CSB Bank - Core Focus Towards Creating A Well-Diversified Universal Bank: Nirmal Bang

Nirmal Bang Report

We met the management of CSB Bank, in order to have an understanding of its –

1. business transformation journey post-acquisition of stake by the new promoter group,

2. digital and technological initiatives undertaken by the bank,

3. underwriting process and

4. impact of the Reserve Bank of India’s circular on risk weight increase on the bank’s overall strategy with respect to exposures and pricing.

The core focus of CSB is towards creating a well-diversified universal bank that offers the entire suite of products and services to customers. Post the technological up-gradations, the bank expects to be one of the best in the industry in terms of:

1. technology stack being used,

2. improvement in the ability to launch newer versions of various products and

3. improvement in the entire customer journey - right from initiation at the bank to disbursal of loan.

The bank has a robust underwriting process, whereby each loan proposal is evaluated at various levels by credit committees based on the overall exposure limit.

The impact of increase in risk weights by the RBI on the bank’s CET-1 is expected to be much lower compared to the accretion of H1 FY24 profits to its CET-1, thus making the net impact positive.

CSB Bank is strongly capitalised currently with capital adequacy ratio of 23.96% (comprising 22.56% tier I capital) and so does not require to raise equity capital at least for the next 2-2.5 years.

The management continues to hold the loan growth guidance in the range of 25-30% for FY24. With all the digital and technological initiatives in place, return on asset is expected to be ~1.5-1.8%, supported by credit growth and improved cost ratios.

Credit cost for FY24 is expected to be 10-20 basis points. In the long run, credit cost is expected to remain ~40- 50 bps. Currently, CSB is trading at 2.2 times its trailing adjusted book value of Rs 187.

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