Catholic Syrian Bank (CSB), in which Fairfax has agreed to take a 51 per cent stake, has reported a loss of Rs 974.7 million in 2017-18. The Kerala-based lender saw Rs 15.5 million profit in 2016-17 and a loss of Rs 1.49 billion in 2015-16. After the bank's board meeting, C V R RAJENDRAN, managing director and chief executive officer of the Thrissur-headquartered bank, talks to T E Narasimhan on the outlook. Edited excerpts:
You were expecting a full-year profit. What happened?
This was mainly due to increase in non-performing assets (NPA) in Kerala. The state government announced an education loan repayment scheme in which assistance to repaying 60 per cent of pending instalments would be given and the student could repay the rest. Banks would waive the interest. The bank has Rs 1.74 billion as education loan, of which Rs 1.54 billion is from Kerala. Around Rs 800 million slipped into NPA.
The other issue was related to the cashew industry, affected after the state increased wages. Many companies have been in distress and the bank is not able to sell these assets due to low valuation and workers' protests. This industry has eaten Rs 1 billion.
There are also other old NPAs, in which the bank is not able to sell the assets due to valuation and legal issues.
How are you addressing the challenge?
All these NPAs are old and 55-60 per cent are from Kerala.
We are relooking at our policy. We have exited from cashew and jewellery sectors and decided to lend only to students with placements. No NPA was reported in accounts sanctioned in the past two years. Most important, we need to grow more outside Kerala, since the culture of repayment is not favourable here.
Is Fairfax convinced with your strategy? Have they given a nod for the deal?
We had told them around Rs 600 million could be a loss for 2017-18; it has grown extra. We are confident the bank will turn around in 2018-19, with at least Rs 1-billion profit. We have also told them the bank will give 15 per cent return on capital in the next five years, in line with DCB Bank or RBL.
We have got approval from the Competition Commission of India. We are hoping approval from the Reserve Bank of India will come in the next 15-20 days.
What has been done to turn around the bank?
We need to grow the balance sheet, which did not grow for the past three-four years due to lack of capital. The bank did not encourage deposits, since lending was challenging. With the new capital coming in by May-end, this will help CSB expand physically and its balance sheet.
Any structural change?
All new businesses are becoming separate verticals, including two-wheelers, agriculture and MSME (ministry of micro, small and medium enterprises) and gold. This will improve our focus. Besides, we have recruited nearly 60 chartered accountants to monitor the accounts.
We are also setting up a centralised credit hub in Chennai, to boost our credit book.