Fairfax not to cut CSB Bank stake in five years: MD & CEO Pralay Mondal

Pralay Mondal discusses the bank's roadmap, reducing the share of gold loans, and the recent Fairfax stake sale

Private sector lender CSB Bank plans to become a mid-sized new age bank by 2030, its managing director and chief executive officer Pralay Mondal said. In a telephonic interview with Shine Jacob he discussed the bank's roadmap, reducing the share of gold loans, and the recent Fairfax stake sale. Edited excerpts:     The Reserve Bank of India (RBI) came out with a notification flagging irregular practices in gold loans and asked lenders to take remedial measures in a time-bound manner. What will be the impact of this on your loan growth in this segment?    Almost 45-50 per cent of our portfolio has been in gold. We have been very proactive and have been engaging with the regulators regularly. Hence, we have been working on most of these points that came on the September 30 circular. As of today, we almost tick all the boxes on that. The only thing we have to do more is to increase our rigor of audit.   We have grown in value by 28 per cent and in tonnage by around 9-10 per cent in the second quarter. This means the real growth is 10 per cent and the rest is because of the price increase happening in the ecosystem and we don't take that as the real growth. Because of the global predictions, gold prices do not seem to be under any kind of risk in the next 12-18 months.  Fairfax Group has trimmed the shareholding of FIH Mauritius Investments in CSB Bank to 40 per cent from 49.72 per cent. Will they be opting for divesting more stake as they have to reduce it to 26 per cent as per regulatory norms?  They had to bring down this 9.73 per cent because that was the term of the licence in the beginning . When they got 51 per cent, it was supposed to be brought down to 40 per cent by FY24 August. The good thing is that we have very strong hands who got this 9.73 per cent. This is nothing surprising, this is a part of the plan as per regulatory norms.  What we are sure about is that by 2034, it has to be 26 per cent, as per the given time period of 15 years. Nothing will be done in the next five years. After four years, there will be conversations between the RBI and Fairfax on what will be the plan.  How do you rate your second-quarter performance?    We had good growth in this quarter. Our deposit grew by around 25 per cent and assets grew by 20 per cent. Most of our liquidity-related ratios are good.   On the provisioning side, gross non-performing assets (GNPA)  and net NPA are steady compared to last quarter. Return on equity has improved and inching closer to the 15 per cent mark and return on assets has been 1.5 per cent, which is generally the  guidance. Overall, it has been much better than the first quarter. We are quite happy with the progress in the third quarter too… We are going to see growth in corporate segment from Q4 onwards.   Net interest margin (NIM) was a cause of concern for you. Where do you think it will normalise?   I have always felt that we will be somewhere above 4.5 per cent in terms of NIM. It has been steady because the cost of funds has gone up and there is also an impact because of penal interest regulation of around 25 basis points. Because of penal interests, calculations have gone a bit haywire. We have sort of bottomed down in NIM. Once the deposit cost starts going down, may be six to nine months down the line, we should be able to improve on NIM with a lag of three to five months. One year from now, our NIM will start looking much better.   A couple of years back you said the aim was to bring down gold share to 20 per cent. However, numbers show that it has increased from 42 per cent to 44 per cent. What's your roadmap like?    Our 2030 vision is clear to have 30 per cent wholesale, 30 per cent retail, 20 per cent small and medium enterprises, and 20 per cent gold loan in our portfolio. The real growth on the retail side will happen only after building our technology phase is done and we start building the Casa franchise. We will need another two years to build the entire Casa franchise on which we will do the expansion on the retail side. This will happen by 2026-27. But, wholesale will start picking from next year onwards.   From the fourth quarter onwards, we will see a growth in wholesale, and from the beginning of FY26, it will be significantly better. That way, gold composition will remain similar for another 18-24 months. It will start coming down rapidly from FY27 onwards. Gold is a business where operating costs are high, but return is also high if you manage the risk well.   What is the update on your SBS (sustain, build, scale) programme?    We are absolutely on track. It is a long-term vision of becoming a mid-sized new-age bank with a national presence by 2030. This effectively means that have grown at a CAGR of over 25 per cent till then, which we will do. Our heavy lifting on a larger base will start from FY27 onwards. In terms of pan-India distribution, branch expansion and technology, we are on track on all of this.