South Indian Bank Adjusts Loan Portfolio from Corporate to Retail to Enhance Net Interest Margins

South Indian Bank Shifts Focus to Retail and MSME Lending

South Indian Bank, a Kerala-based lender, is transitioning its loan book from a corporate-heavy portfolio to a more balanced mix of retail and Micro, Small and Medium Enterprise (MSME) lending. This shift is driven by the corporate book's underperformance, despite the bank posting a record high profit in Q4 FY25.

The bank's Managing Director and Chief Executive Officer, P R Seshadri, has stated that the company remains focused on high-quality corporate lending, with over 95% of its corporate exposure towards 'A' and 'AA'-rated companies. However, Seshadri emphasized the need for a more balanced balance sheet with higher-yielding assets. This has led to the bank's efforts to diversify its asset portfolio.

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According to the bank's latest investor presentation, the corporate credit book still occupies the largest chunk of the overall asset portfolio, with 38% of it being on the corporate side. However, the personal loan segment has seen significant gains, increasing to 29% in March 2026 from 26% in Q4 FY25.

Seshadri expects the asset mix to be balanced over time, with 33% of assets in retail/MSME loans and 33% on the corporate side. The bank aims to maintain its focus on high-quality borrowers while transitioning its corporate portfolio.

The lender reported a Q4 NIM of 2.95%, compared to 3.21% in Q4 FY25. Seshadri expressed confidence that the NIM will return to the 3.25% range as soon as possible.

Gold Loans to Remain a Key Driver

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The bank's retail gold loan portfolio, including agri-loans, has risen sharply by 46% on a year-on-year basis. Seshadri emphasized the importance of risk management mechanisms to mitigate the impact of volatility in bullion prices.

Retail gold loans account for 28% of the company's personal loan book, valued at Rs 24,729 crore in the asset portfolio.

Asset Quality May Moderate Slightly

Seshadri cautioned that the impact of the West Asia war may reflect in the bank's asset quality, should the conflict extend by a few more months. While the inherent quality of the loan portfolio remains strong, there will be hardly any incremental improvement.

The company's gross non-performing asset ratio (GNPA) came in at 1.43% for the quarter ended March, compared to 3.20% in the corresponding quarter of the previous year. The net NPA (NNPA) ratio came in at 0.29% in Q4 FY26, versus 0.92% in Q4 FY25.