Gold loans to be CSB Bank’s cash cow now

Most of imminent 100 branches to target gold loans

KOCHI: There was a time when banks refused to be known as big players in gold loan market though it inevitably gives good returns at less risk and saves bank’s capital to a good extent due to its low risk weight.

But CSB Bank, formerly Catholic Syrian Bank, seems to have decided to be ‘realistic’ rather than holding on to such ‘false prestige’ any more. CV Rajendran, CEO and  MD of the bank has made it amply clear while responding to analysts’ queries recently that the bank is in no mood to stop at the currently achieved size of gold loan portfolio at 32 per cent, but is moving on to raise it up to 40 per cent if possible.

And CSB Bank has more reasons to do so as there are new shareholders who have reposed their faith in the bank by betting on the bank’s prospects at price as high as Rs195 apiece at the recently concluded IPO – a price that is a far cry from any other bank shares in the state (in relation to PE or book value).

The Fairfax’s entry into the bank’s ownership base last year with a 51 per cent shareholding by investing Rs1200 crore has forced the bank to change its course as the new move has different covenants to fulfil at different levels, the main theme being profitability.

The bank is now attaching a lot of importance to nurture the gold loan book. “We may take it (gold loans) to 35 per cent or even 40 per cent (of the aggregate loan book) over a period. That is growing faster,” said the bank MD. Moreover, the bank has also decided to open most of the 100 branches it plans to open soon in the gold loan focus area.

Rajendran said the Reserve Bank of India (RBI) has given the bank freedom to open any number of branches. Not only that the volume of gold loans is set to see a surge, but the bank has also decided to boost the gold loan yield from the current 11.7 to 12.7 per cent so that gold loan book will soon play the anchor role for the bank not only at the top line, but more so at the bottom line.

For quite long time CSB Bank has not taken the liabilities growth because the bank has always been sitting on surplus fund for quite some time. The bank that is not keen on bulk deposits now only accepts current and savings (CASA) deposits. But still, according to Rajendran, the bank is sitting on about Rs1,000 crore of surplus fund.

Curbing employee cost

CSB had about 3,000 employees on IBA scale three years back and this number has come to almost 1,850 for the current quarter.

Stating that one-third of the cost of the bank is only for the pension and pension related provisions, the bank MD said this number is going down from more than 1,700 people and currently, it  has come down to almost 800 people.

“So out of 800 people, about 400 people are retiring in the next two or three years, and there are other attritions also happening simultaneously,” he added.

It is quite encouraging on the part of the management to realise that the bank’s cost to income ratio has come down substantially from 103 per cent to 66 per cent.

“We are in the process of taking it down to 50 per cent. Even if we do not achieve it, our major savings will have happened only from the savings on the labour cost.”


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