Release Date: July 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- CSB Bank Ltd (BOM:542867, Financial) reported a net profit of INR113 crores for Q1 FY25.
- The bank holds a provision buffer of INR182 crores over and above regulatory requirements.
- Deposit growth was 22% year-on-year, significantly higher than the industry growth of around 11%.
- The CASA ratio stands at 24.9%, indicating a healthy proportion of low-cost deposits.
- The capital adequacy ratio is strong at 23.61%, with a Tier 1 ratio of 22.23%.
Negative Points
- Net interest margin (NIM) was 4.36%, impacted by higher cost of funds and regulatory changes.
- The cost of funds has increased, with interest expenses rising by about 15% Q-on-Q.
- Gross NPA ratio was at 1.69%, and net NPA ratio was at 0.68%, indicating some asset quality concerns.
- The bank experienced elevated slippages, particularly in the SME and corporate banking segments.
- Operating expenses have increased due to investments in technology and branch expansion, impacting the cost-to-income ratio.
Q & A Highlights
Q: On the cost of funds, we saw interest expenses increasing by about 15% Q-on-Q. How do you look at this cost of deposits profile?
A: Satish Gundewar, Chief Financial Officer: In the savings account, almost 90% of our deposits are granular deposits less than INR3 crores. In the term deposit, 65% is retail granular deposits less than INR3 crores. Overall, 25%-26% are bulk deposits, and the rest are granular. The term deposits will go through repricing, and the liquidity has impacted the cost of deposits. We are using refinance and overseas borrowings to manage the overall cost of funds.
Q: We earlier guided for margins of 4.5% to 5%. Where does that stand now with the impact on cost of funds?
A: Satish Gundewar, Chief Financial Officer: This quarter had multiple impacts, including a regulatory change in P&L interest and higher slippages. These factors impacted the net interest margin (NIM). However, our overall guidance for the full year remains intact at 4.5% to 4.8%.
Q: How about the ROA? Does it change with slightly lower margins here?
A: Satish Gundewar, Chief Financial Officer: The ROA guidance remains intact at 1.5% to 1.8%. We expect improved net interest margin from Q2 onwards and robust fee performance, which will help maintain the ROA within the guided range.
Q: What is our LCR currently, and what is the impact from the changes in the recent guidelines by RBI?
A: Satish Gundewar, Chief Financial Officer: Our average LCR for the quarter was about 118%. The new guidelines will have a ballpark impact of 10% on the LCR, but we have time to take corrective measures before they are implemented from April 1 next year.
Q: Can you provide some color on the slippages and if there was any large-size exposure on the corporate side?
A: Satish Gundewar, Chief Financial Officer: We had a handful of accounts in the SME space and one account in the corporate banking space that slipped during the quarter. This year will be a complete rejig of the corporate banking business, and we expect the corporate banking book to be flat for the year.
Q: Regarding the slippages of INR100 crores, how should we see this in the overall context? Are we expecting some recoveries, and what is built into our annualized slippage for the remaining quarters?
A: Satish Gundewar, Chief Financial Officer: We don't expect elevated slippages going forward. We have a large pool of written-down accounts for which recovery efforts are ongoing. Our overall credit cost for the quarter was 22 bps, in line with our guidance of 20 to 30 bps.
Q: What is the path to reach the upper end of the 4.8% margin guidance?
A: Satish Gundewar, Chief Financial Officer: The current quarter was impacted by regulatory changes and elevated slippages. From Q2 onwards, we expect these factors to normalize, helping us achieve the 4.5% to 4.8% NIM guidance.
Q: If we are structurally going to stop recognizing P&L interest as part of gross interest income, shouldn't our NIM settle 40 bps lower on a structural basis?
A: Satish Gundewar, Chief Financial Officer: The overall P&L interest is dependent on multiple factors, including the SMA book. While the incidence of income will move from net interest income to fee income, it will be ROA neutral. We are studying this closely and may make changes to the product construct to maintain overall NIM.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
