Key investment rationale
Strong channel network and trusted brand in South India:
CSB provides products and services primarily through an extensive physical network of branches and ATMs. It operates in 16 States and four Union Territories in India, reaching 1.3 million customers through 412 branches (excluding three service branches and three asset recovery branches) and 290 ATMs, as on September 30, 2019. In addition to its physical network, it has made investments in development of alternate channels from time to time. It formed a dedicated alternate delivery channels unit in the year 2014 for enhancing online banking capabilities and digital payment solutions for providing services to its customers via non-branch outlets to improve their banking experience. Its alternate channel network comprises of ATM debit cards, internet banking, mobile banking, point of sales (“POS”), QR payments, UPI, 24*7 phone banking, ePassbook, micro ATMs, prepaid (co-branded) cards, and payment gateway services through tie ups, (collectively “Alternate Channel Network”).
Strong capital base for growth
CSB’s capital position has significantly strengthened post FIH Mauritius Investments Ltd (FIHM) investment in the Bank. Pursuant to a preferential allotment of equity Shares and warrants to FIHM, for which it received Rs 7,207.53 million in fiscal 2019 and the balance amount of Rs 4,869.29 million in fiscal 2020, it has a strong capital base for growth acceleration, something which it was not able to accomplish in past due to paucity of capital. As per the Basel III Norms, the CRAR, as assessed by the Bank as on March 31, 2019 and September 30, 2019, was 16.70% and 22.77% (including capital conservation buffer), respectively. This is above the minimum prescribed CRAR of 10.875% (including capital conservation buffer of 1.875%) stipulated by the RBI in the Basel III Norms. Further, as on September 30, 2019, its Tier 1 CRAR (including capital conservation buffer) and common equity Tier 1 CRAR (including capital conservation buffer) stood at 22.11% and 22.11%, respectively, well above the minimum prescribed requirements of 7% and 5.5%, respectively, which would enable for long term growth
Retail offering driven by strong gold loan portfolio: Gold loans constituted a major portion of CSB’s advances, contributing 24%, 26%, 31% and 33.17% of their total advances as on March 31, 2017, March 31, 2018, March 31, 2019, and September 30, 2019, respectively. As on March 31, 2019 and September 30, 2019, it had 522,248 and 595,121 gold loan accounts, with advances aggregating to Rs 33,331 million and Rs 37,818 million, implying an average ticket size of approximately Rs 0.06 million and Rs 0.06 million, respectively. Apart from liquidity of the security and low probability of credit losses, gold loan advances offer benefits of hassle-free lending and lower operational costs. CSB’s gold loan book has grown by 23% from Rs 20,263 million as on March 31, 2017 to Rs 24,836 million as on March 31, 2018 and by 34% to Rs 33,331 million as on March 31, 2019. Further, its gold loan book accounted for Rs 37,818 million as on September 30, 2019.
Well established SME business: CSB focuses on meeting the funding and banking requirements of SME customers. As a percentage of total advances, loans to SME customers accounted for 43%, 37%, 32% and 29.47% as on March 31, 2017, March 31, 2018, March 31, 2019 and September 30, 2019, respectively. The bank believes that lending to SMEs enables it to diversify its credit risk profile due to relatively smaller individual exposures. As on March 31, 2019 and September 30, 2019, its advances to SME customers aggregated to Rs 34,733 million and Rs 33,605 million, respectively, spread across 7,529 accounts and 7,534 accounts, respectively, implying an average ticket size of approximately Rs 4.61 million and Rs 4.46 million, respectively. Further, as on March 31, 2019 and September 30, 2019, working capital advances such as cash credit and overdraft facilities to its SME customers constituted 14% and 11.11% of its total advances, respectively, while terms loans to SME customers constituted 18% and 18.36% of total advances, respectively. SME business offers comparatively higher yields, cross-selling and associated business opportunities, and higher degree of secured and collateralized loans. As on March 31, 2019 and September 30, 2019, 99.26% and 96.11% of its SME loan portfolio was secured by tangible collateral, respectively. Lending to SMEs also helps CSB to meet its priority sector lending targets.
Stable and granular deposit base: CSB’s deposit base has remained stable. During last three fiscals, despite a decline in term deposits due to its conscious strategy of not focusing on such deposits, its overall deposits base has remained intact and has increased from Rs 149,116 million in fiscal 2017 to Rs 151,239 million in Fiscal 2019, owing to an increase in CASA deposits. The overall deposits base was Rs 155,098 million for the six-month period ended September 30, 2019. The CASA deposits increased from Rs 36,946 million as on March 31, 2017 to Rs 42,106 million as on March 31, 2019. The CASA ratio improved from 24.78% in Fiscal 2017 to 27.84% in Fiscal 2019, which has led to reduced cost of borrowings for the Bank and improvement in net interest margin of the Bank in Fiscal 2019. Further, as of September 30, 2019, the CASA ratio was standing at 28.19% and the retail deposits constituted 92.93% of its total term deposits. , and these deposits have consistently exhibited renewal patterns of above 90%. NRI deposits have been a stable source of funding for the Bank, constituting 23.98%, 25.74%, and 24.87% of the total deposits as on March 31, 2017, March 31, 2018, and March 31, 2019, respectively, and have grown at a CAGR of 3% during the last three Fiscals. Further, NRI deposits constituted 24.59% of the total deposits as on September 30, 2019.
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