Our asset growth may be around 25% this financial year: CSB Bank MD & CEO

Mondal talks about the Q4 results, outlook for FY26, and the new draft gold loan norms by the Reserve Bank of India

Pralay Mondal, managing director and chief executive officer of CSB Bank, talks about the fourth quarter results, outlook for FY26, and the new draft gold loan norms by the Reserve Bank of India in a telephonic interaction with Shine Jacob. Edited excerpts:

 

Your net interest margin (NIM) fell to 3.75 per cent in Q4, from 5.04 per cent last year. It was down sequentially too. How are you seeing this?

 

On the NIM, it is because of the huge liquidity issues in the system. The cost of funds and cost of deposits have gone up across the system for everybody. While we lost on the NIM, we gained in the treasury trading profits. Hence, on a return on assets (ROA) basis, there is no problem.

 

Our foreign currency borrowing went up significantly during the quarter and the year, which caused a huge hedging cost at the end of December. This hedging cost took the cost of funds a little bit higher. That has cooled down a bit now. These are the reasons why our NIM was affected.

 

We are expected to come back to 4 per cent on NIM by the second quarter, 5 per cent is not possible. We should be up from here. On a yearly basis also, we are around 4.13 per cent in the financial year 2025 (FY25) and will be somewhere around 4 per cent for FY26. We have moved towards a NIM normalisation of close to 4 per cent.

 

Your credit cost also went up last quarter

 

We had a very good year in terms of the balance sheet growth. We grew by 30 per cent on the asset side and 24 per cent in deposits. The good news is that all the key parts -- wholesale, retail, small and medium enterprises (SME), and gold -- have equally fared well. Overall, our profit grew by 26 per cent year-on-year (y-o-y). To that extent, the financial part looks good.

 

Our credit cost went up slightly higher than 50 basis points, while our average was 29 bps, which is not bad. This has gone up for only one quarter.

 

It has gone up due to reasons like migration provision we had this quarter due to slippage last year at the same time, and because of higher provisioning upfront in the unsecured MFI portfolio. We expect to be back to 20-30 bps on credit cost this year.

 

What’s your growth outlook for FY26?

 

In terms of assets, we expect our asset growth to be in the range of 25 per cent. Our overall unsecured portfolio has come down to 3.3 per cent now. The growth will come from where the risks are limited, like wholesale, SME, gold, and retail. Each of these segments has the ability to grow. Overall, we should grow in wholesale by around 25-30 per cent, SME and gold too between 25-30 per cent, and I think it should be consistent growth across.

 

RBI came out with new draft guidelines for gold loans. What is your take on this, and will you incur any higher compliance cost because of this?

 

We are still trying to internalise the draft, and obviously, we are giving our comments. The way it is currently placed, some of the changes we have to bring in are on the technology, operational, and compliance sides. The process will be a little more robust. It is not that the business will vanish, but the process of doing it will be a lot more detailed from an operating perspective with technology reworking. Work has begun at the bank in terms of what we need to do. We will implement it once the guidelines are out.

 

Does that mean you will be preponing your tech targets under Sustain, Build, Scale -- SBS 2030?

 

This year, our biggest goal is on technology transformation in terms of transforming from a legacy bank to a modern private sector bank. We have been working on it for the last two years, and this year it will happen by the second half of this year. Of course, the gold norms will be easier to implement in a more flexible system at that point of time. This technology transformation is the biggest change for us this year.

 

Your gold loan portfolio has increased to 44 per cent in FY25 from 42 per cent in FY24. This is not gelling right with your target of 20 per cent by 2030. Why so?

 

Gold gives us very good return on assets (ROA) and return on equity (ROE). This is getting invested into building the future franchise. Once the investment phase is over this financial year, then there will be a steep sharp increase in the wholesale. Today, if I say I will not look at gold, I will not get the ROA and profits to invest in other businesses. This is the tactical play we have done and will continue to do. Anyway, I have never said that we will be slowing down on gold. All I am saying is that other businesses will grow faster.