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    CSB Bank

    CSBBANK
    Financial Services·28 Jan 2025
    Management Summary

    CSB Bank delivered a strong Q3 FY25, showcasing robust growth in both deposits (22% YoY) and advances (26% YoY), significantly outpacing industry averages. Profitability metrics improved with net profit up 10% QoQ and operating profit up 13% YoY, supported by a 75% surge in other income. Asset quality saw sequential improvement, with GNPA and NNPA ratios declining. The bank maintained a healthy NIM of 4.11% and capital adequacy, while strategically de-risking its portfolio and investing in technology for future growth.

    Highlights

    8

    • Net profit of ₹152 crores, marginally up YoY and improved by 10% QoQ.

    • Operating profit grew to ₹221 crores, a 13% YoY and 10% QoQ increase.

    • Other income registered a robust 75% YoY growth, contributing ~19% to total income.

    • Cost to income ratio improved to 62.90% from ~65% in Q2 FY25.

    • Net Interest Margin (NIM) stood at 4.11%, sustained above 4% despite tight liquidity.

    • Net advance growth was 26% YoY, more than double the industry growth of 12% YoY.

    • Gold portfolio grew 36% YoY, Other retail by 32%, SME by 29%, and Core corporate book over 30%.

    • Asset quality improved with GNPA at 1.58% (vs 1.68% Q2 FY25) and NNPA at 0.64% (vs 0.69% Q2 FY25).

    What Changed1

    vs Q4 FY25

    Guidance items11 → 16 (+5)

    Key financials

    Single quarter

    18 metrics
    1. 01Net Profit₹152 Cr+10%QoQ
    2. 02Operating Profit₹221 Cr+13%YoY
    3. 03Other Income Growth—+75%YoY
    4. 04Cost to Income Ratio62.9%
    5. 05NIM4.1%

    Segment breakdown

    Gold Portfolio
    36% Growth
    Other Retail
    32% Growth
    SME
    29.0% Growth
    Core Corporate Book
    30% Growth
    Overall WSB
    5% Growth
    List

    Capital allocation

    1
    high confidence
    CategoryHeadline
    Liquidity

    Liquidity disclosed

    The bank ended the quarter with an LCR of over 130% as on 31.12.24 and 119% on an average basis. Funding was complemented by FCY borrowings and Refinance based on cost considerations. The bank is well placed in terms of liquidity/capital ratios and has sufficient room for further growth.

    Guidance & targets

    16
    CategoryTargetPriority
    Asset Quality
    PCR
    70% plus
    		Medium
    Liquidity & Yields
    Liquidity and Yields
    improve this quarter, softening of yields
    		Medium
    Credit Growth
    Credit Growth
    largely dependent on liability growth
    		Low
    Technology Transformation
    CBS migration, OGL, OFSAA completion
    completed Q1 FY26, stabilized Q2 FY26, leveraged Q3 FY26
    		High
    Retail Assets
    Retail assets transformation journey visibility
    visible in the next one year
    		Medium
    Technology Spend
    Tech investments as % of OPEX
    8% to 10%
    		High
    ROA
    ROA range
    1.5% to 1.6%
    		Medium
    ROA
    ROA trajectory
    going up
    		Medium
    Portfolio Mix
    Gold loan share of portfolio
    20%
    		High
    LTV
    Retail Gold Loan LTV
    well below 70%
    		High
    LTV
    Agri Gold Loan LTV
    75% to 85%
    		High
    Ticket Size
    Gold Loan Average Ticket Size
    ₹2 lakhs
    		High
    Yield
    Corporate Book Average Yield
    9% to 9.5%
    		High
    Fee Income
    Core Fee as % of Overall Income
    15%
    		High
    Fee Income
    Non-Core Fee as % of Overall Income
    4%
    		High
    Branch Expansion
    Branch Expansion
    as planned
    		Medium

    PCR

    eventually
    Current60.12%
    Target70% plus

    Why it matters

    Improvement in PCR indicates stronger provisioning coverage and better asset quality resilience.

    PCR now stands at 60.12% without PWO, which is marginally higher than the previous quarter and we would like to take it to 70% plus eventually.

    How to verify

    key_financials.metrics[label='PCR (without PWO)']

    Risks & concerns

    5
    RiskSeverity

    Global economic volatility and inflation

    US election results, stronger dollar, probable sanctions on US imports contributing to inflation, FPI sell-off in Indian equities, INR depreciation, and rupee liquidity deficit. — Management acknowledged

    medium

    MFI space overheating

    Management noted signs of overheating in the MFI space. — Management acknowledged

    medium

    Tight liquidity conditions and higher interest rate costs

    NIM compression has happened due to higher cost of funds and penal interest impact, losing ~25 bps. — Management acknowledged

    medium

    Yield maximization not prudent in current environment

    Conscious de-risking strategy led to moving out of some high-yielding portfolios to focus on low-risk, long-term franchise building. — Management acknowledged

    medium

    Impact of RBI gold loan regulations on small ticket accounts

    RBI circular disallowing accounts less than ₹2 lakhs as agri gold loans led to some account exits, but did not materially impact the overall book. — Management acknowledged

    low

    Q&A highlights

    8

    “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

    2 min read6 chapters

    Detailed Narrative

    01

    Q3 FY25 Performance Overview

    CSB Bank reported a net profit of ₹152 crores for Q3 FY25, showing a 10% sequential growth. Operating profit increased by 13% YoY and 10% QoQ to ₹221 crores. Other income was a significant contributor, growing 75% YoY and 10% QoQ, now constituting approximately 19% of total income. The bank maintained a healthy NIM of 4.11% and achieved a Return on Assets (RoA) of 1.52% and Return on Equity (RoE) of 15.28%.

    02

    Asset and Liability Growth

    Net advances grew by 26% YoY, more than double the industry average of 12%. This growth was broad-based, with the gold portfolio expanding 36% YoY, other retail by 32%, SME by 29%, and the core corporate book by over 30%. Deposit growth remained robust at 22% YoY, despite a slow industry growth of around 10%. However, CASA growth was 7% YoY, resulting in a CASA ratio of 24.07%. The bank's LCR stood at over 130% at quarter-end and 119% on an average basis.

    03

    Asset Quality and Capital Adequacy

    Asset quality showed sequential improvement, with GNPA reducing to 1.58% from 1.68% in Q2 FY25, and NNPA declining to 0.64% from 0.69%. The Provision Coverage Ratio (PCR) without PWO increased marginally to 60.12%, with management aiming for 70% plus eventually. The bank holds a provisioning buffer of ₹181 crores over regulatory requirements. Capital adequacy remains strong with a CRAR of 21.08% and Tier-1 ratio of 19.73%.

    04

    Strategic De-risking and Portfolio Shift

    Management highlighted a conscious strategy to de-risk the portfolio, leading to a shift away from some high-yielding, higher-risk segments like two-wheeler, personal loans, agri, and MFI. This involved exiting certain portfolios, including a ₹200+ crore wholesale account, and reclassifying ₹1,600 crores from gold loan to loan against securities. The bank is now focusing on low-risk businesses and long-term franchise building, even if it means some yield compression in the short term.

    05

    Technology Transformation and Future Growth

    CSB Bank is undergoing a significant technology transformation, with CBS migration, OGL, and OFSAA expected to be completed by Q1 FY26, stabilized by Q2 FY26, and leveraged from Q3 FY26. This investment is projected to be 8-10% of overall OPEX and is seen as crucial for improving productivity, customer service, and enabling future growth in retail assets. The bank aims to transition from a product-centric to a customer-centric, multi-product franchise, expecting ROA to improve from FY28 onwards.

    06

    Distribution Network Expansion

    The bank currently operates with a network of 807 branches and 777 ATMs. It added 34 new branches during the quarter ending December 31, 2024, while merging six as part of branch rationalization. The remaining planned branch expansion is expected to be completed in the current quarter, supporting the bank's strategy for granular growth and deposit mobilization.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.