CSBBANKNSEQ1 FY2024July 20, 2023

CSB Bank Limited

10,319words
106turns
16analyst exchanges
2executives
Management on call
B.K. Divakara Head
STRATEGY & CORPORATE LEGAL - CSB BANK
Satish Gundewar Chief Financial Officer
CSB BANK
Key numbers — 40 extracted
25 basis point
rn. From the recent hawkish Fed announcements, market feels that there could be another chance of 25 basis points rate hike in the next meeting. However, certain headlines are changing because of which, the bon
7.07%
hawkish FED announcements, 10-year benchmark, is showing an increasing trend, in a range between 7.07% to 7.13%. System liquidity is hovering around INR 2 trillion surplus. As per RBI statistics, the
7.13%
FED announcements, 10-year benchmark, is showing an increasing trend, in a range between 7.07% to 7.13%. System liquidity is hovering around INR 2 trillion surplus. As per RBI statistics, the banking s
INR 2
owing an increasing trend, in a range between 7.07% to 7.13%. System liquidity is hovering around INR 2 trillion surplus. As per RBI statistics, the banking system deposits grew by around 13%, a little
13%
around INR 2 trillion surplus. As per RBI statistics, the banking system deposits grew by around 13%, a little less than that, and advances grew by slightly above 16% on a Y-o-Y basis. I think that'
16%
system deposits grew by around 13%, a little less than that, and advances grew by slightly above 16% on a Y-o-Y basis. I think that's broadly where we are now. Now coming to the CSB specifics, the o
INR132 crore
on a Y-o-Y basis and highlights of our performance include improved profitability. Net profit of INR132 crores up by 15% from same time last year. Operating profit witnessed a growth of 17% on a YoY basis. W
15%
d highlights of our performance include improved profitability. Net profit of INR132 crores up by 15% from same time last year. Operating profit witnessed a growth of 17% on a YoY basis. We are havin
17%
rofit of INR132 crores up by 15% from same time last year. Operating profit witnessed a growth of 17% on a YoY basis. We are having a provisioning buffer of around INR170 crores over and above regula
INR170 crore
ng profit witnessed a growth of 17% on a YoY basis. We are having a provisioning buffer of around INR170 crores over and above regulatory requirements, which includes contingency provision as well. We could
5%
tory requirements, which includes contingency provision as well. We could maintain a NIM of above 5% for the quarter, i.e., 5.4%. ROA improved Y-o-Y from 1.75% to 1.79% for Q1. We improved the fundi
5.4%
ncludes contingency provision as well. We could maintain a NIM of above 5% for the quarter, i.e., 5.4%. ROA improved Y-o-Y from 1.75% to 1.79% for Q1. We improved the funding base with a deposit growt
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Guidance — 20 items
Pralay Mondal
opening
“We are planning to launch 100 new branches during FY '24 as well and 60% of those branches will be in North and West.”
Pralay Mondal
opening
“I am sure there will be many questions on this and I will elaborate at that point, including new core banking system during the Q&A session.”
Pralay Mondal
opening
“Over a period, we will see the cost to income starting to have a glide path towards our 45% kind of a guidance by FY '30.”
Pralay Mondal
opening
“We will continue to work towards the achievement of the milestones set under SBS vision for the year and try to achieve the vision ahead of the target.”
Pralay Mondal
opening
“The build phase of the bank will be over by FY 25 and then the scale phase will start from FY '26 onwards.”
Pralay Mondal
opening
“FY '27 to FY '30 will be the absolute growth take-off stage.”
Pralay Mondal
qa
“But clearly, we are committed towards what I have said before that we will grow faster than the system by 30% to 50%.”
Pralay Mondal
qa
“Now the team is confident by saying that we will grow faster than the system by 50%, not 30% to 50% anymore.”
Satish Gundewar
qa
“So simple answer to that is that if the provision is made on an NPA account, then, of course, on the net NPA when we calculate, it will be reduced from that.”
Satish Gundewar
qa
“If it is an NPA account, then, of course, that provision will be counted for calculating the net NPA.”
Risks & concerns — 15 flagged
Headline inflation is projected to decline due to tighter monetary policy taking effect, lower energy and food prices and reduced supply bottlenecks.
— Pralay Mondal
Global growth has slowed sharply and the risk of financial stresses in emerging markets and developing economies is intensifying among the elevated interest rates.
— Pralay Mondal
Uncertainty over the evolution of Russia's war of aggression against the Ukraine and its global impact remains to be a concern.
— Pralay Mondal
Headline inflation is gradually moderating due to the combined impact of monetary tightening, supply side measures and easing of global supply bottlenecks.
— Pralay Mondal
The slowdown in monetary tightening by Central Bank had resulted in the declining of bond yields.
— Pralay Mondal
On the capital side, of course, we maintain a very high CRAR of 26% with a low proportion of risk-weighted assets compared to the industry.
— Pralay Mondal
On the LCR, this will fluctuate a little bit here and there, but we are well above the regulatory norm, and we are confident that this is not going to be a challenge for us.
— Pralay Mondal
Although there is a tremendous growth in retail in the ecosystem; we would wait out a little bit from a risk perspective and grow slowly and cautiously.
— Pralay Mondal
First of all, there is very little credit risk in gold loans, it is more of an operational risk, because you have the metal with you.
— Pralay Mondal
The only thing decentralized is gold loan business because there is operational risk.
— Pralay Mondal
We will not go below 1.5%, and it will be difficult to go above 2%; it is in that range, yes.
— Pralay Mondal
In addition, to understand the quality of the inbound proposals that you are receiving, is that something, which is of concern.
— Sonal Minhas
In the last FY, until Q3, we did not pick up SME business is because we thought that the pricing of the risk in the market was not to our appetite.
— Pralay Mondal
From Q4 onwards, we saw that the pricing to the risk was becoming more rational, and that is the time when we started picking up the business.
— Pralay Mondal
So it is very difficult to comment on that.
— Satish Gundewar
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Q&A — 16 exchanges
Q
Congratulations on a good set of numbers. I have a couple of questions. So first question is on the growth trajectory and NIM’s outlook. If I see your growth this quarter, I mean, loan growth in absolute term is hardly INR450 crores, while deposits and investment are broadly flat Q-o-Q basis. In terms of growth, while the Y-o-Y growth percentage is great on absolute basis, the incremental business appears to be slightly sluggish. So my question is what are your views there? How do you see it going ahead? That is question one. Question two is, if I see your LCR and CD ratio. LCR has come down c
Pralay Mondal
Thanks, Suraj, for your questions. I will answer the first two, and I will request either Satish or Mr. Divakara to respond to the third question. Yes, on the growth side, year-on-year growth is robust, and we continued to grow like what we grew last quarter. Generally, first quarter had been soft for us and then it starts picking up. That is how historically it happened. But clearly, we are committed towards what I have said before that we will grow faster than the system by 30% to 50%. Now the team is confident by saying that we will grow faster than the system by 50%, not 30% to 50% anymore
Q
My first question is on the cost of funds. So going forward, what sort of trajectory do you expect? We have seen another 15 bps rise in cost of funds. So could we sort of expect the same run rate on the rise in cost of funds? Or how do you see it?
Pralay Mondal
So on cost of funds, I think, gradually you are seeing flattening of rates. I think this is the last quarter where we will see anything on the cost of funds elevation. After that, it will start either flattening or tapering down. NIM will also follow that. From an NII perspective, maybe the current quarter also will continue to be a soft quarter. Third quarter onwards, we should start picking that up as well. Sure. Got it. And secondly, on the fee lines, we've seen a strong growth on a year-on-year basis. So are there any one-offs out there or this kind of a traction could continue? Our bank c
Q
On the actuarial expenses, so how much would the actual amount of actuarial cost and what you see for pension liability?
Pralay Mondal
I do not think those things are in the public domain and really not very large to be talking off. As I said earlier, there has been some additional hit as well, but it is not a very large amount. Right, sir. And sir, especially on the cost of funds, I think would you have any details on the bulk deposit rate? What would be the share of that in the total of cost of funds? We do not pay high rates for bulk deposits. We do it based on a relationship basis. Do we have large deposits? Answer is yes; but they are mostly historical in nature. Incrementally, we are primarily focusing on sustainable lo
Q
My first question is what is our strategy, for example, over the next two to three years on the percentage of the retail loan as a percentage of AUM and SME as a percentage of AUM, like, over a period of two years, three years, sir?
Pralay Mondal
So let me give a slightly elaborate answer to this. As a part of our Sustain Build and Scale 2030 strategy, we will have 20% Gold, 30% Retail, 20% SME, 30% Wholesale and other businesses, which includes securitization. The way we have broken it up is; now to FY '25 first phase, FY '25 to FY '27 second phase and FY '27 to FY '30 final phase and we have completely planned it out how we'll do in each block of this two years, three years etc. So right now in the build phase until FY '25, we will continue to depend on building our revenue for investments. We have started those investments already a
Q
Sir, I just wanted to understand, I think in one of the remarks you mentioned that till FY '25, the investment phase will continue, right, for the company?
Pralay Mondal
Yes, investment phase will continue. The major accelerator of investment phase will continue until FY '25 end. After that also, we will continue to invest into people, into technology, into geography, distribution, because I have said before also that by FY '30, you would like the branch distribution to go to 1,500 branches. This means that we are not going to stop by FY 27 or FY 30. However, right now, where we are to where we will be; the big heavy lifting will be done by FY '25. So I mean, on a steady state, what should be our aspirational ROA that we kind of would be looking at? We will be
Q
Most of my questions are answered, but I just had one question as a follow-up on the LCR bit. Sir, you mentioned that there was a small technicality based on which our LCR has come down this quarter to say around 106%, 107%. Would you be able to elaborate, please, on what the technicality is?
Pralay Mondal
It is not very complex technicality. This is because of the tactical play, of accepting short-term deposits in Q3/ Q4 of last FY based on our interest rate view that eventually it will taper down and then fall in FY 24. We had taken a call saying that we will not lock in for a very long-term kind of deposits because then we have to pay a very high interest on that for a longer period even when interest rate cycle reverses. So some of these deposits were not that LCR friendly. Secondly, if your CASA as a percentage is coming down a little bit, it will also affect the LCR. On the CASA ratio, we
Q
Hi, Sir. This is Sonal Minhas from Prescient Capital. I have three questions. First one is regarding the SME loan book. Just wanted to understand, I think, it has been like a few quarters now been seeing the growth and build up, it is kind of muted. I wanted to understand the concentration of this book, which is largely Kerala and TN. In addition, to understand the quality of the inbound proposals that you are receiving, is that something, which is of concern. Just to get a sense of this business growth over time.
Pralay Mondal
Thanks, Sonal, for your question. In the last FY, until Q3, we did not pick up SME business is because we thought that the pricing of the risk in the market was not to our appetite. From Q4 onwards, we saw that the pricing to the risk was becoming more rational, and that is the time when we started picking up the business. We have picked up growth this quarter as well. In Q4 and Q1, we have done reasonably well on SME. Growth is not only going to sustain but going to go up from now onwards. Second question, in terms of concentration. If you divide the old book and new book separately, the new
Q
Sir, just to add some clarity on, notes to accounts (item no 12) with respect to labour code. So if you can help us understand what could be the likely impact, if any?
Satish Gundewar
It is a standard note on labour code and comes generally if you see in many of the banks. Since it is not yet implemented, the final contours are not known. And we really don't know when it will become applicable. So it is very difficult to comment on that. Okay. But sir, what was the purpose of, like you know, we have put that in the notes of accounts, also like have we done any calculation on this Currently, there is no clarity in terms of when it will become applicable. So we haven't done any such work in terms of what will be the impact of that because still it is in the draft format and f
Q
Yes. I just wanted to understand like a few things to take, in a very basic understanding. SME loans, like are they predominantly LAP -- are they predominantly secured -- that is one thing I wanted to understand. In addition, what kind of LTVs and yields we have in the SME loans and what kind of ticket size it ranges. Similarly, in retail loans, I can see like 32% Agri, 16% MFI. So I was trying to understand, are Agri loans also like again secured loans.
Pralay Mondal
So first question first, which is SME, LAP secured, unsecured. We do not do anything unsecured in SME. LAP is a separate business. We do not mix the LAP business with SME. LAP, we track separately. Coming to LTV, on LAP, I think it is 60-65%, and SME mostly it is cash flow-based lending and retail is mostly scorecard related. Ticket size, the way we divide is two parts. Branches are lead generators and the respective verticals attend to such leads. Such businesses will be mostly retail and MSMEs. INR50 lakh to INR 25 crore accounts are managed by the SME team where the turnover will be upto IN
Q
Yes. Sir, my question pertains to the things as you had mentioned. Next quarter also, we can see some deterioration in the CASA in terms of the short-term maturity. What would be our LCR? I mean, how you see LCR ratio then. That is 107 now.
Pralay Mondal
CASA ratio will be between 30% to 33%; that is our target range. Going forward we will do better than this quarter. LCR also hopefully will be better than this quarter. I would like to keep my hurdle rate at 110%, so this is 3% below hurdle rate. Both CASA and LCR ratios will start improving from Q3 onwards Okay. sir, what is the target for the credit cost? It has gone up for the quarter. We had a negative credit cost throughout last year and its only 7bps this quarter. I had told this in my previous calls that our long-term thinking is our GNPA will be below 2%, NNPAs will be below 1%, and cr
Q
So most of the questions are answered. I just wanted to check, like you have planned out till FY '30, every thinking -- in a very crystal clear manner. What would be the impact on our credit costs? Like how would it move? If you can give some clarity on that, like FY '25 and then beyond that? Because our asset mix will change, our credit costs accordingly would come -- go up. So how do you see credit cost panning out for this -- in these three stages?
Pralay Mondal
Very good question. Typically, what is happening right now gold loan is somewhere between 45% to 50% of the portfolio, the credit cost is almost negligible. Then we have credit costs coming from our older portfolio, which is also reducing balance. I mean, I am trying to explain how they counter each other. So one is positive, one is negative. Now, third is we will launch new businesses on the retail side. Obviously, nobody can do retail business at zero credit cost. Credit costs will start going up. Having said that, at least for the next five years, once it starts picking up from FY '25 onwar
Q
Most of my questions have been answered. So I just wanted some clarity over your opex costs. I mean you said that it would be around 45% by 2030. So what could be the trajectory? I mean, at what point of time will we see a decline in the opex cost?
Pralay Mondal
The way the opex works is that there are four, five elements in opex. One is, the technology, which is the largest for us. Second is distribution. Third is, manpower, which is linked to distribution, it is not necessarily linked to distribution when you launch so many products and functions and verticals and geography etc. Non-distributional manpower cost will also be there. These are the three main heads on the opex side, technology, distribution, and manpower When you look at the breakeven of each of these, manpower cost breaks even typically in six months' time. The branch -- or distributio
Q
Most of my questions have been answered. My question pertains largely around something that was mentioned in the Fairfax’s annual letter. So they had mentioned that the bank owns 38 residential and commercial properties, including land banks, which we had acquired several years ago and some also from – in lieu of security. Just wanted to understand the geographical distribution of this and the market value? What are our plans to monetize these properties?
Pralay Mondal
I will answer that. The way it works is these are typically the NBA assets, which by regulation, you can hold up to 12 years maximum. Within that, you have to monetize, we do not have a choice. Ours is a 100-year-old bank and you must understand that many of these are probably acquired, as there were no takers for the property in a sale. We are following RBI guidelines here and in certain cases, this goes into litigation and all that. So it is almost like a recovery procedures, but we have taken a position of all this. We have not acquired any NBA property in the recent past. On geography conc
Q
Most of our questions have been answered. Just two quick questions. Sir, this promoter shareholding, I believe from some RBI guideline, it has to come down. So if you could just tell us by what percentage, and by which year? And the second question is that, with such excellent performance and profitable numbers, when can we expect bank to be under dividend list?
Pralay Mondal
On the Fairfax Holding. So technical answer is that if you go by regulation, within 15 years, it will have to be brought down in a phased manner. How it will be brought down and what is the trajectory is a conversation between Fairfax and RBI. We are not a decision-maker on that. RBI may come back to us once Fairfax concludes their discussion and they will keep us informed. We cannot comment on this point now. I have heard from very senior people in Fairfax that they would like to hold it as long as they can. On their own, they might not dilute anything unless they are advised to dilute. On yo
Q
Yes. So I have a couple of data points, so if you can help. For gold loan business, if you can help me – if you can give me average gold loan ticket size, and average gold loan per branch and opex to average assets for the gold loan part of the business, not the total part of the business?
Pralay Mondal
This data is not in public domain. But typically, what I can tell you is that the gold loan ticket size for us will be within INR1 lakh to INR2 lakhs in that range on an average and gold per branch will be around Rs 15 Cr, but rest of the numbers are not in public domain. So it will be difficult to share. So would it be correct to say that gold loan will have higher opex than the other part of the operation, generally, given our ticket size. Would it be the correct? That is a correct interpretation, but in our business model, A) most of those branches have already broken even. B), we are inves
Q
Thank you very much and thanks everybody for asking very interesting questions. I hope I could answer them. Again, we will come back after a quarter to meet all of you. Thank you very much for participating and have a good evening. Thank you very much.
Management
Speaking time
Pralay Mondal
37
Moderator
18
Sonal Minhas
8
Sumit Rathi
5
Mona Khetan
4
Rakesh Kumar
4
Vaibhav
4
Satish Gundewar
3
Pallavi Deshpande
3
Deepak Poddar
3
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Opening remarks
Shivaji Thapliyal
Thank you, Neerav. Good afternoon and a warm welcome to all those who have joined the call. The CSB Bank management is represented by Mr. Pralay Mondal, Managing Director and CEO, Mr. B. K. Divakara, Head of Strategy and Corporate Legal, and Mr. Satish Gundewar, Chief Financial Officer. We specifically thank the management of CSB Bank for giving YES Securities the opportunity to host their results call. The management will first be making some opening remarks, after which we will throw the floor open for questions. I now invite the management to make their opening remarks. Pralay, over to you.
Pralay Mondal
Thank you, Shivaji, for hosting the call, and thank you, everybody, for joining. Very good evening and we just announced our results for Q1 FY '24. I am sure you have seen the results already. So to begin with, I think, global economy has started improving slightly, though at a very slow pace. Declining trend is projected for the global GDP growth even now, where 2024 might witness some gradual uptick as inflation moderates and real incomes strengthen. Headline inflation is projected to decline due to tighter monetary policy taking effect, lower energy and food prices and reduced supply bottlenecks. Global growth has slowed sharply and the risk of financial stresses in emerging markets and developing economies is intensifying among the elevated interest rates. Uncertainty over the evolution of Russia's war of aggression against the Ukraine and its global impact remains to be a concern. From the recent hawkish Fed announcements, market feels that there could be another chance of 25 basi
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