Fairfax-controlled CSB Bank is expanding its branch network to tap into deposits in a low interest rate regime that has helped the bank to maintain high profitability growth. 

As part of the strategy to generate deposit growth in volume, CSB Bank will add 50 branches this quarter, with 36 being already opened. This will take the total branches of the bank to 540.

The bank is now expanding to Telangana, Andhra Pradesh, Karnataka and Maharashtra. The south expansion is giving the bank a good traction but the branches in western and northern India have not been faring relatively well.

“We are opening about 50 new branches this quarter, of which 36 is already done. Profitability of the bank is maintained due to the lower cost of deposits and higher yields. We are aware that the cost of deposits cannot be maintained this low and we need to see growth in volume,” CSB Bank managing director and CEO CVR Rajendran said. 

The low cost CASA (current account savings account) comprises 32.60% of the bank’s total deposits as on September 30, 2021. During the September quarter, the bank’s deposits grew 9.1% to Rs 19,055.49 crore.

CSB Bank reported a 72% rise in net profit to Rs 118.57 crore for the quarter ended September due to higher net interest income (NII) and better asset quality as slippages fell and recoveries improved. The bank’s NII rose 21% to Rs 278 crore on the back of a fall in interest expenses as cost of deposits dropped to 4.30% from 5.18% a year ago. Net interest margin (NIM), the difference between the yield paid on deposits and that earned on loans, widened to 5.22% from 4.48% a year ago.

On the assets side, the bank will be coming out with four new products for the micro, small and medium enterprises (MSME) to push loan growth in this segment.

“The bad days are behind us and the economy is looking at an exponential growth. We are gearing up to capture this exponential growth. We have just got board approval for four new products in the MSME sector,” said Rajendran.

The bank has tied up with HDFC to sell their home loans. The Kerala-based bank has to originate the home loans for HDFC and also give the mortgage lender leads where it has an option to buy back. “But right now, we are not looking at buying back home loans,” Rajendran said.

The bank has restructured Rs 138 crore of loans and is carrying a 25% provision on it. Over and above this, the bank has a buffer provision of Rs 318 crore.

Fresh non-performing assets (NPAs) saw a sharp fall to Rs 205 crore in the September quarter from Rs 435 crore a quarter ago. Out of the total slippage, gold loans contributed to Rs 170 crore. Recoveries rose fivefold to Rs 190 crore from Rs 36 crore. in the September quarter. The bank expects recovery to be between Rs 300 and Rs 400 crore this fiscal.

The bank, however, is not aggressively taking the auction route but giving the defaulting gold loan borrowers more time to repay. “The gold prices have come down substantially and the earning capacity of borrowers has not improved. So we are not pursuing aggressive auctions. We are giving time to the borrowers to repay. But we expect to get out of the major gold loan NPAs by March 2022. Incrementally, our gold loan NPAs have come down,” said Rajendran.

The bank has a gross NPA of Rs 586.83 crore. Of this, Rs 287.52 crore is from gold loans, which the CEO expects to recover entirely by the end of this fiscal.

“The bank had auctioned Rs 43 crore of gold loans in the first quarter and was unable to recover Rs 1 crore. In the second quarter, the bank was unable to recover Rs 88 lakh,” Rajendra told analysts after announcing the fiscal second quarter results.

However, the bank will not slow down on gold loans. The gold assets include some agriculture and micro finance loans which are backed by gold.  

“We are not in a hurry to slow down on the gold loans and will continue to intensify growth in this segment. But if the retail and other segments grow, then the percentage of gold loans may come down. We will, however, not use any direct selling agents to sell our gold loan product,” said Rajendran.

Led by gold and agriculture loans, the bank’s advances grew 12.22%  to Rs 14,070.11 crore during the September quarter.