South Indian, IDBI Bank gain up to 14%; hit multi-yr highs post Q3 results

IDBI Bank surged 14% to hit over five-year high of Rs 86.97; while South Indian Bank hit a fresh six-year high of Rs 33.70 on soaring 9% backed by heavy volumes.

Shares of South Indian Bank (SIB) and IDBI Bank surged up to 14 per cent, hitting their respective multi-year highs on the BSE in Wednesday’s intra-day trade after the banks reported strong earnings for the quarter ended December 2023 (Q3FY24).

Shares of IDBI Bank hit over five-year high at Rs 86.97, as they surged 14 per cent on back of over two-fold jump in trading volumes. The stock of LIC-controlled bank quoted at its highest level since March 2018.

In past three days, the stock has zoomed 25 per cent after the bank on Saturday reported a 57 per cent year-on-year (YoY) growth in net profit to Rs 1,458 crore for Q3FY24, on lower provisioning and better interest income. Net interest income (NII) improved by 17 per cent YoY to Rs 3,435 crore; margin expanded 13 bps at 4.72 per cent.

Assets quality of the bank also improved during the quarter, with the gross non-performing asset (NPA) ratio improved to 4.69 per cent as on December 31, 2023, as against 13.82 per cent as on December 31, 2022.

IDBI Bank witnessed a gradual improvement in its operating profitability level, resulting in a meaningful improvement in internal capital generation. This was supported by the large-scale capital support in the past from the Government  of  India  (GoI) and Life  Insurance  Corporation  of  India  (LIC),  which helped  shore  up the provision  cover  on legacy  NPAs.  This, together  with  the  improvement  in  profitability, has contributed  to  the  strengthening  of  the bank’s capitalisation and solvency1profile over time as well.

Although  the GoI and LIC together hold 94.72 per cent of the total equity in the bank, both have stated their intention  to  sell down/divest their stakes as well as hand over management control of the bank to prospective investors/buyers. While any change in IDBI’s parentage will be a monitorable event and the process is currently underway, the ratings no longer factor in the parentage as it is expected to change in due course of time, the rating agency ICRA said in rationale.

Meanwhile, shares of SIB hit a fresh six-year high of Rs 33.70 as they soared 9 per cent amid heavy volumes. The stock of the private sector lender was trading close to its record high of Rs 34.75 touched on January 9, 2018.

In past one week, the stock rallied 19 per cent after the lender reported a strong set of earnings for the December quarter of FY24 (Q3FY24) marked by improvement in assets quality.

Average trading volumes at the counter jumped nearly two-fold today with a combined 152 million equity shares of SIB changing hands on the NSE and BSE till 01:36 PM.

SIB reported healthy performance in Q3FY24 with focus on business growth as well as improvement in return ratios. Advance growth momentum sustained at 11 per cent YoY, while deposit accretion remained steady at 9 per cent YoY. Margin contraction (-12 bps QoQ and 33 bps YoY at 3.19 per cent) kept NII flat at Rs 819 crore. Treasury gains (compared to loss in Q3FY23) acted as safeguard offsetting elevated opex resulting in 196 per cent YoY growth in PAT at Rs 305 crore.

The management said, during the period, the bank registered growth in all the desired segments with a focus on quality asset across all verticals Corporate, SME, Auto Loan, Credit Card, Personal Loan, Gold Loan etc.

Meanwhile, on December 27, 2023, the Board of SIB had approved the proposal to raise funds up to Rs 1,750 crore by way of issue of equity shares of the bank, on a right basis, to its existing eligible shareholders as on the record date, which will be fixed in due course.

In the last three years, SIB has come a long way under the leadership of previous MD & CEO Mr Murali (ex-ICICI). Analysts believe the ongoing transformation journey should regain pace under the current MD & CEO Mr Seshadri.