CSB Bank Q2 FY21 - Not Rated - YES Securities

Key Performance Highlights

- Advances grew 12% qoq - GL up 29% qoq/47% yoy, driven by gold price tailwinds - MSME up 10% qoq, supported by GECL scheme - retail loans up 6% qoq, aided by strong traction in 2w financing.

- Robust NII growth of 24% qoq and 56% yoy - NIM at 4.5% v/s 4.1% in Q1 FY21 and 3.7% in Q2 FY20 - sustained improvement in portfolio yield and deposit cost - surplus liquidity got deployed in investments (margin accretive)

- Core fees grew 2.2x qoq - processing fees main driver - run-rate much higher than pre-covid levels

- Higher treasury, recovery and miscll. income utilized for making provisions - Covid buffer raised to ~50bps of Adv. and PCR raised

- Morat Book (~Rs20bn) at 15% of gross advances as of Sept 30 - Morat at 28% in SME, 15% in Corporate and 10% in Retail portfolios

- CET-1 improves by 50 bps as RWA shrinks 3% qoq (decline in market risk) - LCR at 234%

Call Highlights / Management Commentary

- Gold loan growth driven by RBI LTV relaxation apart from price tailwinds - portfolio LTV at 71% - only Rs1.8bn (<5%) of portfolio above 78% LTV - portfolio yield improved to 12.5% from 12.1%

- Corporate portfolio de-growth caused by churn in high-rated NBFC accounts as they are getting liquidity at cheaper rates

- NIM outlook - will strive to retain around 4.5% - would only compromise for higher volume growth

- Want to achieve a 20% non-interest income contribution in total income

- C/I was brought <50% and would want to maintain - long term target is <40%

- Three more senior recruits in the pipeline and would join by November end - ESOPs being issued to the senior recruits

- Will have full team for retail assets by January 2021 - subsequently retail growth will accelerate

- Break-up of 60cr covid-related provisions - 1) 34cr on Rs336cr worth of SMA accounts availing moratorium, 2) 24cr, representing 1.5%, on the balance moratorium portfolio (Rs1665cr) and 3) 2-3cr, representing 25%, on 9-10cr pending slippages due to SC order

- Moratorium was 18% on Aug-end - 47% collections of this portfolio was collected during the moratorium period (up to Aug 31) - only 1.5% of customers has not paid even a single installment till date

- September collection efficiency was 82-85%

- Expecting restructuring in the range of 70-75cr and a part of current SMA 1&2 (95cr) to slip - banks believes that current 60cr provision will be adequate

- No negative surprises on credit cost likely - to be maintained below 100 bps

Read through for GLCs (Muthoot & Manappuram)

- Strong traction in gold loans business - was highlighted in our Manappuram report dated Sept 24 that gold loan demand is picking up and tonnage growth is set to revive

- CSB Bank intends to remain aggressive in this space

Source : Equity Bulls

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