CSB Bank profit nearly doubles riding on high yielding gold loans

Canadian billionaire Prem Watsa controlled CSB Bank said its net profit almost doubled to Rs 53 crore in the quarter ended December 2020 from Rs 28 crore a year earlier due to strong loan growth riding on a whopping 60% rise in loan against gold.

Such gold loans constituted 40% of the bank's loan portfolio at the end of December up from 30% a year ago as the Kerala based bank doubled down on this product noting the high margins and strong demand from customers looking for liquidty especially after economic disruptions caused by severe lockdown in the first half of the fiscal year.

As a result the bank's yield on advances improved to 10.98% from 10.72% a year earlier. Higher yields pushed by the bank's net interest margin (NIM) to 5.17% from 3.92% a year earlier.

CEO C VR Rajendran said the bank the high proportion of gold loans in its books are not a cause of worry despite fluctuations in gold prices.

"Our loan to value is 75% despite RBI allowing us to go up to 90%. We have been in this business for many decades and have also seen fluctuations in prices in 2014-15 when prices fell 30%. But we have always asked for more securities whenever the loan to value gets close to 90%. As far as we are concerned this has been our safest porduct with a NPA of 0.28% hence even PSU banks are also now offering this product," Rajendran said.

CSB's gross NPA as percentage of advances declined to 1.77% in December 2020 from 3.22% a year earlier largely because of the Supreme Court stay on classifiying new NPAs.

If not for the court's stay the bank's gross NPAs would have risen to 3.42%, CSB said.

Rajendran however said that the bank has made higher than necessary provisions and is prepared for any deterioration in its asset quality.

"During the current quarter, as a prudent measure, the bank has made additional provision of Rs 85.10 crore up from Rs15.55 crore in September 2020,against the further likely impact of COVID 19 pandemic in respect of exposure of the bank based on the assessment of presently available information.The aggregate provision against the likely impact of COVID-19, including the RBI mandated provision, as on December31 stands at Rs 144.87 crore," CSB said.

The bank's provision coverage ratio stood at 91% in December. It is additionally holding a provision of Rs 154 crore for the stressed assets including special mention accounts, blocked accounts etc.

The bank board also approved the roll out of a voluntary retirement scheme for stafd above the age of 50 with a minimum 10 years of service. The scheme will open on January 25. Rajendran said about 223 employees qualify for the scheme and the bank will have to spend Rs 80 crore if all of them opt for the same.