Published On: Fri, Nov 22nd, 2019

CSB Bank IPO: Primary objective of CSB Bank IPO is only to get the shares listed: CVR Rajendran


Cost to income ratio below 50% and NIM of 4% is the best benchmark in the industry today. We aspire to move towards it, says CVR Rajendran, MD & CEO, CSB Bank. Excerpts from an interview with ETNOW.

Tell us about a little bit about the history of the CSB Bank, the reach, CASA and so forth.
This is a 99-year-old bank and we have a very strong track record and 65% of our business comes from Kerala and 35% from other territories. Today we have 421 branches, out of which, 260 are in Kerala and remaining are in Tamil Nadu and Maharashtra. We will be expanding into other states. Initially, we are planning south and west based expansion. Our liability base is around Rs 15,500 crore and we have assets of around Rs 12,000 crore.

Of the liability, 28% is CASA. Our CASA liabilities have come down drastically and today it stands at around 5491. On the asset side, 33% of my book is gold loan at an attractive yield of around 11.5% and another 30% comes from SMEs. Of that, about 10% is coming from MSME with the yield of around 12% for the SME book and we have 25% of the book from the corporates with a yield of around 9.5%. We have the remaining 8-9% coming from the other retail with the yield of around 12%.

Today on a portfolio yield, the overall yield or the performing assets is around 10.6% today. We work with a healthy margin. Our net interest margin used to be around 2.1% in 2017, which has improved to 3.4% during the first half of the current year.

What are the primary objectives of the issue and how do you plan to utilise the funds?
Primary objective of the issue is only to get the shares listed. We have enough capital. We have 23% capital adequacy ratio today and this issue is not to raise additional capital even though it results in another Rs 25 crore of capital being raised as a part of the Rs 400 crore raise today. The issue is mainly from the offer for sale from the existing investors who are exiting in this issue.

But large institutions are exiting via this issue. Is that not negative? Could you help us understand why exactly are they exiting and who are you anticipating interest from on the institutional side of the issue?
These are all investors who came at our request. Basically these are insurance companies who came for a tie up with us three years back and at that time, we did not have other options of raising capital. We requested them to put in 5% each into the company. They came in at a price of Rs 120. Today they are on a good profit and they are exiting to enable us to list the shares.

If you talk about the institutional investors, the anchor book is closed. Rs 184 crore has been raised and the list is available in the public domain today.

What about the composition of the loan book? What would your focus be going forward?
In the loan book, earlier 33% came from gold, 33% from SMEs, 25% from corporates and another 8% from retail. Going forward, the other retail will continue to grow which is at 8% today. It is our aim to take it to 15% over a period. Gold book may go up to 35%, gold plus other retail will become 15% of our book.

On the other side, corporate books which is at 25% — here most of the funds are only for parking the funds which we were having in surplus earlier, when we did not have capital. We went to the AAA and AA rated companies for lending. That book will rundown over a period and we will have corporates which we consciously take up for a longer term. That will be confined mostly to 14% and this is, of course, a proposed structure. Depending upon the opportunities it may undergo a change.

Tell us about the asset quality of the bank and the provision coverage policy as well.
Asset quality has improved over a period of time. New slippages are very low. This is not only because of the recovery and provision but also because of the process changes which were brought in two years back. We are engaged with CRISIL and CRISIL has returned our entire loan policy as well as processes and also introduced a new rating systems for the loan.

We have segregated the loan sourcing from the underwriting and administration as well as the monitoring. So there is no vested interest of any one of the groups. The total overall book has improved a lot and during the last three years, sanctions slippages are very low. Not only that, we have improved our provision coverage ratio also from 64% to 80%. We have gone for an accelerated provisioning policy. We provide much more than what RBI wants us to do. Today you look at the book as we are a Canadian subsidiary and we are IFRS compliant.

The entire Indian banking system has not moved into IndAS but we already moved into IFRS. As and when IndAS is introduced, the impact on our balance sheet will be much less. It may even be positive also.

Being a gold loan oriented bank, what is the outlook on gold? It has always been on an upswing. What is your strategy here?
We are in the business of gold loans for the past 100 years. This is one business which we are doing right from day one till now. All my people are very familiar with the gold assessment and apart from the internal assessment, today we have appraises coming from outside and we have also taken gold loan inspectors from gold loan companies to ensure that every 15 days, the gold is verified. It has improved the quality of the portfolio a lot.

When the industry has 0.36% as the NPA in the gold loan portfolio, our NPA in the gold loan portfolio is only 0.10%. Ultimate loss is almost nothing. We have introduced a whole range of products like any other gold loan company. The only thing we have not gone for is marketing and branding in a big way and we will do that now.

If you look at the loan to asset value, when the gold loan companies have gone up to 75%, our loan to asset value is only 64%. That gives a huge margin. One need not sell in a hurry if the prices fall by 5% or so. Over a period of 100 years, the bank has not seen any big losses in the gold loan just because of the fluctuations of the gold loan prices. It is a very stable business. Gold is not value alone. Gold is not security alone. Lot of sentiments are attached to gold in family jewellery. We naturally respect it. We do not sell in hurry that is why my customers come back repeatedly.

On the delivery side, gold loan company’s unique selling point today is their ability to give a loan within 5 minutes. A quicker turnaround time both at the time of pledging as well as at the time of redemption. Within 20 minutes, we are able to disperse a loan and similarly on the redemption side also, we are trying to improve our turnaround time.

What about the timing of the IPO? As far as banking trends go, a lot of smaller aggressive banks have been facing problems. What are your thoughts on that?
Timing of the IPO is one of the best possible today. All the indices are at their peak level today, near to the peak. As far as the banking industry is concerned, today the public sector bank system is losing the market share and private sector is gaining the market share and thus decision making has come to a standstill across the banking system.

If you have the right people, if you have quick turnaround time and if you have the right processes, the market is reversed. We are building up these capabilities and with the accelerated retirement programme, we retired many of our senior executives and we have taken the best of the people for each function from either NBFCs or new private sector banks. This team should be ready by this financial year end and each one of these product vertical will become fast growing going forward.

Any guidance that you can share with us on growth as well as on some of the key parameters?
I am not supposed to give guidance during this session. But of course, we would be aiming for the best in the industry. The best in the industry today for ROA is around 1.5 and return on equity is 18% and provision coverage is 80%. Cost to income ratio below 50% and NIM of 4% is what the best benchmark in the industry we are seeing today. It is our aspiration that we must move towards it.





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