CSB Bank — Q2 FY26 earnings call

Call held 6 Nov 2025

Management summary

CSB Bank delivered a strong all-around performance in Q2 FY26, marked by significant growth in both top and bottom lines. Profitability metrics like Net Profit, Operating Profit, and NII showed robust increases, while NIM expanded. The bank also demonstrated improved asset quality with declining GNPA/NNPA and strengthened provisioning. Strong advances and deposit growth, coupled with strategic technology investments, position the bank for continued future growth.

Highlights

  • Net Profit for Q2 FY26 stood at INR 160 crores, up 16% Y-o-Y and 35% Q-o-Q.

  • Operating Profit grew by 39% Y-o-Y and 27% Q-o-Q to INR 279 crores.

  • Net Interest Income (NII) increased by 15% Y-o-Y and 12% Q-o-Q.

  • Other income registered robust growth of 75% Y-o-Y and 43% Q-o-Q, constituting 24% of total income.

  • Net Interest Margin (NIM) improved to 3.81%, up 27 bps over Q1 FY26.

  • Gross NPA (GNPA) and Net NPA (NNPA) ratios improved to 1.81% and 0.52% respectively.

  • Advances grew by 29% Y-o-Y, significantly higher than the industry average of 11.4%.

  • Deposit growth was 25% Y-o-Y, also outpacing the industry's 10% growth.

Key financials

  1. Net Profit ₹160 Cr +16%YoY
  2. Operating Profit ₹279 Cr +39%YoY
  3. NII — +15%YoY
  4. Other Income Growth — +75%YoY
  5. Cost-to-Income Ratio 63.9%
  6. NIM 3.8%
  7. ROA 1.3%
  8. Deposit Growth — +25%YoY
  9. CASA Ratio 21.2%
  10. Advances Growth — +29%YoY
  11. Yields on Advances 10.9%
  12. GNPA Ratio 1.8%
  13. NNPA Ratio 0.52%
  14. PCR (without PWO) 71.6%
  15. CRAR 21%
  16. Tier 1 Ratio 19.2%
  17. EPS ₹36.67
  18. ROE 14.5%

What they filed

Q1 FY27: revenue up 23.6%, net profit up 26.1% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue865 919 981 1,041 1,109 +28%1,154 +26%1,201 +22%1,287 +24%
Net profit138 152 190 119 160 +16%153 +1%202 +6%150 +26%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Capital allocation

high confidence
  • Liquidity Liquidity disclosed The bank maintains sufficient liquidity buffers with an average LCR of 126% and NSFR ratio of 116%.
    MR. PRALAY MONDAL: We have sufficient liquidity buffers and are maintaining LCR at comfortable levels. Liquidity is quite efficiently managed. CD ratio stood at 88%, average LCR for the quarter is at 126% and NSFR ratio is at 116%.

Guidance & targets

Margin

  • NIM Margin · rest of the year · Medium confidence 3.7% to 3.9%
    At the moment, we are at 3.81% of NIM. Going forward, probably we will be in this range of about 3.7% to 3.9% for the rest of the year, it may move from quarter-to-quarter. It will be very difficult to really pinpoint the full year NIM, however for the rest of the year, we feel that we will be in the similar range of 3.7% to 3.9%.

    — MR. SATISH GUNDEWAR

Profitability

  • Cost-to-Income Ratio Profitability · next year or so (FY27) · Medium confidence 60% to 65%
    Hence the cost to income as per our previous guidance, will be between 60% to 65% for another year or so. After that, it will start coming down and FY '28 onwards, it will sharply start coming down.

    — MR. PRALAY MONDAL

Branch Expansion

  • Number of Branches Added Branch Expansion · annually · Medium confidence 50 to 60
    On the branches, we will add around 50 to 60 branches at this point of time on an average every year because we are pretty much reaching the critical mark of 1,000 branches, which we wanted to reach and then take a stock of situation and then we will think from there.

    — MR. PRALAY MONDAL

Revenue

  • Fee Income as % of Total Income Revenue · safely right now · Medium confidence 19% to 20%
    I think whatever fee income we are seeing, it may not grow every quarter by 40% and all, but I think we will sustain and we can bake in around 19% to 20% of our overall income as fee income safely right now.

    — MR. PRALAY MONDAL

Asset Quality

  • Credit Cost Asset Quality · long-term / yearly basis · Medium confidence 40 to 50 bps
    On Credit cost, we have given a long-term guidance between 40 to 50 basis points. Sometimes it will be higher, sometimes it will be lower, but broadly, we will be in that range.

    — MR. PRALAY MONDAL

Credit Growth

  • Overall Credit Growth Credit Growth · sustainable future · Medium confidence 25% to 30%
    If you are able to build up a good deposit franchise, we will be able to grow easily between 25% to 30% for sustainable future.

    — MR. PRALAY MONDAL

Portfolio Mix

  • Gold Loan as % of AUM Portfolio Mix · by 2030 · Medium confidence upwards of 25%, but below 30%

    Previously around 20% → upwards of 25%, but below 30%

    Previously, I used to say it is around 20%, but a new segment is coming up in gold business, which we want to address, which is the SME segment. ... I think we should be somewhere upwards of 25%, but below 30% is what our plans are in gold loan by 2030...

    — MR. PRALAY MONDAL

What to watch in Q3 FY26

NIM Trajectory

rest of the year
Current 3.81%
Target 3.7% to 3.9%

Why it matters

NIM is a key profitability metric for banks, and its stability within the guided range is crucial for earnings.

MR. SATISH GUNDEWAR: At the moment, we are at 3.81% of NIM. Going forward, probably we will be in this range of about 3.7% to 3.9% for the rest of the year, it may move from quarter-to-quarter.

Risks & concerns

  • Deposit growth lagging credit growth

    medium

    The continuous lag in deposit growth has impacted the banking sector NIM significantly, though management expects NIM to stabilize.

    Management acknowledged

  • RBI policy interpretation on re-pledger/s

    medium

    The bank is conservatively running down its Loan Against Security portfolio due to regulatory guidance, impacting retail advances.

    Management acknowledged

  • SME ecosystem related issues

    medium

    The bank has been cautious on SME growth due to various ecosystem related issues and pressure on exports.

    Management acknowledged

  • Liquidity constraints on overall growth

    medium

    While asset growth of 25-30% is achievable, it will be constrained by liquidity and other ecosystem situations, requiring a balance between LCR, NIM, and growth.

    Management acknowledged

  • Global growth subdued

    low

    Global growth focus remains subdued, impacting the broader economic scenario.

    Management acknowledged

Q&A highlights

7 direct, 1 evasive
NIM and Yield Trajectory Direct
In terms of the advances yield, we have businesses divided into 4 segments - Gold being the largest one with 47% composition in our advances. We have not only seen that the portfolio has increased very strongly, at the same time, there has been improvement in our gold yields as well. That is one of the contributors.

Clarified drivers for NIM expansion, attributing it to gold and wholesale segment performance, and limited linkage to external benchmarks for a significant portion of the portfolio.

Asked by Akshat Agrawal

Sustainability of Fee Income Direct
In terms of the fee income, we have got multiple sources. If you track for the last several quarters, our fee income trajectory has been pretty strong. This quarter also, our disbursement track was very good and that has resulted into good processing fee income.

Addressed concerns about the high growth in fee income, explaining its granular nature and diverse sources (processing fees, insurance, transaction banking) making it sustainable.

Asked by Akshat Agrawal

Elevated Opex Growth Direct
I think we are somewhere around 23% opex growth for the half year on a year-on-year basis, which is pretty tough when you are growing the balance sheet by 27%. Let us not forget that we are investing into the bank at this point of time and full payback will start happening from FY '27 or FY '28 onwards.

Provided context for high operating expenses, attributing it to strategic investments, particularly in technology, with a clear timeline for payback and subsequent improvement in cost-to-income ratio.

Asked by Akshat Agrawal

Processing Fees Contribution to Income Evasive
We do not give detailed breakup on this. ... I said this is granular. Like a lot of people had doubts that last quarter when I said that our NIM has bottomed out, but we have proved it. So, trust us, it is granular.

Analyst pressed for specific breakdown of processing fees due to its material impact on ROA, but management declined to provide it, reiterating its granular and sustainable nature without further detail.

Asked by Mona Khetan

ECL Transition and SMA Book Composition Direct
Mona, Satish here. On the bank policy on NPA, the provisioning policy that we follow for nonperforming assets is much more accelerated compared to the RBI guidelines. Over and above that, we also carry some contingency provision... Mona, if I can just add that SMA book, whether stage 1, stage 2 - whatever you call it, you must understand that we have a large gold portfolio in that.

Provided clarity on the bank's proactive provisioning strategy and explained that the SMA book largely comprises gold loans, which might distort the true picture of asset quality risk.

Asked by Mona Khetan

PCR Improvement and Credit Cost Outlook Direct
Our PCR without write off has always been in the 70% plus range historically. That is where our comfort zone is - 70% to 75% which is what I have guided in past also. ... I think this year, anything around 40 to 50 bps is where we position ourselves.

Explained the rationale behind the improved PCR (accelerated provisioning) and provided a clear outlook for credit costs to remain in the 40-50 bps range, indicating no expected increase in H2 FY26.

Asked by Mona Khetan

Sustainability of Gold Loan Growth and Future Drivers Direct
If you look at gold price, it has only gone up in the last 1 or 2 years. But if you look at sustainability of our gold growth over the last 3, 4 years, take aside the FY '22 because of the LTV impact from 90% to 75%. Our sustainability of the gold growth has been uniform.

Addressed concerns about gold loan growth dependence on gold prices, emphasizing the bank's consistent growth over years and diversification into other segments like wholesale, SME, and upcoming retail banking.

Asked by Yash Dantewadia

Gold Loan Percentage of AUM by 2030 Direct
Previously, I used to say it is around 20%, but a new segment is coming up in gold business, which we want to address, which is the SME segment. ... I think we should be somewhere upwards of 25%, but below 30% is what our plans are in gold loan by 2030...

Management revised their long-term target for gold loan's share in AUM upwards, indicating an evolving strategy to target the SME segment using gold as collateral, which suggests continued focus on this asset class.

Asked by Yash Dantewadia

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Detailed narrative

Q2 FY26 Financial Performance Overview

CSB Bank reported a strong Q2 FY26, with Net Profit reaching INR 160 crores, marking a 16% Y-o-Y and 35% Q-o-Q increase. Operating Profit also saw significant growth, up 39% Y-o-Y and 27% Q-o-Q, to INR 279 crores. Net Interest Income (NII) grew by 15% Y-o-Y and 12% Q-o-Q, complemented by robust other income growth of 75% Y-o-Y and 43% Q-o-Q, which now constitutes 24% of total income. The Cost-to-Income ratio stood at 63.86%, a slight improvement from previous quarters.

Net Interest Margin (NIM) and Cost of Funds

The bank's NIM improved to 3.81% in Q2 FY26, an increase of 27 bps over Q1 FY26, and ROA reached 1.33%, up 30 bps. This improvement was driven by higher yields on advances (10.95%, up 22 bps sequentially) and a reduction in the cost of funds, particularly from bulk deposits. Management noted that approximately 60% of their portfolio is fixed-rate, providing insulation from rate cuts, and they strategically shifted to lower tenor deposits. The bank expects NIM to stabilize in the range of 3.7% to 3.9% for the remainder of the year.

Fee Income Drivers and Sustainability

Other income showed robust growth, largely driven by granular and sustainable sources. Processing fees, linked to strong disbursements in Q2, contributed significantly, alongside strong performance in the insurance business and transaction banking from the newly established wholesale banking vertical. Management indicated that fee income is expected to contribute around 19% to 20% of overall income, with further improvements anticipated as retail assets and other businesses scale up from FY27 onwards.

Operating Expenses and Technology Investments

Operating expenses grew by approximately 23% Y-o-Y, reflecting significant investments in the bank's future. A substantial portion of these expenses are technology-related, including AMC costs, which are treated as opex rather than capex. The bank is undergoing a major tech transformation, including CBS migration and enhancements, with full payback and a sharp reduction in the Cost-to-Income ratio expected from FY27 or FY28. The current Cost-to-Income ratio is guided to remain between 60% to 65% for the next year.

Asset Quality and Provisioning Strategy

Asset quality improved, with GNPA reducing to 1.81% (from 1.84% in Q1 FY26) and NNPA to 0.52% (from 0.66%). The Provision Coverage Ratio (PCR) without PWO increased to 71.62% (from 64.52% in Q1 FY26) due to accelerated provisioning. The bank holds a contingency provisioning buffer of INR 199 crores above regulatory requirements. Management expects credit costs to remain in the 40-50 bps range for the long term and does not anticipate a material impact from the upcoming ECL guidelines, as their existing provisions are robust.

Business Growth and Segment Strategy

Total advances grew by 29% Y-o-Y, significantly outperforming the industry's 11.4% growth. Deposit growth was also strong at 25% Y-o-Y, compared to the industry's 10%. The bank is strategically diversifying its loan portfolio, with wholesale banking and SME segments showing strong growth. Retail banking, supported by new systems, is expected to commence significant growth from FY27. Gold loans, currently 47% of advances, continue to grow sustainably, with a revised target of 25-30% of AUM by 2030, focusing on the SME segment.

Future Outlook and Strategic Pillars

CSB Bank is targeting to emerge as a respectable midsized bank by FY2030, with a focus on governance, compliance, customer orientation, technology, and people/culture. The ongoing technology transformation is seen as a critical enabler for future growth. The bank aims for sustainable credit growth of 25-30%, balancing this with liquidity management and NIM. Branch expansion will continue with 50-60 new branches annually, aiming for 1,000 branches before reassessing.

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