reflecting strong loan demand. However, the bank's net interest margin (NIM) narrowed by 0.07% to 3.24%. This narrowing was attributed to factors such as a significant portion of the bank's portfolio being linked to T-bills, which experienced a decline in rates, booking of agricultural loan losses, and an inability to drive higher interest rates from corporate borrowers, who constitute 40% of the bank's loan book. The bank's management clarified that the decline in NIM was not due to issues with its deposit franchise, highlighting that its cost of funds had decreased sequentially.
The non-interest income, which encompasses earnings from activities other than core lending, saw a 26% rise to Rs 449 crore during the quarter. This growth was mainly driven by the more than doubling of forex and treasury gains, which reached Rs 106 crore. The bank's overall provisions doubled to over Rs 116 crore, primarily attributed to its focus on increasing the provision coverage ratio to over 80%. This move signifies the bank's proactive approach to managing potential credit risks.
On the asset quality front, the bank witnessed an improvement in its gross non-performing assets (NPAs) portfolio, which stood at 4.40% compared to 4.96% in the same period last year. Fresh slippages, which represent new loans that have turned into bad debts, remained stable at Rs 3,731 crore. The bank's management indicated that it is focusing on expanding its loan portfolio by promoting products such as loans against property, credit cards, and home loans to enhance yields. The bank's unsecured portfolio, which includes credit cards and personal loans, remains manageable at under 5% of its overall loan book.
The bank's overall capital adequacy ratio stood at 18.04%, with the core tier-I ratio at 16.63%. The management confirmed that there are no plans to reduce these ratios, demonstrating a commitment to maintaining strong capital buffers. The bank's share price closed 6.51% higher on the BSE, indicating positive market sentiment towards its financial performance.
The South Indian Bank's Q2 results highlight a mixed performance. While the bank achieved impressive profit growth, driven by treasury and forex gains, the decision to reduce its workforce due to automation raises concerns about job displacement. The bank's focus on expanding its loan portfolio, coupled with its strong capital adequacy ratios, suggests a positive outlook for the future. However, the bank's management will need to continue to navigate challenges such as a declining interest rate environment and potential credit risks to maintain its growth trajectory.
Source: South Indian Bank Q2 Profit Up 18%, Automation Cuts Jobs