CSB Bank Limited

B.K. Divakara Chief Financial Officer

CSB BANK

4%

Inflation is also skyrocketing, whether it is in U.S or in Europe. The U.S. 10-year yield crossed 4%. U.S. dollar indices are highly volatile. Indian rupee has also now crossed Rs 83, which is a conc

Rs 83,

year yield crossed 4%. U.S. dollar indices are highly volatile. Indian rupee has also now crossed Rs 83, which is a concern. Increasing CAD is another challenge. Therefore, I think we are passing through

100 basis point

of the global challenges. FOMC is expected to increase the interest rates anywhere between 75 to 100 basis points further and they are constantly raising the bar in terms of where they can go. RBI also, to some

18%

oming back, as we see that the credit growth of many banks during this quarter is somewhere around 18% to 19%. As RBI governor mentioned, going forward, monetary policy will remain watchful and stable

19%

ack, as we see that the credit growth of many banks during this quarter is somewhere around 18% to 19%. As RBI governor mentioned, going forward, monetary policy will remain watchful and stable while

rs,

t of time. With this macro, I will just get into CSB's specifics. You have probably seen the numbers, but I will go through the key numbers, a little bit. We had a significant improvement in net profit

31%

l go through the key numbers, a little bit. We had a significant improvement in net profit growth- 31% year-on-year. There are certain factors, which kept our operating profit a little muted and CFO wi

5%

d CFO will explain it during the Q&A session For the quarter-ended 30th September, net profit is 5% higher than last quarter and is at Rs 121 Crore. Provisioning buffer of around Rs 200 crore in

Rs 121 Crore

ession For the quarter-ended 30th September, net profit is 5% higher than last quarter and is at Rs 121 Crore. Provisioning buffer of around Rs 200 crore in CSB Bank Limited October 2

Rs 200 crore

r, net profit is 5% higher than last quarter and is at Rs 121 Crore. Provisioning buffer of around Rs 200 crore in CSB Bank Limited October 21, 2022 place, which is over and above the

Rs 97

er 21, 2022 place, which is over and above the regulatory requirements; accelerated provision of Rs 97 Cr, and the contingency provisions of about Rs 106 crore. We could maintain again, a NIM of above 5

Rs 106 crore

egulatory requirements; accelerated provision of Rs 97 Cr, and the contingency provisions of about Rs 106 crore. We could maintain again, a NIM of above 5% on both YoY and Quarterly basis- 5.38% and 5.60% resp

“Then I will straight get into specifics of our results, and also give a little bit of a brief of what our medium-term and long-term vision is because more than a quarter result, I think, for our bank, the key story is about what we want to do in the medium and long term.”

“As RBI governor mentioned, going forward, monetary policy will remain watchful and stable while supporting growth.”

“If you take out the write offs, PCR will be marginally below 70%.”

“In the next 3 years, we aspire to grow at a CAGR of 25%; post that, higher growth, hopefully because that time we should have all our technology stack, credit, processes, entire collections ecosystem, the payments ecosystem, which would help us in building our retail businesses and SME.”

“I have always said our cost to income ratio will be within a range of 55% to 60% and I do not mind taking it closer to 60%, provided most of it is happening because of investments and not because of cost.”

“Cost will be managed through productivity and investments through payback period.”

“Then between Gold, SME and Wholesale, the rest will be shared equally or with little variation of say 1 or 2 or 3 percentage here and there.”

“Hopefully, there will be no surprises and shocks.”

“That is the income, which we expect to come and that is kind of a buffer, which we are holding at this point of time.”

“However, there will be always a 20% overlap and things like that.”

Pralay Mondal

7

Mona Khetan

3

B. K. Divakara

2

Moderator

2

Anuja

1

Pralay Mondal

Ladies and gentlemen, good day, and welcome to the CSB Bank Q2 FY'23 Results Conference Call hosted by Axis Capital Limited. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing “*” then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Manish Shukla from Axis Capital. Thank you, and over to you, sir. Thank you, Gati, and Good evening, everyone. On behalf of Axis Capital, I welcome you all to this call. From the management team, we have with us Mr. Pralay Mondal, MD and CEO; and Mr. B.K. Divakara, CFO; and other colleagues from the management team. I would request Mr. Mondal to make a few opening remarks and after that, we can open the floor for Q&A. With that, over to you, Mr. Mondal. Thank you, Manish, and thank you,

B. K. Divakara

We have covered everything, Pralay. I don't think anything needs to be supplemented. During the course of question-and-answer session, if required, I will add my comments CSB Bank Limited October 21, 2022

Mona Khetan

The first question is from the line of Mona Khetan from Dolat Capital. Please go ahead. Congratulations on a good set of numbers. So firstly, my question is on the PSLC market. So what exactly is going on? You mentioned in your comments about draining of opportunity. So what exactly is happening there that is lowering the PSLC income for us? We had booked PSLC income last year by now. But this year, we see that the pricing is not attractive right now to sell the PSLC, but we can buy to make up for the shortages that we have like micro and all. We bought what we needed for the year, hopefully, and we have not sold anything because we think by Q3, Q4, we will get a better price. That is the income, which we expect to come and that is kind of a buffer, which we are holding at this point of time. I think, last year we booked about Rs 34 Crs under this head. The pool is ready and we are waiting for the right opportunity But as I understand, in Q3 and Q4, the pricing anyway becomes less attr

Mona Khetan

Yes. It is bound to happen because once the liquidity has dried up in the ecosystem and cost of fund is starting to go up, some of the NBFCs, some of the banks, etc, easy liquidity is not there anymore. Therefore, the right pricing for the right risk and operating cost will be put in place. So yes, I think that eventually, whether it is SME, whether it is gold, I think, even to some extent, in the mid-market where we operate on the wholesale side, we are seeing pricing rationality coming back. Sure. just finally, on the SME book, again, despite a small base, and being a focus area for you, we are somewhat not seeing growth coming, so what is the outlook there? You just mentioned we are seeing growth from this quarter also, but what sort of growth trends could we build in? Or what sort of disbursements are we seeing in the last few quarters even if there are some run offs.

Pralay Mondal

Both our retail and SME portfolios have a large component of an old book and some of them naturally runs off, the Term loans and all We have significantly enhanced our credit governance on the SME as well as on the wholesale side. We said that we want to do the risk based pricing. We want to ensure that we do businesses at certain ratings and things like that. We always had those policies, but we have implemented with a little more iron hand because we want a sustainable growth. To that extent, some of the businesses, which are running off, we are ok with it. The new businesses, which we are building is also of very good quality. Our ratings, risk based pricing, all of that is falling in place. We are putting a lot more science behind it, and hence, I think in the second half of the year, you will see growth in the SME portfolio.

Pralay Mondal

Yes. I was just asking, it should be in line with the rest of the book, the second half growth in SME? Yes. I think SME should be having the growth in line with our bank growth, second half. The next question is from the line of Pruthul Shah from Anupati Advisors. Please go ahead. My question is with respect to the overall industry growth. Like if we see large banks or small banks, all are giving decent advances growth. But now that the interest cycle is going up, what is your understanding on credit growth going forward? And normally, how much time it takes to impact the economy, like what is the lag in impacting the credit growth because of this interest up cycle? I am not sure if I understood the question fully but let me try. So credit growth is a function of various things, including the customer confidence, the salary growth etc. If you see some of the numbers on the savings on the consumer side, it has actually come down a little bit. The debt to GDP has actually gone up. So if