‘Investors convinced with our transformation story’

CV R RAJ END RAN, managing director and chief executive officer of CSB Bank, whose ~410-crore initial public offering was subscribed a whopping 86.89 times, tell sTE Narasimhan how the bank plans to position itself against nonbanking financial companies.

“WE ARE PLANNING TO BECOME A NEW-GENERATION BANK THAT WILL WORK MORE ON THE NBFC SPACE, AS FAR AS LENDING IS CONCERNED. MICROFINANCE, MSME, TWO-WHEELERS, AND USED TRUCKS ARE SOME OF THE AREAS WHERE THE YIELDS ARE BETTER”

On its 100th year, CSB Bank, formerly called Catholic Syrian Bank, went public and its ~410-crore initial public offering (IPO) was subscribed 86.89 times. C V R RAJENDRAN, managing director and chief executive officer, who was instrumental in getting the ~1,200-crore investment from Fairfax about two years back, tells T E Narasimhan how the bank plans to position itself against non-banking financial companies (NBFCS). Edited Excerpts:

What are the factors that attracted investors, which led to the stellar performance of IPO?

Investors are convinced with our transformation story and journey towards a new private sector model. It is a work in progress, but they are happy about the progress. Growth in gold loan and advances in the past three years, even without capital, also impressed them. The bank has expanded the advance portfolio but reduced risk-weighted assets and grew the portfolio. Investors liked that change in the composition.

CSB’S network and the granular deposit base are other factors. Nonperforming assets (NPAS) are much less than the industry itself. Industry level is around 0.36 per cent NPA in the gold loan, and CSB’S is less than 0.10 per cent and

credit losses are very limited. Yield is also better compared to the industry. Our positioning as a competition to the NBFCS and not as a competition to the bigger banks also impressed the investors.

What are the challenges?

Scaling up (the business), which we have to prove to the market. We are working on it. We have our ability to maintain NPAS at the current level and PCR at the current level of

80 per cent. It will improve over a period of time, but with the portfolio growing, it may be a challenge. We need to prove our ability to reduce the cost to income ratio to below 50, which is down from 103 to 71 now.

How are you planning to scale up?

For every ~1,700 crore of growth (~1,000 crore of deposit and ~700 crore of advances), we may get ~30 crore more profit. CSB got about ~1,208 crore capital from Fairfax and about ~25 crore from the issue. With this capital, and the same composition of 33 per cent of gold loan and remaining risk weighted assets, we can double the balance sheet without need for further additional capital.

What is your target?

We had anticipated growth of not less than 25 per cent. Since we are celebrating the bank’s 100th year, we are looking at whether we can grow at a higher level to prove to the world our ability to grow.

On a full year you have registered a loss last year.

Last year, we reported a one-off loss, an additional provisioning of ~98 crore, and another ~100 crore, because of employee provisions. We already have posted a ~44crore net profit for the first half of the financial year. Our operating profit was around ~104 crore.

How do you position CSB?

We are planning to become a new-generation bank that will work more on NBFC space, as far as the lending is concerned. Micro finance, MSME, two-wheelers, and used trucks are some of the areas where the yields are better.

What are your other targets?

We were able to reduce the cost of deposit from 7.8 per cent to 5.9 per cent, yield on advance is around 10.6 per cent on our advances. Net interest margin rose to 3.4 per cent from 1.7 per cent in three years. But the industry best is about or more than 4 per cent. Our effort should be to reach industry benchmarks. How fast you can do it is the challenge.

Are you expanding branches?

We have written to the Reserve Bank of India, and started working on expanding branches. About 200 branches will be coming in next 18 months.