CSBBANKNSEQ3 FY2023January 30, 2023

CSB Bank Limited

11,379words
102turns
11analyst exchanges
1executives
Management on call
B.K. Divakara Chief Financial Officer
CSB BANK
Key numbers — 40 extracted
50 bps
lso the RBI decisions. So most likely the whole world is expecting a hike somewhere between 25 to 50 bps and there is a high probability of a 25. In India, I think the rate cycle is coming to a reasonab
rs,
at most of the banks are coming out of their NPA challenges and I think in the next one or two years, the capex cycle will also start picking up. We saw a double-digit growth after a while in the bank
6.5%
n the banking ecosystem. Even I think the January numbers right now, last fortnight, I think, was 6.5% in terms of credit growth, which means things are looking a lot better in this part of the world.
6%
olatile. Funding cost is going up for the banking ecosystem. Overnight rates are hovering between 6% to 6.5%. So, there are challenges as well when it comes to the funding. We see most of the banks
7%
t spending coming in and liquidity easing a little bit. The GDP estimates are likely to grow by 7%, though last estimate was 6.8% and overall, I think the CPI is around 6.00%. But coming to the CS
6.8%
quidity easing a little bit. The GDP estimates are likely to grow by 7%, though last estimate was 6.8% and overall, I think the CPI is around 6.00%. But coming to the CSB specifics, I think Q3 FY '23
6.00%
es are likely to grow by 7%, though last estimate was 6.8% and overall, I think the CPI is around 6.00%. But coming to the CSB specifics, I think Q3 FY '23 has been a good operating quarter on most par
INR 391 crore
as been a good operating quarter on most parameters, operating parameters I'll say, net profit of INR 391 crores, up by 19% Y-o-Y. For the quarter ended, the net profit is at INR 155.95 crores, which is up by
19%
ng quarter on most parameters, operating parameters I'll say, net profit of INR 391 crores, up by 19% Y-o-Y. For the quarter ended, the net profit is at INR 155.95 crores, which is up by 29% versus Q
INR 155.95 crore
l say, net profit of INR 391 crores, up by 19% Y-o-Y. For the quarter ended, the net profit is at INR 155.95 crores, which is up by 29% versus Q2 FY '23 and that's quite a significant achievement in my view, Q-on
29%
up by 19% Y-o-Y. For the quarter ended, the net profit is at INR 155.95 crores, which is up by 29% versus Q2 FY '23 and that's quite a significant achievement in my view, Q-on-Q. Non-interest inco
65%
that's quite a significant achievement in my view, Q-on-Q. Non-interest income ex-treasury posted 65% increase in Q3 versus Q3 FY '22 and when we look at the noninterest income, excluding treasury an
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Guidance — 20 items
Pralay Mondal
opening
“Our aim will be to be in the 14%-15% range in the medium term as our overall franchise grows.”
Pralay Mondal
opening
“We have fully provided for the SR portfolio based on the regulatory guidance/clarification, which came recently.”
Pralay Mondal
opening
“So whatever recovery we get from our SR portfolio, going forward will be straight into the P&L.”
Pralay Mondal
opening
“We'll continue to do that next year as well.”
Pralay Mondal
opening
“So we have just rolled out our project management tool called RAPID.”
Pralay Mondal
opening
“I have said that no project will be there in the bank, which is not on the project management tool.”
Shubhranshu Mishra
qa
“Second is, sir, we've been seeing a tonnage growth as well as account growth, what proportion of the incremental as well as on the book are above 3 lakhs and what is 1 lakhs to 3 lakhs and what will be less than 1 lakhs, sir?”
Pralay Mondal
qa
“So we have on our project management tool, we have put all these timelines as you rightly said.”
Pralay Mondal
qa
“So that's why we are saying that we will be prudent in the way we build these businesses.”
Pralay Mondal
qa
“30% retail; 20%, gold; and rest, half and half between SME and wholesale, maybe SME is around 20%, 21%, and wholesale will be around 30%.”
Risks & concerns — 15 flagged
On the domestic side, of course, there is a reasonable pickup in manufacturing and rural demand which was a little bit of a concern.
— Pralay Mondal
The liquidity is a little bit of a challenge, of course.
— Pralay Mondal
We have very consciously not increased the rates much just to ensure that we get our LTV under better risk governance.
— Pralay Mondal
Our risk weights have gone down, more so in credit risk as gold loan mix has gone up.
— Pralay Mondal
Overall, our risk weights are one of the lowest in the market; in the industry.
— Pralay Mondal
So to that extent, because we are in a hurry to grow in our difficult liability environment.
— Pralay Mondal
Because when I want to look at those book on a risk adjusted basis, I may not like to have that book with me at this point of time.
— Pralay Mondal
Second part of the answer is that we have limited liability, and I have other businesses which are coming at good yields, which is giving me almost zero risk.
— Pralay Mondal
In spite of the fact that HDFC, Axis, ICICI, they are happily doing those businesses and not a bad business to be, but on the risk-adjusted basis and on the NIM, I have to deliver.
— Pralay Mondal
So I also believe that in the market, gradually the risk-adjusted returns are starting to show now.
— Pralay Mondal
But till now the risk-adjusted returns on SME was not good enough.
— Pralay Mondal
So to that extent, we are a little careful in the SME part of the business given that the risk-adjusted returns we're getting.
— Pralay Mondal
Having said that, the other banks will do those lower risk adjusted return cases and then they will do a lot of cross-sell of other products and other relationships to generate income.
— Pralay Mondal
So we are competing in a difficult market.
— Pralay Mondal
So given that perspective, I think we are very conscious of the risk-adjusted return.
— Pralay Mondal
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Q&A — 11 exchanges
Q
Just wanted to understand a bit on the gold loans. One is what proportion of our disbursement is coming from balance transfers from NBFCs and what is getting originated by our own branches organically? Second is, sir, we've been seeing a tonnage growth as well as account growth, what proportion of the incremental as well as on the book are above 3 lakhs and what is 1 lakhs to 3 lakhs and what will be less than 1 lakhs, sir? Those are my two questions.
Pralay Mondal
Thanks Shubranshu for your questions. So on your first question, around 40% comes from balance transfer. Rest is new-to-bank because we have got a good distribution and the sales strategy on that. We have a brand also on the gold loan side of the business. On your second question was on tonnage growth. So what is the question on tonnage? Sir, tonnage or AUM we can split it that way. What percentage of the AUM is below 1 lakh? What is between 1 lakh to 3 lakh? What is more than 3 lakhs on the AUM as well on the disbursement? So I think I don't have that exact data in such a breakup, but I can g
Q
Sir, I had the first question on the CASA growth, which is a bit muted. Just wanted to understand from a bottoms up level as to what is the limitation for the bank to grow its CASA. Because the branch network is growing. Is it technology? Is it a product? If you could just explain -- that's my first question.
Pralay Mondal
So that's a very valid and relevant question. So you also know that building a CASA franchise is not an overnight job. We have to build up our proper franchise. Meanwhile, we cannot also wait for that franchise to grow our bank. So you can understand that. In one year itself, we have grown the bank from 9% to 24%, 26% from the asset side and 19% from the liability growth. CASA cannot grow like that overnight. CASA needs -- as you rightly said, product, process, distribution, the right kind of customer segmentation, acquisition, sales. More importantly, surround products, which is why you need
Q
Congrats on good set of numbers. My question is with respect to the growth in advances. So Y- o-Y, we have seen that advances have grown by 26%. However, gold loan book has grown by 51%. So basically, other than gold, the book has only grown by 10%. So just wanted to know that why this is not increasing in tandem to the overall loan book. So you already spoke about SME, but if you can give a highlight on the corporate loan and retail loan, that what’s your outlook on that?
Pralay Mondal
Absolutely great question. So let me start with retail. In a way, I covered it in my first question, I think that we are building the retail franchise on the back of technology, products and processes. Retail assets build-out takes at least 12 to 18 months. But good news is that we have started our journey and we are starting to build. This includes retail, agri. It includes micro- finance, it includes the entire retail-assets business, CV, CE, home loans, HCF, all of it -- together with credit cards. So good news is that now we have started each of this, but to see visibility of this on the b
Q
So I have a couple of questions. First one is our employee costs have been growing at a faster rate and for last 3, 4 quarters, our business per employee has been falling. So, when can we expect this to bottom out for the business?
Pralay Mondal
So do we have all your questions, let me answer this question first. So there are two ways of looking at it. If you look at our overall cost to income, that is within control. I mean, I've said 55 to 60% where we are currently. When I have given that kind of outlook, I’ve considered that our employee costs will continue to go up. Business per employee is something where you have to understand that we are adding a lot more frontline stuff in terms of acquisitions, sales. Somebody asked a question on how will build your retail assets, how will you build retail liability, how will you add more ac
Q
Sir, firstly, on the SME side, if you could share the disbursement made by the bank over the last 3 quarters, the quantum of disbursement that will help.
Pralay Mondal
So I think we are disbursing incremental disbursement, pureplay disbursement is somewhere around INR 350 crores to INR 450 crores. I don't exactly remember the number, somewhere in that level. But we have lost more than that in terms of either we have run them off or utilization has gone down in certain places because of rates and things like that. So broadly around INR 350 crores, INR 450 crores of disbursements we have done. Okay. And we have seen some BTs as well? BT -- In SME you know a lot of BT happens in SME, so BT will be a part of this, yes. When it comes to your advances made, what w
Q
I just wanted to understand again a bit more on the deposit growth. What would be the outlook going ahead? Again, as you mentioned, you have to balance between the savings and term deposits. So we can expect more term deposit growth. Would that be the strategy for the next one year?
Pralay Mondal
Yes. At the end of the day, when you have an 81% CD ratio vis a vis our comfort level of 85%, and we do not want to breach the 90% mark, it will obviously mean that if we want to grow at the same level for asset, we need to grow on the deposit side by at least 20%. Now some part of that will do happen from term deposits because CASA takes its own time. Having said that, in this quarter you will see a quarter on quarter growth on CASA as well. We have put our strategy together, thoughts together, and we will build CASA. We have launched some products on both the savings and current account side
Q
I just wanted to understand the corporate loan book. In the corporate loan book, are you the lead banker or this is part of a consortium that is how we try and build basically a corporate loan book?
Pralay Mondal
Generally, we don’t do consortium lending as much, because there is no point in participating in a consortium when you don’t have a say. If you see, almost 35% to 40% of our portfolio is NBFC in the corporate book and the rest is mostly distributed lending and mostly one-on-one kind of a lending. We do multiple banking but not consortium. Sir, at a corporate level, maybe just trying to understand, is there a distinct reason the corporate or a new corporate would come to CSB? Is that because of the geographical reach or is that because of the interest rate or, are you in a particular geography,
Q
Yes, sir. Thanks for taking my question. Just wanted to understand on the opex side. You said that you will be investing in technology and people over the next one or two years. So, any number to put out there like how much opex and capex cost that you have in your mind?
Pralay Mondal
Let us break up opex into three parts, one is technology, one is distribution, one is people. These are the primarily three and the rest are relatively smaller amounts. So, when it comes to technology, technology, is again, divided into two parts, capex and opex. I have told our CIO Mr Rajesh to run as fast as possible. Whatever he can run, we will fund it. I’ll ensure that our business teams are tasked to get those revenue to the bank. Now it is up to him how much he can do. I have given him a whole laundry list of what needs to be done. Starting from core banking to LOS, we have already impl
Q
Yes. What is happening is we were doing some business on the fintech side, but because of the new digital lending advisory or guidance, which has come from RBI, we have gone back to the drawing board again, and we are seeing how this will work out. So we are talking to a few partners, and we are working on it. On the other co-lending, which is a little larger, technology development is required. We are also working on that. So yes, that is very much in the thought process and that is a large part of our strategy. However, we will take a little time to create the framework for that strategy. Bu
Pralay Mondal
In this quarter, around 40 branches. Dharmavenkatesan K B: My final question is it's more of a generic question. Sir, suppose if we are building up for the future, we are implementing in technologies and other aspects. We are building a CASA franchise. Do we need any management bandwidth in Tier 2, Tier 3 levels? Or what are the other things you need on your management bandwidth to achieve the level of growth that we are aiming i.e. maybe 5 years or 10 years from now? Sir, our issue is not the Tier 2, Tier 3. We are very well placed there. That's why you see that we are the net seller in PSLC
Q
I just have one data keeping question. I think we have realigned our loan mix this quarter. So may I get similar kind of numbers for SME, Corporate and retail for last quarter?
Pralay Mondal
I think it is there in the investor presentation if you look up, but if I remember currently, our gold loan was around 44%, but you can check it in the net. Our SME was around 12%, other retail ex gold was 14%. Okay. Around 30% was on the wholesale, I think. And second, another small question. If I'm not mistaken, you mentioned that according to RBI definition the wholesale deposit base is around 50% of the book. Is it right? Let me first clarify what I said wholesale, by RBI definition is a deposit of INR 2 Crs and above. It can come from any individual also. What I am saying by RBI definitio
Q
Thank you very much. Thank you, Manish, and Axis Capital for organizing this call and thankful to all the investors and analysts for being such active and asking enthusiastic questions. I hope I could respond to most of the questions. I would like to say that I'm happy that we could almost deliver on all the parameters on a consistent basis. Whatever we have committed, we'll work very hard to ensure that we don't disappoint you. Thank you very much. Have a good evening.
Management
Speaking time
Pralay Mondal
47
Moderator
13
Mona Khetan
9
Sonal Minhas
7
Jyoti Khatri
5
B. K. Divakara
3
Shubranshu Mishra
3
Prerit Choudhary
3
Pallavi Deshpande
3
Anuja Dighe
3
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Opening remarks
Manish Shukla
Thank you, Ritika and welcome everyone for this call. We are pleased to host CSB Bank's Q3 FY '23 results call. From the management team, we have Mr. Pralay Mondal, MD and CEO; Mr. B.K. Divakara, CFO and their management colleagues. We have some opening remarks from Mr. Mondal and after that we will open the floor for Q&A. Mr. Mondal over to you, sir.
Pralay Mondal
Thank you Manish and thank you everybody for joining the analyst call today on our Q3 results for FY '23. I will give a slight preview of what's happening globally and then quickly moving to the CSB Bank results. So as we all know that the global economic order stands tested following the chaos resulting from monetary tightening in most parts of the world. Lower food and energy supplies, elevated prices, debt distress and so on and so forth. International organizations including IMF, World Bank, OECD have downgraded their global growth projections. Relatively, of course, India is in a better place. Inflation trends are showing some moderations. We will know in February first week like what decision Fed will take and we also have the budgetary announcements in India and also the RBI decisions. So most likely the whole world is expecting a hike somewhere between 25 to 50 bps and there is a high probability of a 25. In India, I think the rate cycle is coming to a reasonably stable situati
B. K. Divakara
You have covered it elaborately, Pralay. So, I don't think anything needs to be said from my side. But in question-and-answers session, if something needs to be supplemented, I will do that. Otherwise elaborately you have covered all the areas of our performance.
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