South Indian Bank's corporate book u-turn mars NIM recovery story
Management had repeatedly guided to reduce corporate loans to 30-33% of advances. Instead, it opportunistically grew to 40% and will keep doing so, calling it a 'one-time adjustment'.
What's new
- Q1 FY27 profit up 17% YoY to ₹378 cr; advances up 17% YoY to ₹1,04,368 cr.
- NIM recovered to 3.23%, adding ₹110 cr sequential NII.
- Corporate portfolio rose to 40% of advances despite long-term target of 30%.
- Gross NPA fell 177 bps YoY to 1.38%; net NPA at 26 bps.
Themes from the call
Margins
NIM clawback driven by 40-60 bps repricing of high-cost deposits, 50% bulk deposit reduction, and CASA growth of 19% QoQ.
Corporate book strategy
Management reversed the planned corporate book reduction, citing West Asia uncertainty, and now intends to keep opportunistic deployment.
Asset quality
Asset quality improved significantly: slippage annualized at 48 bps, credit cost 9 bps, PCR ex-write-off 81.4%.
Guidance watch
- FY27 slippage guided at ₹500-800 cr, recoveries ₹800-1,000 cr.
- Credit cost of 9 bps expected to moderate; opex to increase 5-6%.
- NIM expected to harden as rate cycle shifts upward; ROA target of 120-125 bps reaffirmed.
- Refused to guide on steady-state ROE, deferring to successor.
Risk flags
- Corporate book u-turn without explicit timeline to revert to 30% target.
- Fee income soft (₹179 cr vs ₹191 cr QoQ) due to system changes.
- MSME growth muted (13% YoY) due to West Asia caution; recovery uncertain.
Key quotes
-
"Our belief is the rate cycle has switched so it is more likely to increase rather than to reduce and if that belief is right then our view is that the NIMs from here should harden."
— MD/CEO P.R. Sheshadri -
"We would like to bring our corporate book down to about a third of our total balance sheet... we want to bring corporate down from 38 to 33."
— Management, May 2026 call
The brief
South Indian Bank delivered a solid operational quarter. Profit rose 17% to ₹378 crore, advances grew 17% year-on-year, and net interest margin climbed to 3.23% as the benefit of deposit repricing flowed through. Asset quality cleaned up further — gross non-performing loans fell to 1.38% and credit cost was just 9 basis points. The headline numbers tell a story of steady recovery.
But the narrative around the corporate loan book tells a different one. Management had told investors in both October 2025 and May 2026 that the target was to reduce corporate advances to roughly a third of the balance sheet. That guidance is now gone. The corporate book has actually risen to 40% of advances. Management called the growth 'opportunistic' and a 'one-time adjustment' driven by West Asia uncertainty. It will continue to look for corporate opportunities. The long-run target of 30% is still mentioned, but the language is vaguer — 'wound down' as risk normalises.
This is the second consecutive strategic pivot from this management. In the prior call, it was clear: bring corporate down. Now it is the opposite. The rationale may be reasonable — higher-quality corporate lending in a risky environment — but the reversal without an explicit mea culpa or a fresh timeline for the old target raises a credibility flag. Other soft spots include a dip in fee income and muted MSME growth, both attributed to one-off adjustments. The departing CEO, P.R. Sheshadri, leaves a franchise with better margins and asset quality, but a strategy that seems to shift with the wind. The NIM clawback is real. The corporate book u-turn is every bit as real, and it leaves investors guessing which management plan to underwrite.
The NIM story is real. The strategy story is not. On guidance credibility, South Indian Bank gets a yellow card.