ICICI Securities has reaffirmed its “BUY” recommendation on South Indian Bank with a revised target price of Rs 56, implying an upside potential of nearly 33% from the current market price of Rs 42. The brokerage believes the lender’s transformation story is gaining momentum as loan growth accelerates, asset quality strengthens sharply, and profitability remains resilient above the critical 1% return-on-assets threshold. The latest quarterly performance highlights a meaningful shift toward higher-yielding retail and MSME lending, especially gold-backed products, while balance sheet stress continues to recede rapidly. ICICI Securities also noted that strong capitalization and improving deposit traction provide a sturdy foundation for sustained growth over FY27 and FY28.

ICICI Securities Sees Structural Re-Rating Opportunity in South Indian Bank

South Indian Bank’s Q4FY26 performance signals a decisive continuation of its operational turnaround. The Kerala-based lender delivered one of its strongest quarters in recent years, supported by accelerating credit expansion, improving margins, and a dramatic reduction in non-performing assets.

ICICI Securities maintained its positive stance after the bank reported consistent profitability metrics alongside a sharp strengthening in balance-sheet quality. The brokerage revised its target price upward to Rs 56 from Rs 53 while valuing the stock at nearly 1x FY28 estimated adjusted book value.

The brokerage acknowledged that succession planning for the Managing Director and CEO position has already commenced, but it believes an internal leadership transition could ensure continuity in execution and preserve the momentum of the ongoing transformation program.

Retail And Gold Loans Drive Aggressive Growth Momentum

Loan growth emerged as the biggest positive surprise during the quarter. South Indian Bank reported nearly 16% year-on-year expansion in net advances, while quarterly growth remained robust at 5% for the second consecutive quarter.

The retail portfolio expanded an impressive 29% YoY, primarily powered by explosive growth in gold loans and mortgages. Gold loans surged approximately 46% YoY and now constitute nearly 25% of the total loan portfolio compared with 19% a year earlier.

The retail gold segment alone recorded extraordinary growth of around 160% YoY, highlighting the bank’s increasing focus on secured and high-yield retail lending products.

Meanwhile, MSME growth also remained healthy at nearly 13% after adjusting for write-offs. The bank further indicated that corporate lending would gradually account for a smaller portion of the overall loan book as the institution intensifies its focus on core retail and SME businesses.

Deposit Franchise Strengthens As CASA Momentum Accelerates

South Indian Bank also delivered a substantial improvement on the liability side of the balance sheet. Deposit growth accelerated to nearly 15% YoY, significantly higher than the 6-12% trajectory witnessed in earlier quarters.

CASA deposits grew approximately 17.5% YoY, driven by healthy savings account and current account growth. As a result, the CASA ratio improved to 32.1%, strengthening the bank’s low-cost funding profile.

The stronger deposit franchise also contributed to margin resilience. Net interest margin improved 9 basis points sequentially to 2.95%, despite broader concerns surrounding interest-rate volatility across the banking sector.

ICICI Securities believes the gradual migration toward higher-yielding retail and SME lending could structurally improve margins over the medium term.

Asset Quality Witnesses Dramatic Improvement

The most significant development in the quarter was the sharp clean-up in asset quality. Gross slippages fell to a multi-quarter low of 0.6%, while net slippages remained negative for the third consecutive quarter.

The bank undertook substantial write-offs, primarily within the MSME segment, resulting in a steep decline in both gross and net non-performing assets.

Gross NPA ratio almost halved to 1.43% from 2.67% in the previous quarter, while Net NPA improved sharply to just 0.29%.

Additionally, stressed SMA accounts continued to decline steadily. SMA-1 loans fell to 0.4%, while SMA-2 loans declined to 0.2%, indicating further moderation in future stress formation risks.

The brokerage now expects credit costs to remain benign at roughly 30-35 basis points during FY27 and FY28.

Treasury Weakness Offsets Part Of Operational Gains

Despite the broadly positive quarter, treasury operations remained under pressure. Rising bond yields led to a treasury loss of approximately Rs 90 million compared with a gain of Rs 550 million in the previous quarter.

Non-interest income declined nearly 20% sequentially because of treasury losses and softer fee income generation.

However, lower staff costs partially cushioned the impact after the bank recorded a sizeable write-back in retiral provisions. Consequently, operating profitability remained broadly stable.

The cost-to-income ratio improved to 56.5% from 57.5% in FY25, reflecting disciplined cost management despite the expansion push.

Financial Outlook Remains Strong Through FY28

ICICI Securities expects South Indian Bank to sustain stable profitability over the next two financial years. The brokerage projects loan CAGR of nearly 15% during FY27-FY28, supported by retail and MSME traction.

Net profit is expected to rise from Rs 14.6 billion in FY26 to nearly Rs 18.2 billion by FY28, while return on assets is projected to remain steady around 1.1%.

Importantly, the bank’s CET-1 ratio stood at a strong 18.76%, providing substantial capital headroom to pursue growth opportunities without immediate dilution concerns.

Investment View And Key Risks

ICICI Securities believes South Indian Bank is entering a more stable and scalable phase of its turnaround cycle. The lender’s improving retail mix, strong capitalization, healthier funding profile, and sharply lower stressed assets collectively strengthen the long-term investment thesis.

The brokerage sees potential for further valuation re-rating if the bank sustains its current return profile while continuing to reduce legacy stress.

However, risks remain. Any slowdown in MSME growth, deterioration in retail asset quality, or disruption during leadership succession could affect execution momentum.

Still, with a target price of Rs 56 and improving operational metrics across nearly every major business segment, ICICI Securities believes South Indian Bank remains one of the more compelling turnaround opportunities within India’s mid-sized private banking universe.