CSB Bank — Q3 FY25 earnings call

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. If you look at the details of our assets book, degrowth has happened in 3-4 products, which are all high-yielding products viz, Two-wheeler, Personal loans, Agri, MFI etc. Unsecured portfolio, we have degrown big time.

Management explained the yield compression as a result of a conscious de-risking strategy, moving away from high-yielding, higher-risk segments and exiting certain portfolios.

Asked by Suraj Das

There has been no change compared to last quarter. Some changes we had made in the previous quarter because of regulatory and other reasons. We had moved a business of around Rs. 1,600 crores from Gold loan to loan against securities and we had disclosed that in the call and various conversations. There also the collateral security is fully backed by gold only.

Analyst noted discrepancies in reported gold loan numbers. Management attributed it to a previous reclassification of ₹1,600 crores from gold loan to loan against securities (LAS) due to regulatory reasons, and later clarified that RBI circulars on agri gold loans also led to exits of small ticket accounts.

Asked by Suraj Das

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 existing one.

Management detailed various customer behaviors (prepayment, new loans for higher LTV, selling gold) and the bank's LTV management strategy, noting that LTV generally comes down as gold prices rise, and they allow customers to re-leverage.

Asked by Sonal Minhas

Mona, the RWA consumption on the gold is minimal, because we get a set off on the value of the gold after doing a haircut. Now, in the overall portfolio also, we always maintain an LTV of 75%. After we do a haircut, that value is compared to the outstanding and only whatever is remaining as balance that is risk weighted. After doing haircut also, generally there is no exposure, which is in excess of the collateral that we are holding. At the overall portfolio level also, the RWAs are very low, so the capital consumption is minimal in gold loan.

Management clarified that RWA consumption for gold loans is minimal due to the collateral-backed nature and LTV management, making the risk weight difference between Agri and Retail gold loans immaterial.

Asked by Mona Khetan

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 come under this new guideline.

Management explained that the decline in gold loan accounts was partly due to RBI norms disallowing small ticket loans (<₹2 lakhs) from being classified as agri gold loans, leading to some account exits without materially impacting the overall book size.

Asked by Mona Khetan

I think if you have to run an efficient bank and if you have to actually bring down your cost to income, you have to incur 8% to 10% of your technology cost because you have to automate everything. Because people, productivity, all of that will happen only when we are making the person productive through on the go, mobility on his hand, better customer service. ... This is a classical method that larger banks and more successful banks have done.

Management outlined their strategy to reduce cost-to-income in the long term by investing 8-10% of OPEX in technology, aiming for multiplier effects on productivity, better customer service, and cross-selling, which will ultimately lower operating expenses per customer.

Asked by Parag Shah

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. ... The reason the way it happens is that one customer has to have multiple products. ... The banking business is not about a single product business. ... Eventually we have to travel the journey and the whole reason of investing in this kind of technology and leadership and distribution and customer acquisition, all of this, is to move from a kind of a single product to a multi-product system.

Management clarified that while ROA is currently constrained to 1.5-1.6% due to the environment, it is expected to rise from FY28 as the bank transitions from a product-centric to a multi-product, customer-centric franchise leveraging technology and distribution to deepen customer relationships and cross-sell.

Asked by Sarvesh Gupta

When you look at a franchise, I am not looking at product profitability; I am looking at a customer. My model is; I will give the customer what he wants. ... The day we work with customer franchise, through branches and internal channels, that is the day you do not incur those costs, which you otherwise incur. Our model will be like this. Everybody else will support the front end who is meeting the customer or servicing the customer.

Management emphasized a shift to a customer-centric franchise model, where profitability is viewed at the customer level rather than product level. This approach, leveraging internal channels and cross-selling, is expected to avoid the high costs associated with product-specific growth and improve overall profitability from FY27-28.

Asked by Sarvesh Gupta