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Result Highlights

* Asset quality: Gross slippages were under control atRs 330mn (annualized slippage ratio of 0.6%) and recoveries and upgrades were healthy at Rs 230mn

* Margin picture: NIM was up 2bps QoQ to 5.40%, due to liquidity unwind, among other factors

* Asset growth: Advances grew 2.1%/28.6% QoQ/YoY driven on sequential basis by Gold loans and Retail loans

* Opex control: Total opex rose 11.5%/44.3% QoQ/YoY, employee expenses rose 16.9%/48.9% QoQ/YoY and other expenses rose 4.2%/37.8% QoQ/YoY

* Fee income: Fee income fell/rose -22.6%/143% QoQ/YoY where the sequential fall was driven by lower processing fees and commission

Our view – CSB remains a high sustainable return ratio bank

Management confidence with regard to growth is enhanced and it seems ~25% growth is there for the taking: Management had earlier said that the bank will grow 30-50% faster than the banking system. Now, management is confident that the upper end of the range will be achieved. So, if system growth will be 13-15%, the bank will achieve a growth of 25%.

Management talk of flattening deposit rates that would begin to taper lower in due course: Deposit rates are starting to flatten and would peak out in 2Q after which, they would start to taper down. Management stated that they do not need higher rates for deposit mobilization. However, the bank will be focusing on incremental deposit verticals including TASC, government, salary accounts and also, on adding branches. LCR was lower for the quarter due to a tactical decision. Management is of the view that interest rates will taper down and hence, did not want to lock in long-term deposits at higher cost. Hence, the deposits picked up were for shorter duration, whose unwind led to lower LCR.

Opex has grown rapidly as the bank remains in investment phase as well as other factors being at play: While employee count declined QoQ, the employee cost has risen due to bonus and actuarial cost. The number of employees will resume rise in theremainder of the financial year. Employee cost, however, will grow slower than employee count. The major accelerated investment phase will last till FY25.

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