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CSB Bank reported an overall good set of numbers for the quarter ended December 2024. Here’s what stood out:
In Q3 FY25, the banking sector has been impacted by liquidity tightness in the system, having a say on growth in deposits and consequentially the growth in advances. The system level growth in deposits was seen at 9.8 per cent year on year and the growth in advances at 11.2 per cent.
However, CSB Bank was an exception. It’s business (deposits and advances) grew at over twice the system level growth, unlike some bigger banks. Deposits grew at 22.2 per cent and advances at 26.5 per cent year on year.
On the advances side, the bank has been going through a phase of derisking the loan book for about a year now, resulting in degrowth in segments of retail such as personal loans, two-wheeler loans and microfinance (retail loans account for 20 per cent of gross advances). This is more so in the corporate or the wholesale book (22 per cent of gross advances), where the bank has been exiting accounts that are not favourable, even if performing. The wholesale book’s year on year growth in the first two quarters was negative. However, in the last quarter, growth has started to come in, recording a growth of 5.3 per cent year on year.
Meanwhile, the gold loan book (45 per cent of gross advances), the SME book (13 per cent of gross advances) and the retail book have fired on all cylinders, recording yearly growth rates of 36 per cent, 29 per cent and 32 per cent respectively. On the retail book, products such as loan against property (LAP) and commercial vehicle loans are seen driving the momentum.
The growth in deposits despite recorded at a good 22 per cent, is to be taken with a pinch of salt, though. The low-cost CASA balances grew at a lower 6.6 per cent and the CASA ratio has fallen from 27.6 per cent of total deposits to 24.1 per cent. But more importantly, the bank has been mobilising bulk deposits at a faster clip lately. Growth in bulk deposits during the first three quarters of FY25 came in at 86 per cent, 107 per cent and 76 per cent respectively, year on year. The proportion of bulk deposits has gone up from 27 per cent a year ago to 39 per cent. Bulk deposits carry a relatively higher interest rate and lack granularity that retail deposits have. The management note that this enables the bank to rebuild a good wholesale portfolio, which is a part of its long-term vision. The success however, will hinge on the effective management of the run-offs in the bulk deposits and needs to be monitored.
The net interest income saw a degrowth of 2 per cent on an annual basis. This is largely on account of regulatory compliance requiring reclassification of penal charges to other income. Other income saw a year-on-year jump of 75 per cent. The effect of this reclassification was seen in the net interest margin too, as it dropped 19 basis points sequentially. Other factors such as degrowth in high yielding personal loans, microfinance, etc. and a higher cost of deposits (higher bulk deposits in the mix) too contributed to the decline.
Asset quality remained stable. The gross NPA ratio dipped 10 bps sequentially to 1.58 per cent. Slippages remained flat quarter on quarter and credit cost was flat at 17 bps annualised.
At ₹302, the stock trades at 1.23 times its trailing price to book value down from its 5-year average of about 1.9 times.
Published on January 29, 2025
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