South Indian Bank’s shares have plummeted 13% to Rs 14.45 in Wednesday’s intraday trade following the news that the Managing Director & CEO has opted out of reappointment for personal reasons.

The bank’s board of directors met on March 28, 2023, and accepted the request of Murali Ramakrishnan not to offer himself for reappointment, considering his current term up to September 30, 2023. The bank has announced that a search committee will identify and evaluate suitable candidates for the position of MD & CEO.

The shares of South Indian Bank reached an intraday low of Rs 13.75, 17% lower than the previous close. In comparison, the BSE Sensex closed up 0.6% at 57,960. The average trading volumes at the counter jumped over five-fold today. A combined 118 million shares have changed hands on the NSE and BSE so far.

South Indian Bank has been delivering in line with its Vision 2025 program since onboarding a new MD in September 2020. The bank has been focusing on growing its balance sheet in a calibrated manner with an emphasis on net interest margins and asset quality. It has churned approximately 54% of its overall loan book since then, and its operating metrics in the new book (originated post-September 2020) are at par with, or better than, peers.

Post taking charge in September 2020, the new management revisited the bank’s business strategy and emphasised “quality over quantity.” This was done considering the legacy of higher stress in the bank’s corporate and mid-corporate segments.

Furthermore, the bank revamped its sourcing and underwriting process, clearly focusing on margins and asset quality. The bank’s current low C/D ratio of 74% would enable it to manage its deposit growth and maintain deposit rates at a lower level until excess liquidity on its balance sheet is depleted. However, the bank faces key risks such as higher-than-expected credit costs and NIM contraction if the increase in the cost of deposits outpaces asset repricing.

South Indian Bank, with a market capitalisation of Rs 3,463 crores, has a low return on equity of 0.77%, and its shares are currently trading at a P/E ratio of 4.87, which is significantly lower than the industry P/E of 8.80, suggesting that the stock may be undervalued compared to its peers.