Investors are convinced with CSB Bank's transformation story: CEO Rajendran

Our positioning as a competition to the NBFCs and not the bigger banks impressed investors, says Rajendran

In its 100th year, CSB Bank, formely known as Catholic Syrian Bank, went public and its Rs 410 crore IPO was subscribed a whopping 86.89 times.

C V R Rajendran, managing director and chief executive officer, who was instrumental on convincing Fairfax to invest Rs 1,200 crore in CSB AROUND 22-months back, spoke to T E Narasimhan on what convinced investors, how the bank wants to position itself against NBFCs and what are its future plans. Edited excerpts:

What are the factors that attracted investors and led to the stellar performance of CSB's 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 work we have done till now. Growth in gold loan and advances in the last three years, even without capital, also impressed them. The bank also expanded the advance portfolio, but we have reduced our 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.Moreover, the bank's NPAs are much less than the industry levels. While the industry level is around 0.36 per cent NPA in gold loans, CSB's NPA in gold loans is less than 0.10 per cent with limited credit losses. The bank's yield is also better compared to the industry.

Our positioning as a competition to the NBFCs and not the bigger banks also impressed the investors.

What are the challenges in front of you now?

Scaling up (the business), in order to prove ourselves to the market, and we are working on it.

We have the ability to maintain NPA and PCR at the current levels and improve them 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, which has come down to 71 from 103. Our ability to take it down to below 50, which is the industry norm, is what they (investors) want us to prove. These are the tasks ahead of us.

How you are planning to scale up?

For every Rs 1,700 crore of growth - Rs 1,000 crore of deposit and Rs 7,00 crore of advances , we may get a profit of around Rs 30 crore.

CSB got about Rs 1,208 crore capital from Fairfax and about Rs 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 the need for further additional capital.

What is your target?

Originally, we anticipated growth of not less than 25 per cent. Since we are on our 100th year, we are looking at whether we can grow at a higher level during the centenary year to prove to the world our ability to grow.

CSB registered a loss last year....

We had a one-off loss due to additional provisionings of Rs 98 crore and Rs 100 crore for employee provisions such as early retirement etc. We have posted a Rs 44 crore net profit for the first half this year. Our operating profit was around Rs 104 crore.

How do you want to position CSB?

A new generation bank which will work more on NBFC space, as far as the lending is concerned. Micro finance, MSME, two wheelers, used truck 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. NIM 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. NIM and return on assets of more than 1.5 per cent, return on equity of more than 18 per cent, gross NPA of less than two per cent and net NPA of less than one per cent and provision coverage of 80 per cent. These are the industry benchmarks for a best bank. Our effort should be to reach these benchmarks. How fast you can do it is the challenge.

Branch expansion?

We have already written to the RBI, and have started working on expanding branches. About 200 branches will be coming up in the next one and a half years.