CSB focusing only on gold loans?

Gold loans soared 47 pc during last 12 months

KOCHI/October 12: CSB Bank seems to have reconciled to the ‘golden’ theory to be followed – forget about all other loans and just focus on gold loans.

Though the bank’s managing director and chief executive, CVR Rajendran, has time and again made his point clear while briefing analysts on the bank’s business plan, many might not have even guessed if CSB Bank would literally shun all other loans to accommodate gold loans.

And this is what exactly happened during the past one year. The loan statement of CSB Bank for the one-year period from September 2019 to September 2020, shows that the loan book excluding gold loan has contracted from Rs8045.41 crore to Rs7822.93 crore, whereas the bank’s new-found staple – gold loan, has soared by 47 per cent – from Rs3357.52 crore to Rs4938.98 crore during this period.

The bank that is majority owned by Fairfax group and nursing ambitions to acquire one more bank with eyes specifically set on public sector banks once available, has proved its stand to be making business sense.

In fact, total loans of the bank did register a modest growth of 11.92 per cent during this period, from Rs11,402.83 crore to Rs12,761.91 crore, but this growth was solely driven by the gold loan. And now, gold loan alone accounts for 38 per cent of CSB Bank’s loan book.

“If the RBI norms do not prescribe any ceiling for gold loans, why should any bank feel bad about piling up gold loan which on the one hand offers a descend return and at that too with least risk,” a retired top official of a Thrissur-based bank quipped.

Less risky loans

Moreover, an asset class with far less risk weight, the gold loan attracts lower capital charge – meaning that banks need not have to break their heads on capital adequacy ratio (CAR) issues as much as they do while dealing with other loans.

And quite interestingly, the market also has endorsed what CSB Bank has been is doing, which is amply manifested by the price the CSB Bank share commands in the stock market compared with its much larger peers from the same market such as Federal Bank and South Indian Bank (SIB).

While Federal Bank and South Indian Bank (SIB) have tried out all possible alternatives in lending through corporate, SME and retail loans, juggling them at different permutations and combinations, the market seems to have been unsympathetic to them unlike to CSB shares.

While CSB shares at Rs227.50 (closing on Monday) are trading at 2.18 times its book value (BV) at Rs104.03, Federal Bank with much better standing has closed at Rs52.55, which is just 0.72 times its book value at Rs72.76.

SIB’s position is far deplorable on the market as it has been trading range bound for long and closed at Rs6.85 on Monday with a price to book value (BV) ratio of just 0.24 times, against the BV of Rs28.45.

One will be surprised to find that while the price/earnings (PE) multiple of CSB Bank share is 84.19 times that of Federal is 6.71, whereas the PE ratio for SIB share is currently 11.05.


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