CSB Bank: 100 Years Too Young

Here’s a small trivia. Which is India’s oldest private sector bank? Hint: It has seen and survived it all — World War II, India under British Raj, Independence (1947), nationalisation of banks (1969), privatisation of nationalised banks (1990s) and eventually the entry of private sector banks post liberalisation. The 21st century hasn’t been kind either, be it the global financial crisis in 2008, demonetisation in 2016, or Covid-19 in 2020.

Born at the fag-end of the Great Depression in 1920 as Catholic Syrian Bank at Thrissur in Kerala, CSB Bank is over 100 years old. But interestingly, it turned profitable in 2020 after several years of losses. At a time when the world was grappling with the pandemic, the bank not only managed to survive, but thrive as well. It reported a profit after tax of ₹13 crore in FY20 and ₹218 crore in FY21, compared with a loss of ₹197 crore in FY19. Quarterly profits surged by 180% to ₹148 crore in Q3FY22, from ₹53 crore in Q3FY21. Profit after tax for the first nine months in FY22 stood at ₹328 crore, against ₹176 crore during the same period in FY21. In the corresponding period of FY19, the bank had reported a loss of ₹47 crore.

The White Knight

Transforming a nearly 100-year-old bank was not easy though. The tables turned after FIH Mauritius Investments Ltd, a Fairfax Group Company, came on-board as a promoter with 51% stake in the bank. Indian-Canadian billionaire businessman Prem Watsa-owned Fairfax infused ₹1,208 crore into CSB — ₹721 crore in FY19 and the balance ₹487 crore in FY20. Fairfax India Holdings Corp became the first foreign investor to get a controlling stake in a private bank in India after the RBI tweaked the ownership guidelines for private sector banks in 2016.

“The takeover by Fairfax as a majority investor was a watershed moment for the bank, and came at a time when it needed growth capital. Former CEO C.V.R. Rajendran played an instrumental role in turning around the bank. This growth capital helped us achieve scale,” says Pralay Mondal, interim MD & CEO, CSB Bank.

The Fairfax entry attracted its share of criticism as well. Employees went on strike opposing the takeover. The bank, however, managed to get employees, regulators and the government on the same page eventually.

“If you look at it objectively, there was a loss-making bank unable to grow due to lack of capital. The very survival was doubtful. The takeover not only helped the bank and its employees, but also the larger ecosystem, including customers, shareholders and the government. We are profitable. We are contributing to society and giving revenues to the government. The takeover turned out to be a win-win situation for all stakeholders,” adds Mondal.

According to the latest RBI guidelines, promoters of private sector banks can only hold up to 26 % stake in the long run. Accordingly, Fairfax India Holdings Corp. has to bring down its holdings in CSB Bank to 26% as per the RBI-mandated dilution schedule of fifteen years from the date of completion of their investment in the bank, that is, August 2019. As on Q3 FY22, Fairfax owned 49.72% in CSB Bank.

The bank — previously known as Catholic Syrian Bank — changed its name when it launched its initial public offering (IPO) in November 2019. The name change has an interesting back story. There was a perception that the bank had roots in war-torn Syria, and belonged only to Catholics. So much so that even foreign customers having operations in India avoided business with the bank. “There is a misconception by the general public… that part of the name either indicates a religious community’s interference or of the bank being owned by a particular community, and this is not true,” the management clarified in 2019.

Tackling Covid

Covid dealt a body blow to CSB’s business. The lockdown had already hurt day-to-day banking operations, and with 80% of its branches being located in semi-urban and rural areas, collections and repayments were severely hit as well. To add to that, the RBI announced a two-year moratorium, and hiked the loan to value (LTV) amount for gold loans to 90% from 75% for banks. LTV refers to the maximum amount the lender can give to the borrower as a percentage of the value of pledged gold.

With the yellow metal being a major part of the bank’s loan book, it reported a rise in gold loan NPAs in Q1FY22. The asset quality and NPA levels gradually improved for gold and non-gold assets. Gross non-performing assets dipped to 2.62% in Q3FY22, against 4.11% a year ago, and net NPA was down at 1.36% from 2.63%. Provisioning coverage ratio (PCR) increased to 48.6% in Q3FY22 vs 36.9% quarter on quarter. GNPA and NNPA excluding gold loans stood at 1.87% and 0.85%, respectively.

“We managed Covid-19 cycle pretty well despite initial hiccups of slippages in microfinance loans. We now have provisions significantly higher than the regulatory requirement,” says Mondal.

The bank is trying to diversify its loan book to reduce the concentration of gold loans. “The percentage of gold loans in the overall mix may come down but growth will continue,” adds Mondal. The share of gold loans in the overall loan book has come down to 37.3%, from 40.6% in FY21. However, in value terms, there has been an increase of around 3%.

The bank also has a growing life insurance business and has tied up with Edelweiss Tokio, ICICI Pru Life Insurance and HDFC Life Insurance, among others. Meanwhile, it is focusing more on services offered to NRIs since 50% of its customers come from Kerala, an NRI-heavy state. SME and retail segments are expected to receive the much-needed attention as well.

The Digital Roadmap

CSB Bank has over 4 lakh net banking users and 3.77 lakh-plus mobile banking users. It has issued nearly 6 lakh debit cards and installed 1,581 micro ATMs as of Q3FY22. There has been 1.28 lakh-plus UPI downloads and 77,719-plus ePassbook downloads during the quarter.

On the credit side, CSB has centralised its credit processing and focus on data analytics for better credit assessment. It is now looking to create a modular and agile technology ecosystem to help scale its digital operations. “The focus will be on building core technology, digital solutions and technology for the future, especially API interface for open banking. Once that happens, the focus will shift to the wealth franchise,” says Mondal.

The bank is also looking at partnerships for credit card business, co-lending arrangement and supply chain and fintechs to cater to the value chain of large corporates.

The 100-year-old bank has donned a new avatar. It is young and thriving, with a long road ahead.