CSBBANKNSEQ4 FY2023April 28, 2023

CSB Bank Limited

9,251words
105turns
10analyst exchanges
1executives
Management on call
B.K. Divakara Chief Financial Officer
CSB BANK
Key numbers — 40 extracted
3%
th IMF and the World Bank have projected world output year on year growth rate to be of less than 3% in 2023 and marginally above 3% in 2024. Market is expecting a 25- bps Fed rate hike in May 23 and
5.2%
while supporting the growth. In the latest MPC announcements, inflation for FY24 is projected at 5.2% and GDP at 6.5%. As the current inflation is within the target, no rate hikes are expected in the
6.5%
g the growth. In the latest MPC announcements, inflation for FY24 is projected at 5.2% and GDP at 6.5%. As the current inflation is within the target, no rate hikes are expected in the short term unti
7.4%
re are any surprise strong data releases. The 10-year GSec rates plunged from a band of 7.35 to 7.4% in March to around 7.1 to 7.15% levels right now after the policy announcements. The liquidity th
7.15%
ta releases. The 10-year GSec rates plunged from a band of 7.35 to 7.4% in March to around 7.1 to 7.15% levels right now after the policy announcements. The liquidity that was in a slight deficit mode
INR2 lakh crore
policy announcements. The liquidity that was in a slight deficit mode went to a surplus of around INR2 lakh crores and it has normalized a little bit more now. The cumulative impact of monetary action taken in F
10%
being spilled over to FY24. As per the RBI statistics, the banking system deposits grew by around 10% and advances by around 16% for the year. I was reading an article by Nomura that next year, whi
16%
As per the RBI statistics, the banking system deposits grew by around 10% and advances by around 16% for the year. I was reading an article by Nomura that next year, while nominal GDP growth will
12%
I was reading an article by Nomura that next year, while nominal GDP growth will be around 10% to 12%, credit growth is also not expected to be much higher than that. On that backdrop, let me just ge
INR 547 crore
basis. I will just quickly talk about the key highlights. Improved profitability - Net profit of INR 547 crores up by around 19% from last FY. For the quarter ended 31.03.23, the net profit is at INR 156.34 c
19%
talk about the key highlights. Improved profitability - Net profit of INR 547 crores up by around 19% from last FY. For the quarter ended 31.03.23, the net profit is at INR 156.34 crores, which is up
INR 156.34 crore
NR 547 crores up by around 19% from last FY. For the quarter ended 31.03.23, the net profit is at INR 156.34 crores, which is up 20% versus Q4 of last year. We have a provisioning buffer of around INR170 crores o
Advertisement
Guidance — 20 items
Pralay Mondal
opening
“RBI has revised the inflation projection to lower levels and took a tactical rate -pause decision in the last MPC affirming its stance on withdrawal of accommodation to ensure a progressive alignment of inflation within the target while supporting the growth.”
Pralay Mondal
opening
“As the current inflation is within the target, no rate hikes are expected in the short term until and unless there are any surprise strong data releases.”
Pralay Mondal
opening
“I was reading an article by Nomura that next year, while nominal GDP growth will be around 10% to 12%, credit growth is also not expected to be much higher than that.”
Pralay Mondal
opening
“On the investments, we are making major investments into branches and we plan to open at least 100 more branches in FY 2024.”
Pralay Mondal
opening
“We are working on technology enhancements, lending systems, liability systems, payments, channels, core systems - there is a host of work that is going on in the technology side and this year our major investment will be on technology, distribution, people and channels.”
Pralay Mondal
opening
“We plan to become a true pan-India bank because more than 60% of our branches that is incremental branches this year will be in North and West regions.”
Pralay Mondal
opening
“In FY 2024 we are planning a lot of investments especially in the technology space, which I just talked about where payback period will be closely tracked.”
Pralay Mondal
opening
“We know that it will be an exciting journey with a synergistic approach and the bank will continue to expand our footprints pan- India and we will remain focused on our current year goals and we hope to have an even better year next FY.”
Pralay Mondal
qa
“We are enhancing everything because the way we are planning our growth next year and for the next seven years till SBS 2030, we are not looking at a single or two or three products; but we are looking at a whole service franchise, for which the only way to do is to create the right verticalization, so that there is a clear focus on this and then integrate the verticalization through a common kind of a platform.”
Pralay Mondal
qa
“Next year, we are looking at even higher growth in terms of absolute numbers.”
Risks & concerns — 13 flagged
Amidst the slow growth and tardy easing of inflation, the global slowdown impact is turning out to be less severe than expected so far, at least that is what it looks, but we have to wait-and- watch.
— Pralay Mondal
The cumulative impact of monetary action taken in FY23 is still unfolding and the real rate transmission is being spilled over to FY24.
— Pralay Mondal
Low proportion of risk-weighted assets compared to industry has helped us in this.
— Pralay Mondal
I have told before and again I’m repeating that, we took last year as an opportunity, because I felt in the past three quarters somehow, at least from our risk appetite the pricing of the risk was not happening in the market and given we are a bank with a NIM of 5% plus and given that our risk appetite is very low, we didn’t want to significantly expand the business when pricing of the risk was not to our appetite.
— Pralay Mondal
I think one is the recognition of annual profits and second is the low risk weighted asset proportion because of the gold loan portfolio growth.
— Pralay Mondal
Yes, apart from that as per RBI guidelines for taking advantage of the benefit of external rating, we need to incorporate bank’s name in the rating report, in some of these cases, though they have promised to include our bank’s name they couldn’t do it, as a result of which almost INR 1,000 crores of risk-weighted assets have gone up .
— B K Divakara
Divakara the question he is asking is that inspite of the fact that risk-weighted assets has gone up, how is it that we have been able to show a sharp uptick in our CRAR.
— Pralay Mondal
We have also heard from RBI Governor’s speech which was published in media today - that the liquidity management and the capital management is of top priority of the banking system because that ensures / insulates the banks from any kind of unnecessary risk.
— Pralay Mondal
Given that perspective, we are very clear that we will focus on ensuring that our LCR, our liquidity and our ability to grow the asset side is not constrained by any kind of a liquidity risk or any kind of a liquidity availability and we have grown our deposits twice the system which is 21% vis a vis 10%, that’s number-one.
— Pralay Mondal
Obviously, in overall global scenario the way things are playing out, increasing the duration may not be the right kind of risk strategy or even optically, it may not look as the right thing to do.
— Pralay Mondal
What it tells us is that our risk management, our credit governance and all of that is working very well for us.
— Pralay Mondal
Hence, going ahead into next year and future, we see that we have a good risk and credit governance, which finally leads to credit costs.
— Pralay Mondal
I mean, it's a difficult number to give.
— Pralay Mondal
Advertisement
Q&A — 10 exchanges
Q
Hello good evening, sir. Thank you for taking my question. Two questions, first one, if you can comment on any more HR hiring which you are looking or which you have done in this quarter on the senior leadership side?
Pralay Mondal
We are almost 70% done on the senior leadership side and when we say senior leadership, now we are no longer looking at the CXO level because at CXO level, almost 80% is done. We are looking at CXO plus one and CXO plus two as well and we have significantly enhanced that side of the leadership strength out there. We are also doing a lot of hiring on the front-end as well and for every product vertical and every business vertical and support vertical. We are enhancing everything because the way we are planning our growth next year and for the next seven years till SBS 2030, we are not looking a
Q
Yes. Thank you for the opportunity and congrats on great set of numbers. My question is with respect to the loan book distribution based on interest-rate methodology. So what is the proportion of loan book, which is repo-linked, MCLR-linked and fixed-rate if you can give a number?
Pralay Mondal
Mr. Divakara, you will have that specific number. I know broadly, but if you have the specific numbers, you can give, otherwise, I will give the broad numbers. Fixed rate loans constitutes 58% of the loan book, because predominantly we are into gold loan. MCLR linked is 27%, Repo linked is 11% & 4% others. Broadly, the way it is, the corporate book is primarily MCLR linked, SME is primarily repo rate linked and the gold loan is mostly fixed-rate and on retail, it is a mix of both fixed as well as variable rate, but it broadly mirrors the portfolio mix in the bank. Okay, got it, sir. One anothe
Q
So two questions, one is, we had an impact in NIM quarter-on-quarter based on first quarter FY2023 it was a good increase and then we had a drop in last quarter. So what could be the reason behind that?
Pralay Mondal
As I said before, I’m not saying guidance but in general in all my previous analyst calls, I’ve said that we are quite happy to have our NIM closer to 5%, but we’ll focus on growth because NIM by itself doesn’t mean anything. We had a growth which is double than the system. NIM also is a function of the mix of businesses, the cost of funds and various other things. To that extent I think on a year-on year basis, if you look at NIM, it’s looking okay, maybe on a quarterly basis, it has slightly tapered down at 5.38%. For the quarter, it has been slightly down, but when you look at Q1 vis-a-vis
Q
All right. Thank you sir for taking my question. My first question is regarding our gold loan originations. Can you provide me with the split of what percentage of our gold loans are we currently sourcing in-house and what percentage are through externally through direct assignment, securitization, other means? Thank you.
Pralay Mondal
The gold loan portfolio what you are seeing has nothing to do with direct assignment. Direct assignment portfolio is reported separately and that comes under the wholesale banking business, which we do through some of the NBFCs. Gold loan business, which you are seeing, is grown organically through in-house acquired customers within the bank. Got it, thanks sir. My second question is around our treasury strategy. So I can see that we have a duration of about 4.57, so I just wanted to understand how are you thinking about the duration strategy going-forward, like, are we going to be increasing
Q
Hi sir good evening. Sir, my first question is on the cost of deposits. we saw this rise of 55 bps Q-on-Q rise in cost of deposits this quarter. So, one, I just wanted to understand what exactly led to this? and two, assuming that there is no interest rate increase, what sort of rise in cost of funds per quarter could one sort of anticipate broadly speaking?
Pralay Mondal
Thanks, Mona, for the question. In a way, I partially answered this question already that we wanted to ensure that we have enough buffer and dry gun powder in the system to grow not only for last year and last quarter but on a sustainable basis especially when NIM and other things are looking very good. Somewhere, you have to ensure you take a call. Given that perspective, we have ensured that our LCR and our CD ratio and our liquidity is extremely strong. Having said that, when so much of increases happen on the repo rate, at some point of time, some increase will happen on the cost of deposi
Q
Yes, thank you. Thank you for the opportunity. So, we had a great year in terms of asset quality, and we saw improvement each quarter. We had a negative credit cost for two years in a row. Now it is definitely outstanding. For FY '24, can you please share your credit cost guidance and your thoughts on slippages for FY '24?
Pralay Mondal
Before that, let me just tell you what happened in FY '23 and what the good news in that is. Other than recovery from written off book as well as up gradation of accounts, I think the other factor which is slippages is something which makes me very happy because the slippages has been pretty positive for us, the entire trajectory. What it tells us is that our risk management, our credit governance and all of that is working very well for us. That's number one. Hence, going ahead into next year and future, we see that we have a good risk and credit governance, which finally leads to credit cost
Q
Yes, thank you. So, I just had one small question regarding regulatory treatment of our bank. So in terms of RBI classification, we are classified as an old private sector bank. We are trying to kind of transform the business towards a new private sector bank. So just wanted to understand from a regulatory perspective, does that have any material impact on us that we're classified as an old private sector bank vis-a-vis competitors who are in new private sector banks? Thank you.
Pralay Mondal
Frankly, I have not thought through this yet. Since you have asked this question, I have to now think about it. But from a regulatory, I mean from a license perspective, whatever I understand is we can almost do everything what large new private sector banks can do. If there is any restriction anywhere, not that I'm aware of. Mr. Divakara, would you know anything? No, I don't think so any restrictions are there. We can do all business what they are doing as of now. I'll check this out. This has never crossed my mind because we have not actually faced any hurdle in doing anything so far., I hav
Q
Yes, hi sir. I just had two additional questions. So firstly, you mentioned that there is this plan of big investments, this fiscal as well. So, on the opex to assets, we had opex to assets of 3.5% or so this fiscal. So, could this continue to be at similar levels? Or will the other opex growth of 28% over the last two years moderate, given the high base?
Pralay Mondal
A very good question, Mona, and this is something, which I have been telling to all investors, including investor calls in the past, that we will significantly increase our investments primarily into four parts. One is distribution; one is people and leadership - including customer acquisition mostly in technology for the next two years. Fourth is building channels, including digital and other partnerships and things like that. These four investments, we'll do come what may. Given that perspective, yes, opex will go up because this is not cost, this is investment and each of these investments
Q
Yes, sir. Thank you for taking my question. You just previously mentioned about the special deposits. So what will be the share of that in the total deposit mix? Secondly, on the NBFC side, we've seen some exposure picking up to that. So what kind of NBFC we see?
Pralay Mondal
I don't have that exact data, but I think we have always worked on 30-70 kind of model where 30 is large, I mean for us, large ticket is very small ticket also from an ecosystem perspective. But whatever reason, for the special deposits, generally, it has been 30-70. Maybe it would have gone up a little bit last quarter. It will come back to somewhere around 30-70 or 35-65 and most of these deposits are relatively, with maturity of not more than a year or six months kind of a thing. Also, you must understand that we ran up our CD book almost completely. From a fairly INR500 crores of a CD book
Q
Thank you very much. I would really thank everybody who patiently listened to our commentary and asked very relevant set of questions. What I can comment on behalf of the management is that everybody is very excited to build the bank based on the SBS 2030 vision. The first instalment is delivered this year, but more excitement to come in the next few years.. Thank you very much.
Management
Speaking time
Pralay Mondal
40
Moderator
12
Mona Khetan
10
Pallavi Deshpande
7
B K Divakara
6
Jaiprakash Toshniwal
6
Sheel Shah
6
B. K. Divakara
5
Pruthul Shah
4
Shrish Vaze
4
Advertisement
Opening remarks
Chirag Gandhi
Thank you Ryan. Good evening and hello everyone. On behalf of Axis Capital, I would like to welcome you all to Q4 FY 2023 Earnings Call of CSB Bank. From the management, we have with us Mr. Pralay Mondal, MD and CEO; along with him, we also have Mr. B K Divakara, Chief Financial Officer. Now, I would request MD sir to begin by giving his opening remarks and then we can open the floor for Q&A. Thank you and over to you sir.
Pralay Mondal
Thank you Chirag and thank you everybody for joining the Q4 and annual results call of CSB Bank., To start with I will give you a brief of our understanding of the global scenario and then the domestic scenario as well. On the global economic activity, we can see that it remains robust amidst the high inflation levels, tight financial conditions and looming geopolitical uncertainties. Amidst the slow growth and tardy easing of inflation, the global slowdown impact is turning out to be less severe than expected so far, at least that is what it looks, but we have to wait-and- watch. These conditions are expected to prevail for a while until inflation rates moderate significantly. Both IMF and the World Bank have projected world output year on year growth rate to be of less than 3% in 2023 and marginally above 3% in 2024. Market is expecting a 25- bps Fed rate hike in May 23 and then they may take a call to pause provided there are no major data surprises inviting rating action beyond May
B K Divakara
Nothing specific from my side Pralay, you have elaborately covered it. So during question/answer session, if anything needs to be clarified I will chip-in.
Advertisement
← All transcriptsCSBBANK stock page →