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Our view – Relative caution on gold loans not a structural concern

Loan growth has slowed from 27% YoY in 2Q to 23% YoY in 3Q on account of a variety of factors: There was a relative slowdown in gold loans and wholesale loans, which have grown 23% YoY and 10% YoY, respectively, in 3Q compared with 32% YoY and 17% YoY in 2Q. Gold loan growth has slowed on account of multiple reasons. Furthermore, bank has brought down its loan to deposit ratio from 87.5% to 82.9% on sequential basis, indicating a concern for managing the ratio. Management stated that the bank will start to be a bit more flexible with regard to CD ratio in the fourth quarter. CD ratio can go back to 85-86% from current levels.

Margin expansion on sequential basis on the back of a healthy expansion in yield on advances: Yield on advances has risen 61 bps QoQ to 11.49%. Management has taken a conscious call to not do business at low yield. Some low-yield gold loan book has been run off and re-booked at a lower LTV and higher yield. Cost of deposits have risen 20 bps QoQ to 5.22%. Cost of deposits for the bank would take about 3 months to peak out.

CSB seems to be heading towards yet another year of near negligible credit cost: Provisions worth Rs 0.05bn were written back, up by 36% QoQ but down -70% YoY, translating to annualised credit cost of -10bps. The outstanding contingent provisions amount to Rs 1.06bn and management does not intend to utilise them unless the formula dictates it.

We maintain ‘Buy’ rating on CSB with a revised price target of Rs 480: We value the bank at 1.9x FY25 P/BV for an FY24E/25E/26E RoE profile of 15.6%/15.7%/15.9%.

Result Highlights (See “Our View” above for elaboration and insight)

Asset quality: Gross slippages were under control at Rs 360mn (annualized slippage ratio of 0.65%) and recoveries and upgrades were healthy at Rs 340mn

Margin picture: NIM was up 26bps QoQ to 5.1%, due to yield on advances moving up faster sequentially than cost of deposits

Asset growth: Advances grew 1.8%/22.8% QoQ/YoY driven on YoY basis by SME, Gold loans and Retail loans

Opex control: Total opex rose 0.2%/26.8% QoQ/YoY, employee expenses fell/rose -1.7%/13.9% QoQ/YoY and non-staff expenses rose 2.6%/47% QoQ/YoY

Fee income: Fee income fell/rose -4.3%/38.6% QoQ/YoY where the sequential degrowth was driven by lower commission income and processing fees

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