Edited excerpts:
Q. Would geopolitics slow credit expansion?
It’s too early to say that. We don’t even know what is happening or how long this will continue. But given the situation, I think everybody will be a little more cautious in certain sectors till a clarity emerges. Especially where there is export related stuff or supply chain concerns. Having said that, there are other areas where things can grow. Especially areas which are doing well. Credit growth last year ended with around 16%. I think it will remain in that kind of a range — 13% to 16% or something like that. It’s very difficult to say. But small banks like us will remain cautious.
Q. CSB recorded 26% advances growth in FY26. What is your guidance for this fiscal?
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Being a listed bank, we can’t really give exact guidance. But I think we will be in the same range because we are on a small base. So we will be somewhere between 25% and 30%. If it was a very optimistic scenario, I would have said on the higher side of that. But we are not so sure what’s happening globally. A lot will depend on the ability to garner deposits. That is something which will determine how much credit growth will happen.
Q. Do you expect a moderation in the gold loans business this year given the directional volatility in gold prices?
We don’t know where the gold price will go. The global uncertainties do impact gold loan prices. So we will remain cautious… We are also very cautious in terms of loan to value ratio, you know. What happens is, when prices are high, people play more aggressive LTV games, with expectation that momentum will continue. And when the price is trending downwards, people shift to more conservative LTV. We also do the same thing. Though it should be the other way around if there is a long term perspective, and this happens as the tenure is low and hence the trend matters. But eventually when prices go up, LTV will come down which could be the case in the current global uncertainty but not necessarily one can time the market. Hence we remain conservative on LTV when prices have dropped.
There is another reason why gold growth will slow this year. Let me explain. The RBI had come out with a policy last year by which the re-pledger gold loan had to be paused and run down, and eventually at the end of tenure of that portfolio it will completely run down. So we ran off almost Rs 1700 crore of this re-pledger book, which was classified as working capital under retail loan. That book was replaced by retail gold loans and both had gold as collateral. Effectively, overall loan book mix in the bank, which had gold as collateral was below 50% and not 53% as reported for above explained reasons. So effectively our retail loan book had come down by an equivalent amount, thus showing higher equivalent growth under gold loan. That technical correction is a one time activity and will not happen this year as the base has changed now. So naturally, even if nothing else changes, gold loan growth will come down.
Q. Will the gold price correction impact your portfolio quality?
Our LTV typically remains between 60% and 65%. And we want to keep that cushion. So if gold prices come down further by 10%, we should be fine with the portfolio quality. Besides, a large portion of our gold loan book is classified under agri category. The regulatory norm of 75% LTV is not applicable for agri-gold loans.
Q. Last year, there was also a spurt in wholesale lending? Will the momentum continue?
Our wholesale business is also doing very well. And there is much less risk there at least. Because they have a much longer staying power, especially in the corporate side and things like that. So from that perspective, our alternate growth will be on the wholesale side. Last year we grew the wholesale book by around 35%. I think we will grow at the same rate.
We are also expecting better growth in the SME book… We may grow it in the high single digit. There was no growth last year. This year we will grow to some extent. And if the whole global gloom disappears then we will grow very well in SME.
Q. You earlier mentioned that the credit growth will depend on the ability to raise deposits. What is the deposit growth you are envisaging?
I think without a 20% deposit growth, you cannot do a 25-30% assets growth.
Our credit-deposit ratio is somewhere around 91%. But of course CD ratio is not everything anymore. There are alternate sources of funding today other than deposits.
Q. In your post-earning media statement you mentioned having faced internal challenges. What are those?
Internal challenges is a wrong word. What I meant by internal was the challenges due to the technology transformation. We went through the biggest technology transformation from a legacy system called Marvel core banking solution, not only in this bank but probably what I have seen in the industry so far having worked in so many banks, where we did a core system migration with 52 surround systems and we are also implementing various cash management services (CMS).
The migration happened in May and things were settling down. We are ready for the next phase of the growth which you couldn’t have done on the legacy core banking solution. So when I said internal challenges, I meant bandwidth challenges of people who every part of the bank was busy with. So in spite of all that and in spite of a global challenge, we did perform whatever we performed.
Q. With the technology upgrade, are you planning new product offerings?
Yes. Our plan is to launch at least three products every quarter. Last quarter, we launched , along with . Smart Savings, Smart Current is like a sweep-in-sweep-out kind of a product, which now our technology allows us to do. Similarly, we are planning to launch a lot of products on the , linked to FDs and other things.
Also on the asset side, we are launching two products. One is a school fee product and one is a loan against security, which is not gold but which is against mutual funds.
Next quarter onwards or maybe second half of the fiscal onwards, we will see a lot of transaction banking products getting launched for wholesale and SME verticals.
Q. With the mandating banks to transition into the expected credit loss based provision system from next fiscal, what would be the likely impact on your bank?
ECL has two sides to it. One side you will need more provisions on various things including limits. But there are some releases that will also happen. For example, we are carrying Rs 105 crore of contingency provision, which we had done during COVID times. Now in the new ECL framework, you cannot do it. So that will come back and get deducted from what extra provision you have to do.
Then we are carrying extra provision, I think all of it together, somewhere between Rs 170-200 crore is there, which will get adjusted with that incremental provision. So overall on the margin, there will be some impact, but it’s not something which is that material as per our calculation, but our risk team is doing that calculation right now, because the board has also asked for it.
Q. What is your capital position? Do you need infusion immediately?
ECL anyway is going to impact capital only if at all if there is an impact but for us the capital impact will be not much. Our capital adequacy ratio is around 20% right now. I think we are good for the next two to three years.
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