CSBBANKNSEQ3 FY2025January 28, 2025

CSB Bank Limited

9,390words
84turns
8analyst exchanges
4executives
Management on call
B.K. Divakara Executive Director
CSB BANK
Satish Gundewar Chief Financial Officer
CSB BANK
Pralay Mondal
Managing Director and
B. K. Divakara
Executive Director and Mr. Satish Gundewar – Chief Financial
Key numbers — 40 extracted
INR,
A concomitant sell off has happened in Indian equities by FPIs. The resultant depreciation of the INR, along with the RBI’s efforts to contain volatility, has caused a rupee liquidity deficit. The RBI
50 bps
a rupee liquidity deficit. The RBI has already taken necessary steps to address this, including a 50 bps CRR cut in two phases earlier and the announcement of OMOs, longer-term VRRs, and INR swaps yes
Rs,
his, including a 50 bps CRR cut in two phases earlier and the announcement of OMOs, longer-term VRRs, and INR swaps yesterday to inject durable liquidity into the system. The RBI has revised its gr
6.6%
able liquidity into the system. The RBI has revised its growth estimate in the last few weeks to 6.6%. While the MFI space shows signs of overheating, rural and government consumption are picking up.
5.22%
hows signs of overheating, rural and government consumption are picking up. Cooling inflation, at 5.22% in December, gives the RBI and the Ministry of Finance room to take further steps to inject liqui
Rs 152
ghlights of CSB’s specific performance for the quarter, on the profitability front, net profit of Rs 152 Cr for the quarter, marginally up YoY and improved by 10% QoQ. Operating profit of the bank is Rs
10%
e profitability front, net profit of Rs 152 Cr for the quarter, marginally up YoY and improved by 10% QoQ. Operating profit of the bank is Rs 221 Crs with a growth of 13% and 10% on a YoY & QoQ bas
Rs 221
52 Cr for the quarter, marginally up YoY and improved by 10% QoQ. Operating profit of the bank is Rs 221 Crs with a growth of 13% and 10% on a YoY & QoQ basis respectively. Other income registered a 75%
13%
nally up YoY and improved by 10% QoQ. Operating profit of the bank is Rs 221 Crs with a growth of 13% and 10% on a YoY & QoQ basis respectively. Other income registered a 75% growth on a YoY basis an
75%
221 Crs with a growth of 13% and 10% on a YoY & QoQ basis respectively. Other income registered a 75% growth on a YoY basis and 10% on a sequential quarter basis. Other income constituted ~19% of the
19%
ered a 75% growth on a YoY basis and 10% on a sequential quarter basis. Other income constituted ~19% of the total income, which is a significant improvement from what the bank used to do two years b
62.90%
used to do two years back. Cost to income ratio marginally improved from Q2 FY 25 level and is at 62.90%. It was around 65% in the previous quarter. NIM could be sustained above 4% both on a quarterly a
Advertisement
Guidance — 20 items
Pralay Mondal
opening
“With the new US President and the Dollar Index at an all-time high, we expect pressure on emerging market equities and currencies to continue for some more time.”
Pralay Mondal
opening
“However, with the recent steps taken by the RBI and its intent to address liquidity issues, we expect liquidity to improve this quarter, along with continued softening of yields.”
Pralay Mondal
opening
“The increased disbursements that have started in the core corporate book will show up in the top line during next quarter and the coming financial year.”
Pralay Mondal
opening
“We have been generally able to hold on to our guidance on growth, ratios and asset quality and this can be taken as an indication that our compounding execution story is playing out well as per the SBS 2030 vision.”
Pralay Mondal
opening
“In the current quarter, the credit growth will be largely dependent on how the liability growth evolves.”
Pralay Mondal
opening
“On the tech transformation side, FY 26 will be a big year for us because post this, we will almost have nothing left in terms of transformation within the bank and will move from a very average tech capacity to a probably best-in-class tech capacity during the FY.”
Pralay Mondal
opening
“Our CBS migration along with OGL, OFSAA and some of the other pieces, which we are putting together, will be expected to be completed in Q1 FY26 stabilized by Q2 FY26 and leveraged from Q3 FY26 onwards.”
Pralay Mondal
opening
“Now that we have visibility of the tech piece, tech transformation in the next 6 to 9 months, we have started our retail assets transformation journey now, which will be visible in the next one year, and we can talk about it as we go through the call.”
Pralay Mondal
qa
“Based on our board guidance, we are looking at businesses, which are long-term franchise building and just not NIM accretive.”
Satish Gundewar
qa
“Once the annual audit is completed after the fourth quarter, the profit number will be reckoned for the CRAR computation.”
Risks & concerns — 15 flagged
Before that, let us see the economic scenario, especially because the world is a volatile place right now, especially in terms of financials.
— Pralay Mondal
With the new US President and the Dollar Index at an all-time high, we expect pressure on emerging market equities and currencies to continue for some more time.
— Pralay Mondal
We can talk about it a little more during the Q&A session On the liabilities, we know that market is going through difficult situation due to the tight liquidity conditions.
— Pralay Mondal
However, the overall WSB growth was at 5% mainly on account of the liquidation of DA portfolio and few exits we opted for as part of our coverage strategy/risk appetite.
— Pralay Mondal
We have low proportion of risk-weight assets compared to industry, which is marginally higher than 40%.
— Pralay Mondal
A-because we saw the markets seeing some stress.
— Pralay Mondal
What it means is that we are now looking at low risk businesses and hence necessarily need not be very high yielding business- especially in a cycle like this where we want to be careful.
— Pralay Mondal
Given that perspective, we decided to de-risk our portfolio around a year back, and that is accelerating as we are going, leading to some of the high-yielding portfolios moving out.
— Pralay Mondal
That is a conscious strategy indicating that yield maximization or NIM maximization in an environment where there is enough risk in the system is not prudent.
— Pralay Mondal
I think we are quite happy with this risk-averse kind of strategy, which we have played out.
— Pralay Mondal
We said that let us retain it and be risk averse.
— Pralay Mondal
We have not done that kind of analysis of how much is BT-out, as it is very difficult to do that.
— Pralay Mondal
Because just as a precaution, the gold prices are increasing up and the outlook is weak.
— Sonal Minhas
Whether outlook is weak or not is debatable, because whenever I read various things, almost 70%, 80% of people say that gold prices still can go up internationally.
— Pralay Mondal
One more question here, within the gold lending portfolio, there has been a sharp decline in number of loan accounts.
— Shreepal Doshi
Advertisement
Q&A — 8 exchanges
Q
Thanks for the opportunity and congratulations on a good set of numbers. Couple of questions. Sir, on the yield side, so on a QoQ basis, if I see your yield has fallen by around 15 to 20 basis point and this is despite the growth being higher on the QoQ basis on the non-corporate segment on gold loan and your retail loans. Your gold loan yield is anyway much higher than your overall blended yield. Sir, what is causing this fall in yield on an overall basis, if you can explain?
Pralay Mondal
Thank you, Suraj, for your question. You are right that the growth in gold loan has been 36%, which is higher than the bank growth, which is 26%. At the same time, we grew on retail as well as in SME, reasonably close to either 30% or higher than 30%. I think the critical part is wholesale, if you take out the DA portfolio and take out the LCBD and the one or two accounts, which we exited, which were high-yielding, then they have grown by 30%. What it means is that we are now looking at low risk businesses and hence necessarily need not be very high yielding business- especially in a cycle lik
Sonal Minhas
Q
Hi sir, this is Sonal Minhas. Good evening, sir. Hope all is good. I wanted to understand the behavior of customers in an increasing gold price scenario. So, typically, as these products, the gold product is low in tenure, what happens for loans which basically reach their termination in an increasing gold price scenario. Do typically customers prepay the loans and they take a new loan for a higher cover and how do you handle LTV for these kind of loans? Just trying to understand that as we speak. So, what would be your BT-out equivalent like in the current quarter or in general, when gold pri
Pralay Mondal
I think it is a great question. There are all kinds of behaviors. In a retail scenario, not everybody does so much of calculation and does things like that. Typically, what happens in a gold price rising scenario, some part of the LTV starts coming down, as we have been taking those loans when gold price was low. In one such scenario, our LTV had moved down from 74% to 70%. It proves that obviously not all customers does that because LTV is going down as gold price is going up. At the same time, there will be some customers who will open new account to take benefit of the LTV by closing the ex
Q
Thank you for giving me the opportunity. My question was on LTV only, so what is our disbursement LTV, in retail gold and in agri gold loans?
Pralay Mondal
As per regulatory norms, LTV in Retail Gold Loans has to be below 75%. For Agri, there is no cap from a regulatory perspective. Generally, as per our internal guideline, we try to keep it within 85% and when we say LTV for retail, we include the interest as well. Hence, it is a conservative LTV calculation that we do. On an average, it is well below 70%, for retail. For Agri, it will be somewhere around 75% to 85%. One more question here, within the gold lending portfolio, there has been a sharp decline in number of loan accounts. So, just wanted to understand what is the ticket size that we a
Q
Hi sir, good evening and thanks for taking up my question. So, firstly, on the corporate book, now that I believe that the corporate book rejig is nearly done with, I was just looking for some color on the book, like where is our average ticket size on this book and what would be the average yield and also maybe how many exposures are above Rs. 100 crore at this point. And where would you like to maintain your average ticket size in the corporate book?
Pralay Mondal
The average yield varies between 9% to 9.5%. Rest of the questions, which you are asking, is very much detailed. We generally do not share that level of detail like how many customers are above Rs 100 Cr etc in the public domain. Given the perspective that our overall book itself is so small, it is not that too many customers will be above Rs 100 and 200 Crores. We do not have that data in the public domain, so we will not be not able to share it. Sure. But some color on average ticket size will really help or the range of your ticket sizes? Our norms within the bank is that generally anything
Q
Yes, thank you. My question is again on the gold loan market as such. So, this RBI advisory that we had seen as of September end, I just wanted to understand what is the early feedback in terms of is there any market share shift going on, maybe from NBFCs to the regional banks because this RBI advisory is kind of targeted or maybe it is affecting NBFCs more because they are the ones which have not so far properly followed, fallen in line in terms of the processes or what is your reading of the gold loan market as such?
Pralay Mondal
Thanks, Shivaji. Before answering, let me just try to address Mona's question once because I think I got the response. What could have happened is, you are right, that there has been drop. The reason could be that RBI circular I think covered that accounts less than Rs 2 lakhs cannot be considered as agri gold loan anymore because you cannot hold collateral against that. Accordingly, we might have exited accounts; but it did not impact the book. What typically happens is such small ticket may not impact your overall portfolio, or some of those customers could have brought in larger value to co
Q
Thank you for the opportunity. So, my question was on the tech side. I understand that the tech transformation is going to take something like 2-3 years. But in this phase, how will the cost to income look like? So, while this transformation happens, OPEX has been already incurred, or will it be incurred over the next 2-3 years linearly. So, how will the cost to income look like for the next 2-3 years while this transformation is taking place?
Pralay Mondal
Yes, great question. Typically, what happens from this transformation is; whatever can be taken as CAPEX is taken as CAPEX. Not everything can be CAPEX. Typically our tech spend has been somewhere around 8% to 9% of our overall OPEX. We believe that some of these CAPEX when they move to OPEX, along with that comes AMC also, which comes as an additional OPEX. When you do that calculation, we look at the TCO ownership and we look at it how it impacts our cost to income over the next five years, because CAPEX generally we do it for five years. Given that perspective, we have seen that it will rem
Q
Good evening sir, I just wanted to better understand your medium term sort of an ROA. So, the way I look at it is that right now you are very heavily focused into gold loans and there you are incurring minimal credit cost. So, your credit cost is like 0.1% for 9M or something like that. So, now as you grow and you increase your mix into other products, where as of now your yield is lower, so your yield is probably going to come down overall because your gold loans are at a higher yield. Your cost to income is sticky and looks like it will remain at the same level. And your credit cost is also
Pralay Mondal
I will try to explain this. I think our ROA, what I have told is somewhere around 1.5% to 1.8% range. I think given the overall environmental challenge right now, we will stick to somewhere around 1.5 to 1.6% at this point of time. It will start going up from FY28 onwards again. I will tell you how. When gold loan is slated to be around 20% of the portfolio eventually by 2030, which is around 45% right now. The reason it will happen is along with gold loan, which is low on loss, high on yield, and operating cost is also very high, thus leading to higher Opex. One of the reasons our business pe
Q
Thank you. First of all, to YES Securities, Shivaji and team for hosting us. We had fabulous set of questions and some questions made me think for a while before I finally gave the answer. I think we have been able to satisfactorily give a response to most of the questions. Thank you again for asking very good set of questions and look forward to see you at the end of Q4 again. Thank you,
Management
Speaking time
Pralay Mondal
32
Mona Khetan
11
Moderator
10
Suraj Das
6
Shreepal Doshi
6
Parag Shah
6
Satish Gundewar
4
Sonal Minhas
4
Sarvesh Gupta
3
Sivaji Thapliyal
1
Advertisement
Opening remarks
Sivaji Thapliyal
Thank you, Sejal. 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 – Executive Director 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 will now invite the Management to make their “Opening Remarks”. Pralay, over to you.
Pralay Mondal
Thank you, Shivaji, and good evening to everybody on this call. This is regarding the Q3 performance of CSB Bank. Before that, let us see the economic scenario, especially because the world is a volatile place right now, especially in terms of financials. Just a quick summary of what we think is the global scenario. After the US election results, markets globally have reacted to a stronger dollar and probable sanction on US imports contributing to inflation. A concomitant sell off has happened in Indian equities by FPIs. The resultant depreciation of the INR, along with the RBI’s efforts to contain volatility, has caused a rupee liquidity deficit. The RBI has already taken necessary steps to address this, including a 50 bps CRR cut in two phases earlier and the announcement of OMOs, longer-term VRRs, and INR swaps yesterday to inject durable liquidity into the system. The RBI has revised its growth estimate in the last few weeks to 6.6%. While the MFI space shows signs of overheating,
Advertisement
← All transcriptsCSBBANK stock page →