CSB Bank IPO is a superhit with investors

CSB Bank got a roaring response from investors for its initial public offering (IPO). The issue was oversubscribed 87 times, as the 98-year-old private sector lender received bids for 10.44 crore shares against the 1.15 crore shares offered for sale, data from stock exchanges indicates. The qualified institutional buyers category was subscribed 62.18 times, the non-institutional investors category 164.68 times. The retail category also saw a strong response and was subscribed 44.53 times.

The IPO of CSB Bank, formerly Catholic Syrian Bank, opened for subscription on Friday. The Kerala-based bank hopes to raise ₹410 crore from the listing. The offer, which closed on Tuesday, November 26, includes a fresh issue of shares to mop up close to ₹24 crore, and an offer for sale of 19.7 million shares to raise ₹385 crore. The price band has been fixed at ₹193-₹195.

Analysts are betting on the new promoter and strong management for a turnaround. “CSB’s performance has not been encouraging in the past with a rise in NPA (non-performing assets) level. However, new promoter and strong management bring capital and execution strength to the table, which bodes well for future growth as well as earnings. Therefore, we assign a ‘subscribe’ recommendation to the stock. Further, at a price band of ₹193-₹195, the stock is available at a price-to-book value of about 2.2 times at the upper band on H1, FY20 basis,” notes an ICICI Securities report.

“In recent years, its growth was constrained by low capital adequacy and higher operating costs, which adversely impacted its financial performance. However, in the last three fiscals—from fiscal 2017 to fiscal 2019—CSB Bank has improved its growth by focussing on better yield loan products with low risk. Therefore, the surplus funds parked in investments were redeployed to advances with particular focus on gold loans and corporate advances to entities with high credit ratings which have low-risk weights to minimise capital consumption,” HDFC Securities said.

CSB Bank is listing its shares mainly to comply with regulatory norms. The Reserve Bank of India (RBI) requires the promoter group to reduce its stake to 40% in five years, to 30% in 10 years, and to 15% in 15 years. Fairfax India, CBS Bank’s strategic investor and promoter, owns 50.1% stake in the private lender and will not tender shares in the IPO. However, Fairfax would be required to dilute its stake to 15% over 15 years to meet the RBI regulations.

CSB Bank, one of India’s oldest private banks, has four core business areas: small and medium enterprises banking, retail banking, wholesale banking, and treasury operations. Analysts say the bank has a strong channel network, and is a trusted brand in south India. Thanks to Fairfax’s investment, the lender has a strong capital base and its capital to risky asset ratio (CRAR) in September 2019 stood at 22.77%, one of the best in the banking industry.

CSB Bank’s assets have expanded to ₹17,756 crore in the first half of FY20 ending September 2019 from ₹16,911 crore in the preceding period ending March 2019. Net interest margins rose to 3.43% in the first half of FY20 versus 2.80% in the second half of FY19. Asset quality also showed improvement as gross non-performing assets (NPA) declined to 2.86% in H1FY20 from 4.87% in H2FY19; net NPA reduced to 1.96% from 2.27%.