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We met CSB Bank’s MD & CEO Pralay Mondal and CFO Satish Gundewar to understand the bank’s ongoing business/tech transformation and the way forward. It was highlighted that the delayed CBS update will be completed over coming 6M which, coupled with distribution build-up, should set the stage for its transformation into a new age and sustainable retail bank in the next 2-3Y.

First phase of transformation largely done

CSB Bank (erstwhile Catholic Syrian Bank) has undergone significant transformation over the past few years under the leadership of earlier MD C VR Rajendran and then Pralay Mondal, with the active support of promoter FIHM, thereby addressing the issues around frequent leadership changes, a dominant employee union leading to frequent strikes, and higher concentration in the state of Kerala. The board has been restructured with strategies in place to transform the bank into a new age retail bank through its SBS 2030 (Sustain, Build, Scale) strategy. The promoter, board, and management are clear that it does not want to build an NBFC style retail bank and would, instead, build it organically, unless any acquisition significantly complement the bank’s business and is available at reasonable valuations. The bank is focusing on shedding the legacy corporate portfolio while re-building its wholesale and SME businesses, with retail growth expected to gain momentum at around FY27 once the building blocks—including people, technology, product, distribution, and risk management architecture—are in place.

In the second phase, plans to build a new age sustainable retail bank

The bank has already embarked on the second phase of transformation – upgrading its existing core banking platform over 6M from in-house Marvel to Oracle-Flex and, thus, preparing for take-off. The management believes that retail team building is largely done, while distribution will be built over the next 1-2 years to set the stage for a new age retail bank. The bank’s retail gold loan portfolio will continue to dominate in the interim (currently at 45% of loans) but will eventually shrink to 20% as other retail segments including mortgages, vehicle financing, and so on scale-up. The bank has de-grown its unsecured retail portfolio (4% of the overall portfolio), given higher stress, partly manifesting via NPAs, but would look at growing this segment as the credit environment improves. The management believes that the full stack retail asset product suite, coupled with strong phygital franchisees, will help it also build granular retail liability and thus reduce its CoF, which is otherwise weighing on margins (down 84bps over the past 1Y).

Aims for sustainable RoA of around 1.5-1.8%

From a loss over FY15-19, the bank reported peak RoA of 2% in FY23 and has now seen some moderation to 1.7-1.5% over the past 2 years, mainly due to margin contraction and higher opex. The management believes it can deliver RoA of 1.5-1.8% once the retail transformation is complete, leading to better margin/operational cost. At CMP, the stock is trading at 1.2x trailing P/BV. Currently, we do not have a rating on the stock.

1-Year share price trend (Rs)

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