Exclusive | South Indian Bank in fund-raising mode, open to private equity route

Kerala-based South Indian Bank is looking to offer minority stake to a private equity investor in the coming months as the lender looks to fulfill its 2020 vision of becoming a 'retail banking power house' , multiple sources with knowledge of the matter told Moneycontrol.

"The management is open to the idea of raising capital by divesting a minority stake in the company to a strong, long-term focused, private equity investor. These plans are at a nascent stage and the route hasn't been finalised yet," one of the sources told Moneycontrol.

"South Indian Bank needs capital and would look at raising at least Rs 300 crores to grow its retail & MSME book. Once the market conditions improve, the company could go in for a preferential allotment of shares if it finalises the PE fund route," added a second source.

Private equity firm Chrys Capital's investment arm Lavender Investments Ltd holds 4.91 percent stake in the bank. Other investors include Polaris Capital Management and IVA (International Value Advisors).

During an interaction with analysts on the bank's performance during Q4 FY2019, the MD & CEO VG Mathew had said," This year we would require additional funds. As you know that we have already raised some Rs.250 crore of Tier II during the month of March and of course we have more approvals, we have more headroom to take more Tier II or even additional Tier 1 or QIP or any other option that is available to us, but we will need to raise capital. Today the CRAR stands at 12.61, but we have planned growth of around 20% so obviously we will need some more money".

CRAR or the capital to risk-weighted assets ratio is the amount of capital banks need to hold for making loans and absorbing possible losses.

"For FY 2020, we are targeting advances growth of 18 to 20 percent where the focus will be again in retail, MSME and agri portfolio," Mathew added.

"Over the last four years, the bank has stayed away from various stressed sectors and on account of this, the bank today has nil exposure to sectors such as aviation, telecom, EPC contractors, etc. The exposure to steel and thermal power (companies) are very limited and are of good quality. With legacy problems for the large corporate sector under control and with strong growth in the retail and MSME sectors, we are on the threshold of a period of stable and risk-controlled growth and expansion," the management added during the analyst interaction.

South Indian Bank has 870 branches, 53 extension counters and 1,406 ATMs. According to its 2018-19 annual report, the bank said it was "now  focusing on the growth of retail lending segment with a view to transforming the bank into a 'Retail Banking Power House' by 2020. Accordingly, the thrust is given to retail loan products such as housing loan, vehicle loan, gold loan and MSME loans."

According to EY's private equity deal tracker, from a sector point of view, in 1H19, infrastructure leads with an investment of $7.3 billion in 29 deals, more than 1.6 times the value recorded in entire 2018. Financial services sector was next in line with $4.2 billion invested across 89 deals in 1H19, followed by real estate with $3.8 billion invested across 43 deals.

In response to an email query from Moneycontrol, South Indian Bank said: "We are seeking AGM approval for raising equity by issuing 30 cr shares. The mode and details of such fund raising will be considered at the appropriate time."

The bank's AGM will be held on July 17.