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Mixed numbers; Change in mix and investment into banking services

CSB Bank’s Q4FY22 numbers were decent YoY as it witnessed 10.2% growth in net interest income (NII). Also, strong recovery was seen on the asset quality front as well as lower provisions supported strong PAT growth of 204.7%. However, if we compare QoQ numbers, then net interest income growth was flat and expenses increased by 8.4% so this impacted profits as it de-growth by 12%, despite lower provisions. The company is in an expansion phase and growth is likely from a long term perspective.

Result Update Q4FY22

* CSB Bank’s net interest income came in at Rs 303.8cr, up by 10.2% YoY and flat as compared to QoQ. Total income came in at Rs 367.4cr, up by 8.2% YoY on the back of better net interest income while non-interest income was flat. Total income on QoQ grew by 3.4% led by healthy growth of 22% in non-interest income while interest income growth was flat.

* Provisions were written back up to Rs 34cr which boosted PAT to grow to Rs 130.7cr, up by 204.7% YoY. On the asset quality front, GNPA was down by 81bps QoQ and 87bps YoY to 1.8% and NPA was down by 68bps QoQ and 49bps YoY to 0.7%. This means it is seeing signs of recovery along with lower provisions which are positive for long term growth.

Outlook Valuation

CSB bank is one of the private bank players having a large presence in south India. Amongst its loan portfolio, the gold and SME loans mix is the largest i.e. ~54% and going ahead its strategy is to change the mix by focusing on growing its SME and retail portfolio. Along with this, they plan to be a fully serviced bank so they are investing in branches & franchisees, focusing on building a large customer base beyond the south (largely in the west and north) and investing significantly in technology, partnerships and solutions. The bank is working towards these plans and it is likely to bring in positive growth momentum in a gradual manner over the next 2-3 years. Having said that, in the past one year, the stock price has remained under pressure due to Covid impact, high provisions and employee trade union issues in the south region. Going ahead, improvement in the balance sheet and outcome of strategies in the next two years will be key monitorable. We have maintained a buy rating but have revised our target price to Rs 261.

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