CSBBANKNSEQ2 FY2024October 20, 2023

CSB Bank Limited

10,002words
121turns
10analyst 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
3.5%
evated interest rates and higher commodity prices, global growth is forecasted to get slower from 3.5% in 2022 to 3.0% in 2023 and 2.9% in 2024. On the domestic side, in contrast to the global trends,
3.0%
rates and higher commodity prices, global growth is forecasted to get slower from 3.5% in 2022 to 3.0% in 2023 and 2.9% in 2024. On the domestic side, in contrast to the global trends, the economic ac
2.9%
commodity prices, global growth is forecasted to get slower from 3.5% in 2022 to 3.0% in 2023 and 2.9% in 2024. On the domestic side, in contrast to the global trends, the economic activities exhibit
6.5%
tival season, the demand for currency is likely to remain strong. RBI has projected the growth at 6.5% for the year and kept their commitment to bring inflation to 4%. Added to that, on the backdrop
4%
RBI has projected the growth at 6.5% for the year and kept their commitment to bring inflation to 4%. Added to that, on the backdrop of the volatility of the global factors like rates, currencies
INR 265 crore
on a Y-o-Y basis. Highlights of the performances are improved profitability, with net profit of INR 265 crores for H1 FY '24, up by 13% from H1 FY '23. Q2 FY '24 PAT is at INR133 crores, 10% increase over Q2
13%
e performances are improved profitability, with net profit of INR 265 crores for H1 FY '24, up by 13% from H1 FY '23. Q2 FY '24 PAT is at INR133 crores, 10% increase over Q2 FY '23. Operating profit
INR133 crore
with net profit of INR 265 crores for H1 FY '24, up by 13% from H1 FY '23. Q2 FY '24 PAT is at INR133 crores, 10% increase over Q2 FY '23. Operating profit witnessed a growth of 14% on a half yearly Y-o-Y
10%
fit of INR 265 crores for H1 FY '24, up by 13% from H1 FY '23. Q2 FY '24 PAT is at INR133 crores, 10% increase over Q2 FY '23. Operating profit witnessed a growth of 14% on a half yearly Y-o-Y basis.
14%
24 PAT is at INR133 crores, 10% increase over Q2 FY '23. Operating profit witnessed a growth of 14% on a half yearly Y-o-Y basis. Q2 FY '24 is up by 11% over Q2 FY '23. We have a provisioning buffe
11%
'23. Operating profit witnessed a growth of 14% on a half yearly Y-o-Y basis. Q2 FY '24 is up by 11% over Q2 FY '23. We have a provisioning buffer of more than INR170 crores over and above the regul
INR170 crore
ly Y-o-Y basis. Q2 FY '24 is up by 11% over Q2 FY '23. We have a provisioning buffer of more than INR170 crores over and above the regulatory requirements. Despite the margins are under pressure for most of t
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Guidance — 20 items
Pralay Mondal
opening
“In view of that, we expect the liquidity challenges as well as elevated deposit rates for a while.”
Pralay Mondal
opening
“In short, I would like to say that while every quarter, we will deliver the numbers what we are delivering, but the bigger picture for us is our SBS 2030 Vision and how we are sustainably and consistently moving towards that vision step-by-step and so far, we are completely on track in line with the milestones that we have set for ourselves.”
Pralay Mondal
qa
“We had committed before that our NIM will be above 5% for the year and we should be able to hold on to that commitment.”
Mona Khetan
qa
“So in that case, we expect essentially that the margin should rise here on?”
Pralay Mondal
qa
“You will see that our increase in yields will be higher than the increase in cost of funds.”
Pralay Mondal
qa
“And hence, our NIM will be higher than what it is today.”
Pralay Mondal
qa
“Eventually, we will be able to manage our NIM in line with what we had guided, which is above 5% for the whole year.”
Pralay Mondal
qa
“If you remember, Mona, what I said before that one of the critical focus areas for the bank will be to have a sustainable fee business focus in the bank.”
Pralay Mondal
qa
“As we create our overall franchise, there will be automatic growth on the liability side.”
Pallavi Deshpande
qa
“Sir, just taking that one step forward, the loan growth, we will be maintaining the CD ratio here now, if that's what you're saying then?”
Risks & concerns — 15 flagged
Despite the margins are under pressure for most of the banks in a highly volatile market, we could maintain a NIM of 5.12% for the half year ended 30/09/23.
— Pralay Mondal
On a sequential basis, while cost of deposits increased from 5% to 5.22%, yield on advances declined from 11.18% to 10.88%; we are, though, confident that we should be able to arrest this decline in the coming quarters.
— Pralay Mondal
On the capital base, we have a CRAR of 23.96%, almost 24% and a low proportion of risk-weighted assets compared to the industry.
— Pralay Mondal
Given that perspective, our overall portfolio looks very good now in terms of risk parameters.
— Pralay Mondal
We have been very cautious and conscious on this business.
— Pralay Mondal
But I think it's a risk averse kind of a mindset, which made us do this because I always say that risk comes first and after that, profitability and yields.
— Pralay Mondal
Deposit growth is, right now, in a systemic challenge and we have grown at 21% on a very small balance sheet vis-à-vis overall growth of 12% to 13% in the system.
— Pralay Mondal
For us, the first principle which is our Board guidance as well as our management philosophy is that we are in the business of taking risk, but we are in the business of bringing the money back of the risk we take.
— Pralay Mondal
Basically, net-net, what it means is we are extremely risk averse to a point, number one.
— Pralay Mondal
Anywhere we see a risk, we don't do that business, as simple as that.
— Pralay Mondal
But what we don't do is we don't take any risk, and we are also elevating the quality of the portfolio on both the asset and liability side.
— Pralay Mondal
What then explains 12% sequential growth in risk weighted assets?
— Prabal
Risk-weighted assets growth, you're saying, is it?
— Pralay Mondal
I'm saying that credit risk-weighted assets grew by 12% sequentially, whereas the loan growth is being driven by gold loan, primarily.
— Prabal
Given this scenario, and given that some of the risk weights on the SME and on the retail side is slightly higher, some basis points change could have happened on the overall risk weights.
— Pralay Mondal
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Q&A — 10 exchanges
Q
Sir, my first question is around the yield on advances, which sequentially declined 30 bps. So is it to do with the rise in gold NPA and the related interest reversal?
Pralay Mondal
Mona, you have asked the right question that yield has come down a little bit, and that is primarily because of gold loans. In the last quarter, you would know that the gold prices have started dropping. To manage the risks, we took some measures like product alignment, LTV management, exit strategy of some customers with higher LTVs etc. This helped us in managing customers who were enjoying LTVs, higher than our comfort level. Given that perspective, our overall portfolio looks very good now in terms of risk parameters. After that, because of the Israel war and things like that, gold prices
Q
Just wanted to understand on the deposit growth that it was quite healthy, but just the LCR has declined. And so do we see a situation where this limits our loan growth, going ahead, the LCR regulation of 100%?
Pralay Mondal
Pallavi, thanks for your question. Deposit growth is, right now, in a systemic challenge and we have grown at 21% on a very small balance sheet vis-à-vis overall growth of 12% to 13% in the system. But this growth has to be managed by 4, 5 ratios in consideration viz, NSFR, LCR, CD ratio, CASA ratio and Cost of Funds. There are five balls in the air constantly when we look at our deposit growth. Funds of the bank also has a certain amount of increase coming from CDs, a certain amount of refinance, certain amount of deposits and a slight increase on the CASA. It's a combination of all these fou
Q
First of all, congratulations on a fantastic half year. Sir, my question is more to do with the industry, if you could just help paint the picture for me. So we hear that even some of the large banks like HDFC Bank is adding a lot of branches and trying to get more of the retail business and so is another bank like IDFC bank and so on. So in such a situation, could you just tell us, sir, what is the kind of competition that you're seeing in the segment that you are operating, like SME, wholesale and even retail? So how is the competition? Are we targeting a different set of customers than thes
Pralay Mondal
Thank you very much for the question. I think the larger banks like HDFC - we are not competing with such large banks . But there is always a sweet spot for everybody if they know how to execute the strategy. That's how all big banks have become big. They were not big day one. People have become big over a period of time. Every bank has started like this and then gradually started playing in the mainstream. For us, the first principle which is our Board guidance as well as our management philosophy is that we are in the business of taking risk, but we are in the business of bringing the money
Q
My first question is sequentially, we saw growth being driven by gold loans. What then explains 12% sequential growth in risk weighted assets?
Pralay Mondal
Can you just be a little louder? Risk-weighted assets growth, you're saying, is it? Yes. I'm saying that credit risk-weighted assets grew by 12% sequentially, whereas the loan growth is being driven by gold loan, primarily. So why there is a sharp increase in all of this? If you look at it, while the mix has broadly remained the same, gold loan has remained around 47%, the mix has gone down slightly on the wholesale side, has gone up slightly on the retail side -- on the mix side, and SME has almost remained the same. What it means is and if you look at the growth, for the first time, as I sai
Q
Yes. So I have one broad question, and perhaps there are essentially four related sub questions in that. So firstly, I wanted to understand the perspective, asset quality evolution. Right now, the bank is gold loan focused, so credit costs are obviously extremely low. I mean it's next to nothing. But just wanted to firstly understand the slippages in this particular quarter, what was the segmental contribution? I mean, which segments they emerged from? That's number one. And what is the slippage guidance for the future? And what is the credit cost guidance for the future, basically? So that's
Pralay Mondal
Great set of questions. Let me try and answer one-by-one, and I'd request Satish to add whatever things he wants to add. On the slippages, mostly it is on the gold loan side. Other than that, it's broadly in line with where it has been in the previous quarters. Gold loan slippages eventually does not lead to the credit loss, based on our historic experience, because you have the metal with you and you recover. To that extent, our past experience is that it doesn't bother us too much. But broadly the gold loan slippage was slightly higher than last quarter. The second question is on overall NPA
Q
Just to follow-up, so can I have the interest reversal from the interest income in Q2 and the previous quarter as well versus Q1?
Pralay Mondal
Don’t think we put it in public domain. Okay. So just digging a little bit more into the yield and LTV to the gold portfolio that we discussed earlier, so while you're saying that the yields in LTV quoted in the PPT are that of H1 and not Q2 particularly, still, if I compare it with the last quarter, yields have increased from, say, 11.64% to 11.7%. So if this quarter, yields have fallen so substantially, the average yield for H1 should have been ideally declined. Now why is this increasing? And similarly with LTV as well. I didn't understand. I said that Q1 to Q2, yield has declined, right? C
Q
In the annual report, I read that CSB Bank would start offering cash management services to its retail customers. So could you just throw some light on what would this do for the bank? For example, when I say retail, I mean, the retail, the small SME. So does it mean that those customers would tend to bank more with our bank? And what is the cost that we will incur in this business by offering the service?
Pralay Mondal
All banks do it. The way we're doing it is we are taking a software which will help us in getting new customers as well as offering cash management services. It will help us in two ways. It will help in getting more current account customers to the bank and effectively creating floats and then the opportunity to do SME business out there. And the reverse is also right that when we get and talk to SME customers they will work more with the bank through all these solutions on the CMS and things like that say schools, trusts and all this. We are considering this as a part of our solution-oriented
Q
Yes. This is just one follow-up question, and I'll be done with it. So, Pralay sir, my question was the logistics part is something that the bank would do itself? Or is that going to be outsourced, sir?
Pralay Mondal
Logistics when we are talking about people who will be handling the cash? Yes. Movement of cash, who will be taking care of that? That will be outsourced. But the point is that, that is a different kind of a cash management. That is a part of the cash management process, but we are talking about cash management solutions also. One is managing cash or handling cash. The second part is cash management solutions, which is more from a solution perspective, which is mostly digital and other things. If you are talking about pure handling of cash, obviously, that will be outsourced.
Q
I have one question only. So on your LTV, just wanted to check if you have any cap when you originate a loan or when you start lending relations upon gold loan? Is there any cap on the LTV? And does this differ in retail and non-retail gold loan?
Pralay Mondal
Yes. First one is our regulatory cap, which is 75% for non-agri gold loan. Obviously, we follow that norm. Non-agri gold loan will always be 75% or below. For agri, we have sort of kept a cap, unless specifically approved by somebody as per delegation metrics, as around 85%. Coming to institutional, I don't know what you mean, but we do have some businesses where there are aggregators who also will have some accounts with us; but that business is gradually declining in the bank right now. Okay. Understood. Sir, and just on that, so if a customer, let's say, there is a 75% LTV, in your retail o
Q
Thank you very much. I think we had a very good interaction and interesting set of questions. And it was good that some of this question also challenged us because we had to go back to the numbers again-and-again and give back the answers. Hopefully, we could satisfy you with our responses. Thank you very much for your patient hearing. Thank you.
Management
Speaking time
Pralay Mondal
45
Mona Khetan
23
Moderator
12
Satish Gundewar
11
Prabal
11
Vikas Kasturi
7
Jai Mundra
5
Shivaji Thapliyal
3
B. K. Divakara
2
Pallavi Deshpande
2
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Opening remarks
Shivaji Thapliyal
Thank you, Enzo. Good evening, 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, 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 result 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 and thank you, everybody, for joining the CSB Q2 earnings call. I would like to also wish everybody a very happy Navaratri and Durga Pooja. There is some sound/music in the background as part of the festivities. Please bear with us for this disturbance. Coming to our today's call, First, I'll start with a little bit of a macro on the global and domestic scenarios and then I will quickly move to CSB specifics. I will keep it short, so that we can spend more time on the call in terms of Q&A. On the global side, while the inflation has shown signs of some moderation, the economic data continues to remain strong, leading to the prospects of current rate cycle staying higher for longer. With escalation in geopolitical risks, oil remains in 90s per barrel. With elevated interest rates and higher commodity prices, global growth is forecasted to get slower from 3.5% in 2022 to 3.0% in 2023 and 2.9% in 2024. On the domestic side, in contrast to the global trends, the economic
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