CSB Bank Q1 FY27 earnings call

CSB Bank reported a net profit of Rs.150 Crores in Q1 FY2027, marking a 27% year-on-year growth. Operating profit also saw a 14% increase to Rs.251 Crores. Net interest income grew by 26% to Rs.479 Crores, while the Net Interest Margin (NIM) stood at 3.66% for the quarter, up from 3.54% in Q1 FY2026. Return on Assets (ROA) improved to 1.09% from 1.03% in the prior year quarter, and Return on Equity (ROE) increased to 12.71% from 10.9%.

The bank's deposits recorded a strong 26% year-on-year growth, significantly outpacing the industry average of 13.4%. Advances also grew robustly by 24% year-on-year, compared to the industry's 18.6%. The credit-deposit ratio saw a favorable improvement, now marginally below 90%, indicating a comfortable liquidity position. However, the CASA ratio remained at 19.41%, with bulk deposits constituting around 52% of the total mix.

Asset quality remained stable with a Gross Non-Performing Asset (GNPA) ratio of 1.75% and a Net Non-Performing Asset (NNPA) ratio of 0.39% for Q1 FY2027. The Provision Coverage Ratio (PCR) without write-offs stood at a healthy 77.96%. The bank maintains a provisioning buffer of approximately Rs.198 Crores over regulatory requirements, including a contingency provision of about Rs.105 Crores, and continues its accelerated loan provisioning policy for the upcoming ECL framework transition.

Other income for Q1 FY2027 degrew by 7% year-on-year, primarily due to a significant decline in treasury profits, which were Rs.53 Crores in Q1 FY2026 but only Rs.12 Crores (with Rs.3 Crores trading profit) this quarter. The bank adopted a conservative stance on treasury, choosing not to book profits when yields were marginally down, preferring to wait for stabilization. Additionally, reduced retail disbursements and a temporary slowdown in insurance business contributed to the decline.

The gold loan portfolio currently constitutes about 54% of the total book, with a strategic objective to reduce this to approximately 30% by 2030. The repledger business (LAS against gold), which was not a gold loan, has reduced significantly from Rs.2100 Crores to Rs.60 Crores due to RBI's advice to discontinue it from April FY2027. Gold loan disbursements were also impacted by new regulatory implementations, such as end-use monitoring, and a lack of upward movement in gold prices, which typically drives higher disbursements through renewals and top-ups.

The bank is actively building its retail liability acquisition channel and enhancing transaction banking products, leveraging recent technology transformation efforts. While retail deposit growth is expected to become more visible from FY2028 onwards, with CASA growing faster than term deposits from FY2029, the current focus is on putting systems and sales teams in place. Management emphasized a deliberate, sustainable approach to retail growth, avoiding aggressive partnerships to ensure a compounding growth story.

The wholesale business, currently around 26% of the book, is targeted to reach approximately 32% by FY2030, with a growth rate of 35-40% for the current year. The bank is diversifying risk within its wholesale portfolio, with the FIPS book now down to one-third of the wholesale banking portfolio from 70% previously. A cautious and measured approach is being taken towards the SME/BLG portfolio due to market uncertainties, with some Q1 slippages expected to be upgraded in Q2/Q3.

CSB Bank maintains strong capital adequacy, with a CRAR of 19.96% and a Tier-1 ratio of 18.96%, both well above regulatory requirements. The bank's risk weights are around 42% of the total exposure. Book value per share stands at Rs.289, and EPS for Q1 FY2027 was Rs.35, up from Rs.27 in Q1 FY2026. Management aims to achieve an ROE of around 15% for the full year FY2027, up from 14.14% in the previous year.