Why South Indian Bank Share Price is Rising

India's blue-chip index, Nifty 50, opened marginally higher on Friday, hitting a record high for the fifth straight session led by a rise in information technology stocks and tracking a global equities rally.

In the early minutes of trading, the Nifty 50 experienced a 0.4% rise, reaching a record 22,297.5, while the Sensex traded 100 points higher.

The Nifty has hit all-time peaks in each of the four sessions this week and gained about 0.8% over the period, aided by financials and consumer stocks.

The Sensex has added 1% this week so far and is about 300 points away from its record high.

Contributing factors to this upward trend included predictions of a rate cut by the Fed vice chair, the significant surge in Nvidia's stock, and India's anticipated GDP growth of 6.5% for FY25, all of which continued to influence the domestic equities market.

Amid this rally in benchmark indices, South Indian Bank witnessed a 10% surge in its shares. Here are the reasons behind the sudden rise in the bank's stock.

#1 Right Issue Approved

The shares of private sector lender South Indian Bank rose 10% on 22 February 2024 after the lender's board approved the terms to raise Rs 11.5 bn through a rights issue.

The bank will issue 5.2 m rights shares at Rs 22 each on a fully paid-up basis.

A rights issue is when a company offers its existing shareholders additional shares at a discounted price to raise funds without seeking external investment. Only existing shareholders of the company have the right to participate in rights issues.

The rights issue of the Thrissur-based South Indian Bank will open on 6 March 2024 and close on 20 March 2024. The record date has been fixed as 27 February 2024 for the rights issue.

According to the terms of the offer, shareholders of the bank will receive one equity share for every four fully paid-up equity shares held.

The bank's outstanding equity shares before the rights issue were 2.1 bn, which is estimated to rise to 2.6 bn equity shares, assuming the rights issue is fully subscribed.

#2 Robust Q3 Results

Behind this bold move is a story of robust financial performance and strategic growth.

The bank reported a jaw-dropping 200% YoY (year-on-year) increase in net profit at Rs 3.1 bn for the December 2023 quarter.

During the quarter, the bank's net interest income (NII), which is interest earned less interest expended, fell 0.7% to Rs 8.2 bn against Rs 8.3 bn in the year ago period.

Furthermore, it witnessed a 10.8% YoY increase in gross advances to Rs 777.1 bn and a 9.4% increase in deposits to Rs 991.6 bn.

Not to be overlooked, the bank's CASA (Current Account Savings Account) also saw a healthy 2.8% growth, reaching Rs 315.3 bn.

The lender's gross non-performing assets (GNPA) fell to 4.7% from 4.9% in the September 2023 quarter. Net NPAs (bad loans) stood at 1.6% against 1.7% a quarter ago.

The bank's pre-provision operating profit, known as PPOP, stood at Rs 4.8 bn, compared to Rs 2 bn on-year.

These robust earnings further aided the sentiment.

#3 MCLR Rate Hike

The private lender increased the marginal cost of funds-based lending rate (MCLR) with effect from 20 February 2024.

The overnight MCLR increased by 0.1% from 9.6% to 9.7%. MCLR for one month also rose by 0.2% from 9.6% to 9.8%. The interest rates on the three-month MCLR were raised from 9.7% to 9.8%, and the six-month MCLR rate increased from 9.7% to 9.9%, a 0.2% hike.

The one-year MCLR rate rose by 0.1% from 9.8% to 9.9%. The revised rates will be effective from 20 February 2024.

When a bank raises its MCLR rates, it usually leads to higher interest rates on loans. This can contribute to increased profit margins for the bank as it charges borrowers a higher cost of funds.

Higher interest rates may act as a deterrent for risky borrowers, potentially improving the overall quality of the bank's loan portfolio.

What Next?

As the rights issue draws near, it's clear that the South Indian Bank is not just aiming for financial growth but is also setting new benchmarks for innovation and customer service in the banking sector.

The increased capital from the rights issue will likely fuel further expansion, technological upgrades, and perhaps even new services, ensuring the bank remains at the forefront of the industry's evolution.

While the move has been met with optimism, it also challenges the bank to maintain this growth trajectory amidst the complexities of the financial market.

How Shares of South Indian Bank Have Performed Recently

The South Indian Bank stock rose around 17% in the past five month. Over six months, the share price has gained by 46%.

South Indian Bank share price touched its 52-week high price of Rs 40.1 on 2 February 2024. Its 52-week low was Rs 15.8 touched on 29 March 2023.

The company is currently trading at a PB (price to book value) multiple of 1.1 times.

South Indian Bank Share Price - 1 Month

About South Indian Bank

South Indian Bank is engaged in providing a range of banking and financial services, including retail banking, corporate banking, and treasury operations.

The company operates through four segments: treasury, corporate/ wholesale banking, retail banking and other banking operations.

The treasury segment consists of interest earnings on the investment portfolio of the bank, gains or losses on investment operations and earnings from foreign exchange business.

The corporate / wholesale banking segment provides loans to the corporate segment. The retail banking segment provides loans to non-corporate customers.

The other banking operations segment includes income from para-banking activities, such as debit cards, third-party product distribution and associated costs.

For more details, see the South Indian Bank company fact sheet and quarterly results.

You can also compare South Indian Bank with its peers:

South Indian Bank vs IDFC First Bank

South Indian Bank vs IOB

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