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CSB Bank Ltd

| Q3 FY2026 Earnings Conference Call

NEUTRAL SENTIMENT

Report Source

⬤3rd Feb 26

Summary : CSB Bank reported flat Q3 net profit but strong operating profit and robust asset/deposit growth, while managing asset quality and strategically diversifying its loan book amidst global uncertainties.

Management Perspective positive : Management expressed confidence in future NPA ratio improvements, achieving ROA/ROE targets, and ability to manage asset quality. They stated, 'mood within the bank is positive, and we hope that we will be able to do very well in Q4 and end the year well.'

Concall Report Analysis & Insights

Business Overview

  1. Net profit for Q3 FY26 was INR153 crores, flat year-on-year.
  2. Operating profit grew 32% year-on-year to INR292 crores; NII grew 21% to INR453 crores.
  3. Deposits grew 21% year-on-year, faster than industry average; advances grew 29% year-on-year.
  4. GNPA and NNPA ratios slightly elevated at 1.96% and 0.67% respectively, but within guidance.
  5. Overall CRAR stood at 19.41% and Tier 1 ratio at 17.66% as of December 31, 2025.

Future Growth Prospects

  1. Bank is entering a 'scale phase' from FY27, focusing on a diversified book and tech-driven expansion.
  2. Confident of significant upgrades and betterment in NPA ratios in Q4 and Q1 FY27.
  3. Targeting asset book growth of 25% and above, with deposits growing 20% and above.
  4. Aiming for ROA around 1.5% and ROE around 15% by FY27, expecting to cross these targets.
  5. Gold loan portfolio mix is targeted to reduce to 25-30% by 2030, with wholesale and SME growing.

Management Insights

  1. Management attributes robust operating profit to NII growth, other income growth, and disciplined cost management.
  2. Acknowledges a slight deterioration in asset quality due to technical factors and SME challenges, but confident in recovery.
  3. Emphasizes strategic focus on building a diversified book, tech-driven expansion, and granular customer franchise.
  4. Stated that the bank has slowed growth in unsecured retail, MFI, and SME businesses due to stress scenarios.
  5. Confident in upgrading most of the slipped SME accounts due to collateralization and good customer intent.

Signs of Skepticism

  1. Management's explanation of slippages as 'technical' and 'unexpected' despite ongoing global uncertainties.
  2. Reliance on future upgrades and recoveries to normalize NPA levels, with specific numbers not provided.
  3. The expectation that cost of funds will decrease by a few bps, despite current market liquidity issues.
  4. The claim that technology costs will not materially impact P&L, despite full transformation efforts.
  5. The delay in upgrading 4-5 accounts from last quarter to this quarter due to 'some technical reasons'.

Risk Factors

  1. Global trade negotiations deteriorated, creating financial market volatility and heightened global risk.
  2. Deposit growth continues to lag credit growth, stressing deposit rates and impacting NIMs.
  3. Slight deterioration in asset quality with elevated GNPA/NNPA ratios in Q3.
  4. SME segment faces challenges due to global uncertainties and tariffs, impacting slippages.
  5. Cost-to-income ratio expected to remain elevated around 60% for another year.

Good To Know

  1. Other income grew 26% year-on-year, constituting 19% of total income.
  2. NIM for the quarter was 3.86%, the highest for the current fiscal year.
  3. Bank maintains sufficient liquidity buffers with LCR at 114% and NSFR at 118%.
  4. Gold loan and wholesale banking verticals contributed significantly to advance growth, over 40%.
  5. Bank is holding a provisioning buffer of INR193 crores above regulatory requirements.

Key Drivers

  1. Strong asset book growth.
  2. Improved NIMs and profitability.
  3. Reduced NPA ratios.
  4. Diversified business mix.

Key Analyst Discussions

Competitive Environment

  1. Deposit growth lags credit growth across the banking system, stressing deposit rates.
  2. Bulk deposit rates are not coming down due to market liquidity issues.
  3. Bank is tactically managing bulk deposits with shorter tenors to benefit from falling interest rates.
  4. SME segment faces challenges from global tariffs and uncertainties, impacting some businesses.
  5. Bank is cautious in unsecured lending and has reduced exposure in certain retail segments.

Market Trends & Consumer Behavior

  1. Global trade scenario deterioration and geopolitical events (FED Chairmanship, Greenland, Iran) add uncertainty.
  2. Indian growth forecast revised upwards, with inflation expected to remain below RBI's 4% threshold.
  3. SME businesses impacted by global uncertainties and tariffs, but sentiment expected to improve with EU deal.
  4. Gold price movement is unpredictable; bank does not base business model on sustained high prices.
  5. Propensity to consume is important for gold loan growth, not just gold prices.

Financial Highlights

  1. NIM improved to 3.86% from 3.54% in Q1, expected to sustain in 3.7-3.9% range.
  2. Credit costs are expected to normalize in Q4 and Q1 FY27, with Q3 marking the peak.
  3. Cost-to-income ratio is around 60%, expected to remain elevated before sharp decline post-FY28.
  4. ROE for the current fiscal year is expected to be close to 15%, with targets of 15% for FY27.
  5. PSLC income was zero this quarter but expected to be good in Q4 due to tactical timing.

Product Composition

  1. Wholesale and corporate banking are growing well, while financial markets mix is kept lower.
  2. Gold loan growth is high, but LTV is managed below 60% to mitigate price risk.
  3. Retail growth is expected to pick up with improved liability franchise and new products.
  4. SME growth has slowed to 20% YoY due to stress, with a deliberate strategy to be cautious.
  5. Gold loan portfolio is currently 50-51% of total book, targeted to reduce to 25-30% by 2030.

Strategic Considerations

  1. Bank is building retail products, CASA, and customer acquisition at branch level for deposit growth.
  2. All businesses are mandated to contribute to liability growth through self-funding.
  3. Technology investments are ongoing, with 8-10% of opex allocated to technology.
  4. Branch expansion will continue at 40-50 branches annually, leveraging existing branches first.
  5. Focus on customer-level assessment for asset quality, not just systemic issues for smaller bank.
CSB Bank Ltd (CSBBANK) Concall Report Analysis & Insights | Dhanarthi