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CSB Bank charts branch expansion fuelled by gold loans

Canadian billionaire Prem Watsa controlled has doubled down on branch expansion as it seeks to reduce dependence on its home state of Kerala and seek growth in newer markets especially in retail banking.

The bank will continue to add more branches as it changes character to pan Indian franchise from a Kerala based lender, CEO CVR Rajendran said.

CSB added 100 branches last fiscal as it competed 100 years of existence in 2020. It will add another 200 branches in the fiscal ended 2022, most of them outside Kerala in states like Andhra Pradesh, Telengana, Tamil Nadu, Goa and Madhya Pradesh.

“Out of the 100 branches we opened last fiscal just 9 were in Kerala and that too in the northern part of the state where we had limited presence. This fiscal we plan to add another 200 branches most of them outside Kerala in states like Andhra, Tamil Nadu and Telengana,” Rajendran said.

CSB Bank is looking to reduce dependence on its home market Kerala which corners 52% of its branches, 64% of its deposits and 32% of loans.

In the fourth quarter ended March 2021, the bank swung to a profit from a loss in the previous year led by strong growth in gold loans and higher margins.

The bank reported a net profit of Rs 43 crore from a loss of Rs 60 crore a year earlier mainly due to a 27% rise in advances riding on demand for gold loans.

Net profit however fell to Rs 43 crore from Rs 53 crore in the third quarter ended December 2020 due to higher employee pension expenses and depreciation costs. The bank provided Rs 38 crore in employee expenses and Rs 12 crore in depreciation costs leading to 15% rise in total expenses compared to December 2020 which pulled down net profit.

However, a 61% year on year rise in the high margin gold loan segment helped the bank swing to a profit versus a loss last year. Net interest margin (NIM) or the difference between a yield a bank earns on loans and that it pays on deposits improved to 5.42% from 3.73% a year earlier, also aided by a fall in cost of deposits to 4.76% from 5.86% a year ago.

Net interest income increased 75% to Rs 276 crore from Rs 158 crore a year earlier.

Gold loans now constitute 31% of the bank’s loan book only challenged by corporate loans which constitute 28% of loans. However, Rajendran said the higher yield on these loans, a 78% loan to value ratio and rising gold prices still make these loans an attractive proporsition.

“We have made enough provisions for stressed assets by way of accelerated NPA provisioning and standard asset provisioning. Given the situation, I feel that we can fully focus on growth in FY 22 without any baggages of the past. Gold loans, two wheeler loans, Agri loans, MSME and SME will continue to be in the main focus. Revised structure and policies are in place for SME vertical and the focus will be on select segments, customer priorities and value proposition,” Rajendran said.

The bank is carrying excess provisions of Rs 250 crore which Rajendran said is enough to deal with any stress emerging from the second wave of the Covid 19 pandemic. With a 85% provision coverage ratio and a 25% provision on loans even delayed by a single day, Rajendran said he has enough cover for now.

The bank’s net NPAs after provisions decreased to 1.17% from 1.91% a year ago though they were higher than the 0.68% reported in December mainly as new slippages increased by Rs 188 crore after the Supreme Court ordered moratorium on classifying loans as NPAs was lifted in March.

The bank has restructured 13 accounts with an outstanding exposure of Rs 133 crore for which it has provided Rs 7 crore according to the RBI mandated restructuring.

Rajendran said only Rs 25 crore of loans from micro and small enterprises were part of the restructuring in fiscal 2021. However, he expects some loans from textile, toursim, healthcare and education sectors to qualify for a RBI mandated second restructuring this time.

“SME and retail loans together make about 21% of our loan book. SME loans of about Rs 3000 crore could be part of the restructuring though we have not yet analysed how many of them would actually need it,” Rajendran said.

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