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P. Devarajan

THE South Indian Bank Ltd, with a paid-up capital of Rs 35 crore and reserves and surplus of Rs 238 crore, having its registered office in Thrissur, Kerala, will continue to remain an independent entity, according to its Chairman, Mr A. Sethumadhavan.

"There is no threat of any hostile take-over or merger,'' the Chairman added. World over there are examples of small, community banks flourishing and Mr Sethumadhavan, who has been given a three-year extension (till 2005) by the RBI, will ensure South Indian Bank continues to do well.

The question had been debated by the bank's board and seemingly the consensus was to keep the bank as it is. "We are confident that the bank, after seven decades in the business, will continue to remain an independent player in the industry with a reasonable degree of growth in the coming years,'' Mr Sethumadhavan emphasised.

The major stakeholders in South Indian Bank are ICICI Bank with 12 per cent followed by IFCI, UTI and others at 7 per cent. None else has a significant holding. "ICICI Bank is very much with us and will continue to be a white knight partner. We have no plans to increase the capital base by a rights issue,'' the Chairman added.

With the problems at Nedungadi Bank and other small banks in Kerala and other States, many bankers contend they cannot remain independent entities for long.

The RBI has also been pushing public sector banks to look into some of these old-generation, community banks. South Indian Bank has no RBI nominee with ICICI group having one nominee on the board.

To ensure quality service the bank is working with Infosys to network 175 key branches and link them online to the main centre at Kochi under a centralised technology. Costing around Rs 35-40 crore, the plan will be completed by end-2003. Already 55 branches have gone online. A VRS will be in place from October 1 and run till October 30 to trim the labour force.

For the Chairman, "it's not the size but the quality of service which matters,'' and he contends with the infusion of technology, South Indian Bank could be as good as any new private bank. Mr Sethumadhavan is probably one Chairman of an old private sector bank based in Kerala who is confident of going it alone in the coming years. As of March 31, 2002, the capital adequacy ratio of the bank stands at 11.20 per cent against 11.17 per cent last year.

The Tier 1 ratio is 7.68 per cent (8.36 per cent) and Tier 2 ratio is 3.52 per cent (2.81 per cent). The percentage of net NPAs to net advances works out to 6.64 per cent (7.1 per cent last year) and could be slightly on the high side.

The bank has nil exposure to the capital markets, commercial property, land & building developers etc for the year ended March 31, 2002. The bank's single major exposure is to the textiles industry, mainly based in Coimbatore at 6 per cent.

One can go along with Mr Sethumadhavan for the time being, but at some point of time substantial capital infusion will be necessary to grow.

Also, there is no guarantee that some smart operators may not pick up shares from the scattered shareholders. And in Kerala, most of the small banks did start off well and then gave way, creating problems for RBI.

Is there a back-up for the future? The Chairman is confident.

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