Mumbai: CSB Bank, backed by Fairfax, has changed its gold lending policy, which has been the mainstay of its low risk lending model. According to the bank, lowering the loan-to-value ratio of these loans to 90% was a mistake because it triggered an auction and led the portfolio – otherwise the safest among advances – to register some non-performing assets (NPAs).
CSB Bank Managing Director and CEO CVR Rajendran told TOI that for the first time the bank has had to have a collection team for gold loans. “A mistake was that when the RBI said you could lend up to 90% of the value of gold, we shouldn’t have followed that because a drop in price can erase the margin and force us to apply for a extra margin, â€he said. The bank returned to 75% LTV in December, although the RBI allowed the relaxation of LTV standards until March 2021.
More recently, the bank revised its pricing strategy to tie interest rates to LTV. “There is nothing to worry about at the portfolio level, but the recovery effort is much greater,†said Rajendran. Lockdowns add to recovery issues. The Kerala government had declared every alternate day as a public holiday under the Tradable Instruments Act. Given the market conditions, there are not many participants in the auction and the payback is around 95% of the value of the gold.
The century-old CSB bank, majority-owned by the Fairfax group of Canadian billionaire Prem Watsa, had announced its intention to transform into a new age bank. After cleaning up the loan portfolios and injecting capital, the bank decided to focus on lending gold until the transformation was in place. Last year, its gold lending activity increased by 60%, with the share of such loans reaching 40%.
The bank is currently working to reduce its cost / income ratio while expanding its network. Rajendran said the bank added 100 branches last year and will add another 100 in the first half of fiscal 22 and 200 in the full fiscal year. “That will take us to 700 branches and in two years we aim to be 1,000,†he said.
The bank withdrew from the Indian Banking Association’s wage deal because productivity levels are below the industry average. Earlier in an earnings call, Rajendran told analysts the bank was taking over branches that were vacated by PSU banks following a merger. The 10 PSBs that merged into four are in the process of consolidation where they close or relocate branches when there is more than one on the same street due to the merger.
The bank is working on the back-end systems to prepare for the future. Digital transactions, which were only 27% before the acquisition in 2018, increased to 73% at the end of March 2021 and in the last three months have increased to 77%. The bank joined Pralay Mondal as chairman to lead its retail, SME, operations and IT functions. Mondal, who played a key role in HDFC Bank‘s retail and credit card business, is also working on the bank’s digital strategy. This involves working with partners to build a platform using cloud solutions, purchasing medium-term plug-and-play technology, and partnering with fintechs with a large customer base. In the short term, the bank uses digital tools for banking services and customer acquisition.
CSB Bank Managing Director and CEO CVR Rajendran told TOI that for the first time the bank has had to have a collection team for gold loans. “A mistake was that when the RBI said you could lend up to 90% of the value of gold, we shouldn’t have followed that because a drop in price can erase the margin and force us to apply for a extra margin, â€he said. The bank returned to 75% LTV in December, although the RBI allowed the relaxation of LTV standards until March 2021.
More recently, the bank revised its pricing strategy to tie interest rates to LTV. “There is nothing to worry about at the portfolio level, but the recovery effort is much greater,†said Rajendran. Lockdowns add to recovery issues. The Kerala government had declared every alternate day as a public holiday under the Tradable Instruments Act. Given the market conditions, there are not many participants in the auction and the payback is around 95% of the value of the gold.
The century-old CSB bank, majority-owned by the Fairfax group of Canadian billionaire Prem Watsa, had announced its intention to transform into a new age bank. After cleaning up the loan portfolios and injecting capital, the bank decided to focus on lending gold until the transformation was in place. Last year, its gold lending activity increased by 60%, with the share of such loans reaching 40%.
The bank is currently working to reduce its cost / income ratio while expanding its network. Rajendran said the bank added 100 branches last year and will add another 100 in the first half of fiscal 22 and 200 in the full fiscal year. “That will take us to 700 branches and in two years we aim to be 1,000,†he said.
The bank withdrew from the Indian Banking Association’s wage deal because productivity levels are below the industry average. Earlier in an earnings call, Rajendran told analysts the bank was taking over branches that were vacated by PSU banks following a merger. The 10 PSBs that merged into four are in the process of consolidation where they close or relocate branches when there is more than one on the same street due to the merger.
The bank is working on the back-end systems to prepare for the future. Digital transactions, which were only 27% before the acquisition in 2018, increased to 73% at the end of March 2021 and in the last three months have increased to 77%. The bank joined Pralay Mondal as chairman to lead its retail, SME, operations and IT functions. Mondal, who played a key role in HDFC Bank‘s retail and credit card business, is also working on the bank’s digital strategy. This involves working with partners to build a platform using cloud solutions, purchasing medium-term plug-and-play technology, and partnering with fintechs with a large customer base. In the short term, the bank uses digital tools for banking services and customer acquisition.
