CSB Bank Limited ($CSBBANK)

Ladies and gentlemen, good day, and welcome to CSB Bank Limited earnings call for Q4 FY '26 financial results hosted by Yes Securities Limited. [Operator Instructions] Please note that this conference is being recorded. With that, I hand over the call to Mr. Shivaji Thapliyal from Yes Securities. Thank you, and over to you.

Thank you, Shivaji. Good evening, and a warm welcome to all those who have joined the call. The CSB Bank management is represented by Mr. Pralay Mondal, Managing Director and CEO; Mr. B. K. Divakara, Executive Director; and Mr. Satish Gundewar, Chief Financial Officer. We specifically thank the management of CSB Bank by giving Yes Securities the opportunity to host their result call. The management will first be making some opening remarks, after which we will throw the floor open for questions. I now invite the management to make their opening remarks. Pralay, over to you.

Thank you, Shivaji, and thanks, everybody, for joining our annual and Q4 analyst call. So to start with, we'll start briefly on the global comment scenario. As we all know that the West Asian crisis has been continuing for more than 2 months now, and with probability of further escalations in large though escalations cannot be rolled out altogether. Higher crude prices for an unduly long period definitely [ flows ] inflation risk. Consequently, Federal Open Market Committee, BOE and EU have kept the rates on hold cautiously with the guidance that they have -- may have to increase it subsequently. Global growth for us remains subdued, and financial markets are likely to remain highly volatile. As a result of higher crude price, Indian growth is expected to reduce by 50 basis points as per certain estimates, the inflation forecast has been revised upwards, and RBI expects the inflation for the next year to be around 4.6%. The deposit growth continues to lag the credit growth, raising the bar deposits and CD rates in Q4. Surplus liquidity since then has reduced the rates slightly, but they are likely to remain elevated to uncertainties in the economic conditions. The G-SEC yield curve has also moved up sharper due to inflation and cat concerns. We expect the banking sector NIM to remain under pressure due to rising cost and [indiscernible] volatility. We expect the liquidity to remain easy and RBI to stay on hold for longer in this financial year in the wake of impact of domestic and -- now coming to CSB specifics. First of all, I want to apologize that my voice is a little bad. So it's a little difficult, but I hope you can hear me properly. So on CSB specifics highlights on profitability, net profit for FY '26 stood at INR 633 crores with 7% growth over FY '25 and Q4 '26, net profit of INR 202 crores was registered with a sequential quarterly growth of 32%. Operation profit of the bank grew by 19% on an FY basis and stood at INR 1,085 crores as on 31/3/26. Net interest income grew by 17% on a full FY basis to INR 1,720 crores and NIU grew by 25% for FY Q4 FY '26 versus Q4 FY Other income grew by 21% and constituted 21% of the total income for FY '26. Proportion of risk-weighted assets continue to be lower compared to the industry. In terms of value creation, book value per share stands at INR 2.72. EPS for the year is INR 36.5 while in Q4, it was INR 7.12. ROE for the year stood at 14.14%. And for Q4 FY '26, it was 17.6 -- the cost-to-income ratio for FY '26 stood marginally lower than the previous FY at 62.53c%. NIM for FY '26 stood at 3.76% where Q4 FY '26 NIM was 3.83%. ROA for the quarter ended 31 '26 stood at 1.53% being the highest among the quarters in FY '26. ROA for FY '26 stood at 1.29%. Contingency provisions again impact in the bank is continuing with the accelerated loan provisioning policy, which will aid the bank in transitioning toward -- on the liability side, the funding base continued to grow. The deposit registered a robust growth of 20% Y-o-Y and faster than the industry growth of 13.5%. CASA ratio stands around 20%. To add the liquidity, we also have both domestic and FCY borrowings based on cost considerations. On the liquidity side, bank managed liquidity risk reasonably efficiently. CD ratio stood at 91%. Average LCR for the quarter is at 109% NSFR ratio was around 12%. Asset growth was quite robust with 27% Y-o-Y as against the industry growth of 16%. Yield on advances for FY '26 stood at 10.8% -- on asset quality metrics, I think it was a fantastic quarter for us. GNPA and NNPA ratios for the quarter stood at 1.66% and 0.4%, respectively, with both ratios being the lowest across the last 4 quarters. PCR now stands at 76.38% without PWO. Bank is holding a provisioning buffer of -- again, on this PCR, there is a significant improvement. Bank is holding a provisioning buffer of around INR 210 crores over and above regulatory requirements. On the capital CRAR continues to be well above regulatory requirement and stood at 20.66%. Tier 1 ratio as on 31/3 stood at 18.93 percent. On distribution side, we have network of 862 branches and 832 ATMs as on 3/2026. So these are key numbers. We'll deliberate this through the call. In conclusion, I would like to say that we conducted FY '26 on a strong and positive note, delivering consistent growth despite facing significant external challenges and going through a massive take overall internally. This performance gives us strong confidence as we enter the final and exciting scale phase of our SBS 23 division, which will play out in the next 4 years, and we are fully aligned to our strategic vision. For the fourth consecutive quarter, we outpaced growth of the industry, both in deposits and advances. During FY '26, we recorded 20% growth in deposits and 27% growth in advances compared to the industry average of 13.5% and 16.1%, respectively. While our corporate portfolio has progressed as envisaged and planned, our calibrated and cautious approach adopted to our SSME/BLG business and unsecured portfolio amidst an adverse operating environment, along with liquidation of the loan against security and here the security has been primarily gold as a collateral. As per regulatory prescription, this portfolio had to be run down quite a bit. And this resulted in a relatively higher share of gold loans during the year. We'll discuss this as we go through the call. Importantly, our gold loan portfolio has managed to be pretty risk-free with strict oversight on parameters such as LTV, lens and risk metrics, ensuring a healthy and profitable book. We have successfully migrated to the new core banking system with OSA OGL and all 50 surround system around it on the Oracle side. With technology advancement, bank is now in a better position to scale up its activities more meaningfully. We are also planning -- actually, we are implementing in the next 3 to 4 months, the entire transaction banking systems in form of [indiscernible] on the CMS side and trade side on the core itself, on the Oracle, we are implementing. So with all of this together and with the ServiceNow platform, now we are building various systems around it. And with LMS LOS, huge investments in data center and various other initiatives on the digital side, OBDX on the core I think we are firmly in place to really now meaningfully scale the bank as a full-service bank, justifying our full service and scaled bank over the next few years. As we now are leveraging the capabilities of the new core system and surround systems to launch the full retail product bouquet, both on the deposit and assets front. And with the new revamped products, we plan to meaningfully kickstart our retail franchise journey by Q4 FY '27 and Q1 FY '28 because that's where we'll start seeing the portfolio growing on that side. Growth in BLG book is also expected to resume once the ecosystem turns favorable in the global ecosystem. We remain firm on achieving the targeted portfolio mix, which is envisaged under 2030 SBS 2030, which we will continue to strive towards this objective. As advance growth outpaced deposit growth, as was the case for most of the banks during the year, liquidity management and regulatory ratio maintenance remained challenging, further compounding by tight systemic liquidity conditions, which has eased now, of course, a little bit. Despite this, we navigated the environment effectively through prudent management of deposit costs and tenors, along with optimization of borrowings. We continue to maintain adequate liquidity buffers and comfortable regulatory ratios with both cost of deposits and cost of funds declining sequentially. From a profitability perspective, FY '26 witnessed a strong operating performance with 19% growth in operating profit over the previous year and a 7% increase in net profit. Q4 FY '26 was particularly notable, marking our best performance in terms of slippage control and recoveries. Consequently, we closed the year with lowest NPA levels compared to previous quarters with GNPA of 1.66% and NNPA of 0.4%. Noninterest income supported by sustained growth in core fees increased by 21% over last year despite significantly lesser traction in treasury income due to higher bond yields and constituted 20% of the total income. Net interest income growth remained robust, registering a 25% Y-o-Y growth on a quarterly basis and 17% for the full year. All key financial ratios remained stable and well above regulatory thresholds. Delevering this performance in a year marked by significant infrastructure build-out and the large-scale technology transformation further reinforces our confidence as we transition into the scale phase of our journey with a clear aspiration to become a midsized bank by 2030. We have also revamped our organizational structure with a sharp focus on customer acquisition across verticals, which will be critical to the success of our vision. Leveraging the capabilities we have built, we look forward to a progressive and sustained delivery quarter-on-quarter and year-on-year. If I can highlight primarily 2 points here before we move into the Q&A, there are two primary key things which -- 2 or 3 key things which really make us very confident about the future. Number one, the entire technology transformation, which happened with such seamless ability with almost zero challenges as we move into the advanced core system with so many surround systems. It has been really a fantastic experience. And as we talk today, we have almost 0 issues impacting the transition. I think this is like a once-in-a-lifetime experience for us. The entire team came together and did it. I think congratulations to the team. The second thing is that we have sort of every day performed what we had predicted. And that requires a lot of confidence on what we are doing and in terms of execution, what we have done. For example, when in Q2, I think, we are talking about NIM compression. And I said that we will improve it in Q3. and we did it. In last quarter, there were significant questions and rightly so about the quality of the portfolio in terms of GNPA and NPA slippages and other things. And I gave exact explanation why it happened and how we will ensure that we take care of it, and we have done it and in a very credible fashion the way the numbers have come out today. So I think the critical part is that what it says in our view is we know what we are doing, and we are progressing on the right path. And most of the predictions which we gave through the year, we have been able to achieve. With that, I end my initial comments here. Over to you for Q&A.

[Operator Instructions] We have our first question coming in from the line of Suraj Das of Sundaram Mutual Fund.

Sir, I had a few questions. First, sir, on the LCR, it has been declining over the past two quarters and probably now in the lowest hotel in the sector. What is the rationale why it is declining? And also, how do you see the impact of new guidelines on the LCR? More broadly, I think how do one think about this in the context of growth because especially in your case, the deposit growth is lagging not just for you but also for the system as you highlighted. But in your case, the deposit growth is increasingly not driven by wholesale bulk deposit, which is now almost I think 50% of the term deposit versus 20 years a couple of years back. And it is also cost implication, right? So I mean, in terms of this, what is your expectation that the share of wholesale deposit will continue to go up and probably we'll continue to deliver maybe 20%, 22% kind of a loan growth. So that is question one. Question two is, sir, on the gold loan portfolio. the number of accounts on the gold loan portfolio is declining consistently over the past -- I mean this quarter, but also over the past 2 years coming down from say INR 6 lakhs, INR 7 lakhs to now INR 4 lakhs. And then tonnage growth is also hardly there for the industry also. So it looks like that the growth is largely driven by the higher gold prices. rather than underlying volume expense. And so while you have an [ LTV ] cushion, but I want to know what is your strategy in terms of maybe incremental customer acquisition front here. And the last, sir, if you can comment on the NRI deposit flow, I mean, how it is trending at a sale during the March quarter and then if you have seen any slowdown post March, particularly because of this waste [ prices ] and so and so forth. Yes, those are my three questions.

Thank you, Suraj, for the questions. So let me cover one by one. On the LCR, we ended average at around 10%. And what I can say is that as we are talking today, while I can't give that number, it is significantly better compared to that at that point of time. And we all know that March being a year and quarter, the kind of deposit rates which were in the ecosystem. And as we rightly said, that our value deposits around 50% and now [indiscernible] likely on the lower side. We had to play tactical on this one and said that what is the [ NCL ] level on average you are comfortable with because we would have been taken at 115%. But cost, we have to pay for that. [ Visas ] when you balance it out and you know that, the same [indiscernible] you take it in next quarter. you have to pay a lower cost. So given that, we said that we'll keep it somewhere around 110%. We targeted 110%, we ended with 109%, because in the last moment, something happened. Because we wanted to be efficient, okay? But at the same test, let me tell you, LCL is not a concern at this point in time because we are significantly higher than this level [indiscernible] and NSFR is around 122%, which also gives comfort that we are on track on that front. Related question on wholesale deposits yes, it is around 50% of our overall term deposits. It is a tactical play because we all know and I talk about it a little bit that how we are building our liability franchise now because without a core system, without our systems and solutions, building something is difficult and will carry a cost of building that. So which I didn't want to do that. So now we will do it in a proper organic way. But tactically, it plays because this is a technical stuff. On the wholesale side, if you look at our year-on-year deposit cost coming down is significantly higher cost reduction in wholesale deposits, service date. Tell if I remind correctly, our deposit costs came down by 8%, 9%. But on the wholesale side, it came down by more than 20, 30 basis points or even more. So effectively, tactically, it pays out that cannot be a strategy, but these are not tactics. And we locked in ourselves only for a short period of hand we are not locking out sort of 5 years, 4 years, 3 years. We have not dropped too much. I don't think at all beyond 1 year, and it has been being 6 months to 1 year. So to that extent, it's tactical, they will play out. But yes, our wholesale deposit cost is slightly higher than the retail cost deposits, but incremental cost reduction in park deposits is better than the retail deposit. So Visa's help trust in our management of cost of funds in the short term in a tactical way. So this has not played against us in our execution strategy. But yes, we have to build the liability. And before I move to the roads, let me tell you what we are doing on the liability side. Because eventually, the main job the bank has is to build a good liability franchise, which will help us in our quality asset growth as well. So with the core system falling in now almost every quarter, we are launching three products on the [indiscernible] side itself, as a talking we launched Smart by current accounts part by savings account with very good features and it has already started doing for us. we launched Freedom account, okay? So there are various products which we want to launch every quarter because now we have the system to launch with. So but we didn't have the system to launch. On the current account side, with the transient banking CMS and supply chain and trade all of this coming together, it will help us in going to both wholesale as well as semi customers and also to past customers which will help us in building our granular long-term customer franchise. And also, what we are doing is, so far we didn't do it because it didn't make sense. But now with these products in our national, we will -- we are launching the sales machinery for -- especially for current accounts and also for serving the count in the metro markets. And this is the strategy which is. Effectively, the liability franchise builder process starts now, okay? Also, as you know, that enter new guidelines, one of the guidelines which gives at June is guideline on the task Trust Association clubs and societies. And in that, because of that 40% regulation task will also be NCI friendly. So to that extent, we have created a separate article and task headed by a very senior person will work across also in retail and SME. And this -- you will also see a significant growth in this as segment. Other guidelines because of [ asset ] is very low at now penetration is still due I'm not saying that's a good thing to happen. This is something we want to improve significantly from here. But again, tactically, it has not taken away too much of NCI from our side at this point of time. So that to that extent, tactically we are on the right place. Having said that, the main job will build the level franchise now. Next question on [ Golden's ] very relevant point, which I mentioned, number of accounts gone down and tons growth are not happening. But let me tell you, these are two different end points for us. Number of accounts went down before and done in developed is also going in. And the reason for that is on the regulatory guidance before, there was some challenge, which has been now changed again favorably. But the regulatory guidance were below 2.5 length, okay? There are some challenges in getting gold customers with the collateral issue. Now that has been clarified, no problems. But once we move into the larger ticket sizes, we realized that overall for the bank that is better in the long run. And also the risk with respect to LTV, et cetera, is much better there because there, what we have seen is that high-value customers only take the loan they need. And if you get 100 [indiscernible] loan, you will give that tonnage, what is relevant for you. And hence, typically, when prices goes down, tonnage will go up and when prices go up, runs go down as the ticket size increases to be on 10 lakhs million and things like that. And given our cost and other issues, et cetera, we also look slightly on the higher end of the gulf on the gold side. And hence, our number of customers have come down. The tonnage growth, of course, and it has gone down because explain that people take what they need because we are not attending that second where they're giving the last kind of selling on the gold to take some consumption loans, most of our loans go into productive usage. And from that time -- from that perspective, I think tonnage growth will go up on the gold prices if at all or low prices have [indiscernible] so that's on that. There is no risk at all in the old portfolio. We have done our analysts will ask the question while you are touching Board and is saying that our LTV is pretty low, especially because a very large portfolio is on the agri side, which is not governed by the 75% LTV. So given that perspective, I think we are sitting off a fair bit of margin in terms of risk, given another 10% fall in gold prices, we'll do nothing to the portfolio. So to that extent, we are fairly cones. Having said that, I said before, again, I'm saying this is a tactical play or eventual place to bring gold down to 30% of our portfolio by 2030. Out of that, at least 5% of the 30% will be working capital on. And we have just launched a product, which is for targeted towards working capital backed by [ Cosa ] collateral. So this should be minimum 5% of our portfolio as we go to 30%. And hence, it will be 25% plus raised around 2030 blasting on the wholesale side, around 18% in beyond the SSI. And this will be on the retail side, we'll be [indiscernible] so that we are firmly at that game. And one of the other things because you didn't answer that, but let me answer that question also because that question may come later on by somebody that our world portfolio increased to -- by around 7 percentage in the mix from around 25%, 26% to around 53%, 54%. So -- but -- and the funny thing you had there we'll see that on the retail side, the retail portfolio has exactly decreased by that weeks. And that is basically what we did is the loan against security, which was nothing but gold has moved from this side to that side. And hence, if you add it up and say that what is our portfolio meets where gold is a collateral, it has remained below 50%, okay? But because this is regulatory reasons, we moved that business from this side to that side, more on the retail side. And from that perspective, I think the gold growth, which we are seeing around 53% year-on-year. is slightly artificial from that perspective. And obviously, we don't see that growth next year. And if we continue to grow at the levels that we are growing at a bank level on the asset side provided we can prove that we franchise. You will start seeing some of the other businesses will grow much faster. On the deposit flow, which you asked that question, very relevant [indiscernible] for us because I think we're around 56% of our [indiscernible] of time, it's not good, we can do better. So we have catered a very clear, strong vertical with a very senior person driving it right now. We applied for our [indiscernible] office in by now, it would have been probably been operational also. But because of the Western share crisis, we ask for an extension of the -- because we are not able to do anything there at this point of time. But we have finished our legal paper [indiscernible] et cetera. And we have finalized the CRO also CROs Chief [indiscernible] Officer. And also, we have created a separate vertical within the bank now focusing primarily on NRI business. Obviously, in the short term, there has been a little bit of a disruption on [indiscernible] flow divides and NRI flow in the bank right now. But these are short-term kind of things. In the long run, we think that we should be at least 20% of our deposits or liability must come from NRI and we have created a separate funding structure for this. So I hope I could answer most of the [indiscernible]

Yes, yes. I think that was very elaborative. Just one follow-up, sir. So this LCR coming down is because of wholesale shorter tenure deposit impacting the denominator of the LCR.

And also what we are saying is [indiscernible]. We are higher... Soon to control is very high in the last 20 days, 15 days, 1 month of year where you know that costs do come down post March, then now on, right? So that reason we tactically targeting 110% but we achieved 109%. So something slipped. They are much higher right now than his.

We will take our next question from the line of Akshat Agrawal of SMIFS Institutional Research.

Good evening, sir. Thank you for the opportunity. Sir, my first question is on your scale strategy. So as we enter into a scale phase of SB 2030 strategy from this year onwards, could you please update on the progress of the retail transformation on the asset side? When do you expect growth to -- growth to meaningfully pick up in retail and SME? And what kind of numbers should we expect in FY '27? Sir, my second question is on fee income side, which picked up strongly. So I wanted to understand the three drivers. So like last quarter, PSLC income was missing. So is this -- has this come back this quarter? And was there any syndication fee in this -- in the numbers this quarter? And a related question on costs. Were there any material PLC-related costs, which were largely absent in 3Q, which were charged in 4Q and did you see any head count reduction? And how should we think about the cost-to-income ratio trajectory? Can we see it move below 60% in FY '27. So those are my three questions.

Thanks, Akshat, for the questions. Starting with the retail assets. We are past focusing on retail liability because we -- our retail strategy is very, very clear that for assets which are earning assets and the way we define them are businesses like commercial vehicles, commercial equipment, hence. So this and [ sustain ] inventory funding, okay, because this also goes in -- and to some extent, auto loans, but that's a construction business and atleast it's secure. So these are the products where we would grow beyond our liability franchise, which means to leaner shape through various places, including our internal customer, of course, okay? And any other product which on the consumption side, we do it on the back of our liability branches. And primarily, it will happen by cross-selling to our existing customers. We have limited state of core existing customers and hence, we are primarily focusing on new customer acquisition this year onwards to have meaningful growth on that side of the book. Also, we have been very cautious on the unsecured side of the business with us for the last 2, 3 years. and this has helped us because the -- our delinquencies are same as the market, but because our portfolio is coming down, it is helping us in managing our slippages and managing our credit costs. So prudent decisions were taken. So now simple strategies build the retail assets on the productive assets. And this year, you will see that those products, which has grown and what has deep on products which are unsecured in [indiscernible]. Also, there was a cycle on MFI and with the monsoons not being predicted very well for this year so far, whatever we have seen, we would not take the risk on agri business also that much. So given all these, I think you will not see a meaningful growth on the retail asset side, but we'll create the dry gunpowder there by creating a good liability franchise, which means basically more customers to who will accelerate our assets. Our meaningful growth in retail assets will start from FY '28 onwards. I've already explained it, but I'll partially mention it that our retail assets growth this year has been negative primarily because of the loan against gold, secured as we say, [indiscernible] at by [indiscernible] that folio has come down from more than INR 2,000 crores to around INR 300 crores. And -- that was a regulatory mandate, and that we compensated on the [indiscernible]. That's why you're seeing a negative growth, but core retail assets have not grown negative. In addition to this, we have launched two products in retail assets. One is the school fee financing, which is a very good product. And the second one is, again, it's called [ LAS ], but longer security but this security is now mutual funds. The engineer [indiscernible] and other things, insurance and a ones, okay? So these two products also are very safe products at this point of time. and capability, which you have built already. So these two products will also see some traction in the bank going ahead. So that is about metal assets. Now coming to your question on fee income. I [indiscernible] has been no situation feed in Q4, okay? And frankly, PSLC premium was very, very low in Q4. I mean, this year, which is exceptional exchange, we never fell [indiscernible] to so solos. So we didn't book much. I mean, we booked some, but it was significantly lower than what we do in Q4 of last year, significantly significant okay. Also, as we all know, which is a market phenomena happen with all banks that the MTM gain, which you had in due for of last year in fees, was significantly higher. And this quarter, obviously, there was nothing, okay? If at all, there was on HFT, there had been something we had to compensate for. So given all this, if you look at Q4 last year on these and Q4 this year on fees, overall fees actually gone, okay? But the core fees, what I mean by core is non-PSL and non-treasury our fees are higher, which is the core fee, which is not difficult for us because that is sustainable over a period of time. So in a very worst-case scenario, we have done well and 21% steel is not a bad number. When we [indiscernible] the syndication, we didn't have much from PSL we didn't have -- we are only negative on the other side on the [indiscernible] side. So given all this, I think [indiscernible] is a good story here, like our announcement the credit cost line that -- coming to the cost. Yes, there was a significant increase in Q4 over Q3. But again, this is very technical in nature because most of initiatives played out in the last quarter of the year. And hence, that is a onetime kind of a cost, which happened, which generally gets put over the year. This time not a little much in the last quarter of the year. That's why from Q3 to Q4 cost went up. It was not for any other reasons. And on the head count increase, we had an increase of around 25 people in the head count over a base of 7,700. So it's not even a 8% increase in headcount. But the cost increased a little more than that. Tell -- I mean, because this year, we invested into high cost and high quality resources in wholesale bank. Our wholesale banking franchise moved from a barely double-digit number of relationship team to 80-plus relationship team. We are also now investing in the transaction banking franchise. So all of these things together, the cost of some of the people who we have got and they are expected to obviously reduce the cost to income of the bank that has to get much more income. So hopefully, this will play out for us. On the CPI, I always said that we in till FY -- end of FY '27, FY '28 onwards, the operating leverage will take in because all set and done, the technology thing has just come in now. So '25, '28 onwards, we'll start seeing the operating leverage across branches, across products and across the technology investments, which have done. Still FY '27 and our CTI will remain between 60% to 65%, and we are somewhere in the midway around 62% sales. So that's sort of for questions.

Very well, sir. Just a follow-up on the SME growth, what kind of growth we expect this year. And when should it pick up meaningfully?

Yes. So SME and LAP together we call BLG, which is business lending growth. So that rewound 2% to 3% last year-on-year basis. And this is something we did very [ fontously ] because we saw a very strange year last year, the first half of the actually is still going on is the tariff-related issue, but the delineate got overpowered by the western share prices, which also impacts in a way the not only exports now anymore, it's also supply chain and not always the SMEs have the kind of a staying power a large corporate or even sometimes the mid-corporate has. So given that, given the size of our balance sheet, we did a risk, we always did it in a personal loan, whether it was in MFI. And then we did do in SME last year, we deliberately focused on SME portfolio growth. But the same team were very hard to get the portfolio quality better, and that has helped us coming this year, until we get clarity on this western share prices, and hopefully, it can come in this quarter or maybe next quarter, who knows, if that will clearly decide what's the level of acceleration we want to put on the SME. But as we are talking, we are investing more in [indiscernible] because this thing will come and go, but eventually a 2030 commitment of around 18% of SME portfolio is remains, right? And it is now around 11%. So a significant road map is the SME, but we will accelerate only when we feel comfortable down the rate. But whatever happens, we will -- single-digit growth is given. And hopefully, we will be back to that 28% growth in the next 2 years.

We have our next question coming in from Parth Gupta of 360 ONE Capital.

Yes. So first, what is the impact of CECL on the day of transition?

Is this only question?

Yes. So I have one more. I'll take it [indiscernible].

Okay. So I will give a one line answer to the [indiscernible] to CFO, Satish to respond in details. At a high level, what we understand is there are various smaller components there, but the large impact items are the stretch to -- especially on the SMS side, where there are two parts. One is the 5% and one is the 1.5% in the gold loan, okay? And also that is on the large impact item on the negative side. And on the positive side, we'll be able to -- or we have to now write back the contingency provision of INR 105 crores and is enter INR 210 crores, which I said which have mailed about regulatory capital that can be subtracted from the that should be subtracted from whatever is going to come additional because of these provisions which you have to take. So at the margin, there could be some very many material impact. the calculations are being done. And on that, I'll hand over Satish to answer this question, technically.

So Parth, we already have an ECL model in place because we report our numbers as per IFRS for the purpose of Fairfax. However, that model has been completely based on the revised ECL guidelines. So that work is currently underway. However, based because our model was prepared some time back. Over a bit of on business. Part of that has also changed the effect on that more. So we do not know what happens once this anti-model refresh happens. It is still 1 or 2 months away when we have the full mode. Nevertheless, base is the model that we are in currently for our IFRS reporting and basis the portfolio which we had at December what is the impact and that probably we can call it as a transition impact because as per the guidelines, the transition impact will have to be taken on first April '27, whereas the benefit of capital adequacy ratio, we can defer for a bit of 4 years. But that transition impact is not a significant number for us at the moment. And this considers the fact that -- and we had that advantage because not only on NPA that we have been making aggressive erosion, but even on standard assets. We had this additional provision created at the time of covered INR 105 crores, which will now get subsided into the overall provision that we hold. So the benefit we have got, and because of that, the transition impact is not a significant number at all. So [indiscernible] to, in case there are any significant changes which happened to the model. So I would not completely say this is the impact, and this is what will happen because the work is currently underpin once we refresh that model and then run that model out March 2026 numbers, then we'll have -- but all along, we have been auditing the numbers, and that impact is not very significant for us.

Sure, sure. My second question is on the gold loan portfolio, then had been coming off over the last at least from Q4 FY '24 to Q4 FY '25, that link has been coming off. But over the last 3, 4 quarters, again, the ease have increased by around 30 to 40 bps at the portfolio level. Is this largely because of the gold loan that we have been -- or the new working that working capital gains on that we have started. Is that the right understanding?

Yes. So let me explain this. So we are not aggressively pursuing gold Honda where we are doing before because we are now looking at larger ticket sales, okay? And hence, we said that we must maximize returns to a great extent because we realize that a lot of these customers who are coming to us are coming from various NBFCs and other institutions where they are paying higher than what we were asking for. So we said that this is an opportunity where we do not want the growth and we are getting the growth. So let us try and maximize the returns in terms of [indiscernible] and also -- so that means we are actually underpricing on so far in this business. So -- it is more of a discovery for ourselves, okay? It's not that it happened only in that pop, which you just talked about the working capital, but also in the other portfolio as in -- so overall, that has worked out for us.

We'll take our next question from [indiscernible] of Nest Amplifier.

This question is more from a long-term perspective. Probably this is probably your sixth year in CSB. And from the start, I think the idea was to grow liabilities, which somebody asked and you answered that it has taken its time and on the retail assets and the business has done well, and we have been beneficiary of gold prices. But on the retail, et cetera. I look at the last 4 years, 5 years, it has been a fairly tepid growth than what we would have thought through or planned for. And even now, if I understood correctly, what you said was that this will pick up in the Q4 FY '27, Q1 FY '28. So if you can give me a color of why exactly it is taking so much time? Is it because the market exists, there are NBFCs who are able to capture at that small base reasonable pool of assets and projects. But somehow despite our liability advantage, we have been able to do fairly little on the retail side, except the gold one [ ver ] which has been a medical execution benefited by the increase in gold prices?

Yes. So I will just explain. We are a bank. So as a bank, we don't want to address the retail assets business like NBFC because I have also be on the board of NBFC for [indiscernible] and access finance. But the way NBFCs does business is a little different to how our bank does business. And there was a time when I have to handle both a bank and sit together when I was an HFC bank. So the whole approach is different manuring a bank. Here, we are not here to build the asset book. Here, we are to build franchise well will come fast and as it follows. And in the process, liberates because is and other things happen in their account. So that's approach we are taking. And hence, even it takes the hydro by the long term. Eventually, what it does is eventually it is a franchise, which is a compounding growth story. But in a [indiscernible] trade work, it is a slightly different strategy, which is different to how a bank operates because bank of lotion and rose. So given that perspective, your like that -- now we took a little time, and there's a lesson for that. The reason is that our core system migration or whatever reasons are, I got a little delayed in terms of section making which our system will go for and when will vote on them. So we started the co-system migration for various business internal lessons only in FY '25, okay. FY '24, the decision got taken FY '25, we got delivered by May 25. And then we are around with the sound systems. And then in a very weak and record time, we are able to do this out. So primary reason is and look at it this way, without proper core system because we are on Marvel, which can't do much. We -- and I also realize the shortcomings of [ Marvell ] where we stood run before the core system where you really cannot launch new products, you cannot have various functional days. And hence, our interest story of the bank from a retail franchise is starting now, frankly speaking, because the core system only is now stabilizing or stabilized. Now we can launch pronounce products. we will launch a sales team. We tried what [indiscernible] then we realized in absence the products, customers comes by, they don't give key balances and those accounts becomes enacted. So there's no point. and definitely don't cross-sell them anything. So given this, the retail journey starting now, that's the honest answer, and we know how to execute it and take it forward. So I'm pretty confident that we are not shifting the cost to FY '22 and '23, we are saying that if you have lost 2 years in taking the decision on the core system for whatever internal reasons, we will work harder to portend by FY 2030, we'll deliver four products. So that's a real answer. I hope this clarifies. Thank you. All the best for it.

We will take our next question from [ Puneet Balani ] of Dolat Capital.

Sir, just on your NIM, like your reported NIMs were flat QoQ and advances growth at 9% Q-o-Q and deposit growth, but it's does it -- the NII growth is only 2%. Is this some take count convention? Or what am I missing here, sir? That's the only question I have.

So NII growth year-on-year was quarter-on-quarter is lower, but year-on-year is 25%. So your question is more on quarter-on-quarter you're saying?

Yes, quarter-on-quarter. How do I reconcile this? Because the loan growth has been 9% and NII growth is only in the range of 2%. So something I'm missing or is i..

But if NIM has dropped by 2, 3 basis points and quarter asset book has grown by how much quarter-on-quarter asset book growth is 9% growth with a NIM drop of 2 basis points, I mean there is nothing here which will act differently, right? So I'm sure[indiscernible] that [ 400 basis ] the statement on a year-on-year business, it's 25%. So maybe we can do the math one. Because if you look at it, our yields has fallen a little bit in Q4 and cost of deposits or cost of funds has gone up slightly, which has affected I'll tell you what has happened in spite of a sign significant improvement on the quality of the portfolio, which is the and credit cost, okay? Still, if NIM has fallen, there's the difference between our cost of funds and is a little more than what it meets the high based on only the 2 basis points on the NIM. I think that's where you will finance. Okay. Okay. Is it -- we all discuss this offline.

We'll take our next question from line of [indiscernible] of Dante Equity.

I just wondered if your CTO is on the call?

CTO is not on the phone, but you can ask me, I obviously will not know as most I try to answer.

No. Actually, it was regarding this recent AI-related cyber security threat that our FM kind of came online and spoke about. Just wanted to understand if there are any implications on the new update that we've just rolled out. And with regards to anthropic and a lot of banking softwares are sort of already set to be under upgradations now in the next 2 years. And since you just rolled out our software, I wanted to understand if you're uptuned with that or not.

Yes, sir. Any other questions?

No, I do. So I've been -- we've been talking for the last two calls. And I'm duly glad that you've been able to deliver on the 1.5 to 15% ROE. I think a lot of analysts were very skeptical in the last quarter about you delivering on those numbers and you kind of told that you're going to make sure you end the year above 15% ROE. And I think for the quarter, you've done around 17% to 18% ROE, which is a great number. So going to actuations on that. And [indiscernible] just wanted to kind of underhand what are we targeting for the next year in terms of loan growth, I think we said 25%, if I'm not mistaken. It's correct me if I'm mistaken. And I think an ROE wise, I would like to know where are we targeting because I think the cost to income should start coming down from next quarter onwards, right? So these are my questions.

Sure, just on -- on the [ cloud ] and which you are talking about in the mites thing, see, advantage of working in a small bank is we all have to know everything, okay? So there's an April concern circle from RBI which is -- which gives us a sudden guidance to the banks. And within that, there has been an adversary of what of the things the bank needs to put further as a directional imports and update board within 2 months of that, which is by 27th June, and whenever the Board meeting happened before that. [indiscernible] IT -- what is advised is either IHC or SB on board, okay? So we as probably a [indiscernible] a practitioner, and he is extremely good and he understands very well. A whole of [indiscernible] stances very many as well, including our security CISO also understand it very well. So between all of us and [indiscernible] involved in this because this is to traditional and I'll not say strategic, but two critical thing not to have an eye on and not to have a creep on this, okay? So we have started working on this based on the guidance. Also, I believe that some of the largest banks in the country is also working on seeing that how the entire guidance is the for the entire system because this is not where it's not a competitive land step. It about the banking ecosystem for India, but for the whole world. I think different countries are talking to each other on so to understand because this not only the banking system, but the cybosecurity, there are much larger implications on this beyond the banking system. So I think there is a lot of plant evolve on this over a period of time. So right now, we are doing what the April 27 circular from RBIS and we'll update the ITSC/boardby before 27th of June. And

Just one question regarding this, are we expecting our cost to income which we expecting to come down from next quarter onwards? Are you going to say that might be delayed because of the cost that might come with regards to this particular notification? Because obviously, this is going to come with added costs, right?

So let me put a decade right now, I think we are talking about frameworks and wish to do it because I don't think that there is complete clarity and exactly what to be done. Will there be a cost, what would be the imports, how this will get shared out, et cetera, we have to figure this out. It is evolving scenario both globally as well as in India. So it is mature answer on this one. But I just want to clarify one thing. I never said cost to income will come down from next quarter I said it will remain for FY '28, FY '27 at the range [indiscernible] hopefully somewhere around where we are. FY '28 onwards, it will start drastically coming down and by FY '30, we should be significantly...

It will stop going up this year onwards is what you said, right?

So what I'm saying, Mr. Gandhi, is we cannot respond on something where it's no clarity to be in the world. target about us or in the ecosystem. So let -- it's an evolving story, let's figure it out what it is and how it is to be worked out. It's too premature transfer of that right. On second question, this one I can answer with more clarity, which is on the loan growth, yes, and although we completely deposit and depends on the deposit growth. What we have, we have the ability to grow at similar or even faster than what we have grown last year. Even if our gold on growth comes down [indiscernible] happen. But -- but it all depends on at what cost, what deposits comes and how the liability franchise picks up. And this year onwards, we will significantly focus on CASA acquisition will bring in customers. The balances will start growing only at 1 year after that. So from that perspective, I think loan growth in vision of our [indiscernible] team to build the liability franchise. But yes, I think 25% is something we'll be disappointed if we don't do that product that much at least. On the [indiscernible] you're right, we have delivered what we promised in Q3. Same thing we delivered what we promised in Q2 NIM and set the way delivered what we promised on asset quality last quarter and this quarter. So you can see where consistent there coming -- coming to the next prediction I think our overall range of somewhere around 1.5% and number or range, somewhere around 15% of ROE that being sustained.

A follow-up question coming in from Akshat Agrawal.

Thank you for the opportunity, again, sir. On margins, would you say NIMs have largely bottomed out and what kind of trajectory do we expect from here, if not quantitatively, at least quality. And what were the drivers of the yield compression? Was it just higher share of wholesale lending because gold yields increased on the portfolio level? Or was it coming from the full impact of the December report at cup flowing through P&L and the MCLR repricing. That was my first question, sir. I have one more.

Please go ahead. Please finish everything.

And on the SME book of the 10 to 11 accounts that slipped last quarter, how many accounts have been upgraded or recovered during this quarter? And how many, I mean, are pending, which could affect asset quality or credit cost upside next quarter? And should we expect most of this to be resolved by 1Q or there's benefit to 2Q as well? And lastly, sir, on the levers to ROA, ROE. We have talked about it a bit, but just to understand, like because this quarter, 1.5% ROA was due to low credit cost.

We didn't hear the last line please can you repeat?

Yes. So sir, just one more question on the ROA, ROE medium-term levers where you did talk a little bit about it, but this quarter was due to a very low credit cost. So going forward, I mean the [indiscernible] cost will slightly move up and because we are having -- we will have better retail growth and fee income yes, go ahead, sir.

I think I've understood your question though price is breaking, but I got a sense of your question. So let me try and answer that. If you don't get the answer, you ask. So on the margins, the general guidance, which I have given on is, it will be 3.75% to [ 4% ] somewhere in between. We are right in the mid of it, somewhere around 3.8% or something like that. So I think it's very difficult to read in basis points, did go up or go down, but it will remain in the rate of 3.75% to [ 3.8% ]. Having said that, I'm not so sure it has bottomed out on because of two reasons. One is our own internal portfolio. The business mix will start gradually changing. I don't know whether it will happen in the next year or next quarter but overall period of time it really happen. And whatever business changes leading to any interim campsite change in NIM will get compensate on the RA side by fee and cross-sell to those customers because in logo with a high ticket size, we are trying to do some plus site. In wholesale SME and some of these businesses where your yields are lower, we -- because transaction banking, we are going big time into that. We expect cross-sell. And also, we expect liability, which should bring down our on a long-term basis to bring on our cost of funds. So there's some interim noise here and there. But eventually, it is building up a franchise and hence, eventually, we'll look at NIM, which is similar or higher, but [indiscernible] would be noise there. But we will remain -- try to remain between [ 3.75% ] to [ 4 ] billion -- on completion, you're right, [indiscernible] happened and you only answered some of them, which is with [ 150 ] very good impact. On the [indiscernible] portfolio, it immediately back -- and on wholesale business, it impacts depending on the CN, how it is moving and what is the pillar of the cable with the customers. So now everything is almost played out. BLG plays out instant and on wholesale, it is sort of played out almost. And hence, we see a competition both on the wholesale side as well as on the in terms of yield compression, which has happened. So I think that answers the compression side. Coming to your question on SMA book. We don't give this level of details in our closures. So is it going to be answered because you have asked a very equation. But at a high what I want to tell you that I was looking at the presentation on SMA, almost safely business and at a bank-wide level or group has constantly been improving and as we have been on Q4, the SME book is lowest in the last 5 quarters, okay?

I think just to interrupt. Sir, actually, I was asking about the 10 to 11 accounts, it slipped last quarter on the SME.

No, it is not right from a customer perspective also and from a disclosure perspective. But you can obviously understand that some of them will get upgraded. Some of them will be covered. And thankfully, some of them has got upgraded. This is simply because some of them were I said in last quarter itself that because we are going through a migration. Some of them, yes, et cetera, we got a little late because of which happen and more technician. So to that extent, yes, some of those accounts are united to that. Obviously, where it will come from. But exactly how many, how much were we don't give that level of it, and we can appreciate that. But yes, you're right. It is obviously coming from the existing portfolio. Our existing [indiscernible] -- and levers and in the medium [ run ] -- and you mentioned that -- the gold loan portfolio comes down, et cetera. It's not coming down immediately in terms of percentage and levers for is basically cross-sell to lower ending business is an entry strategy, whether it is in the wholesale SME or in retail. And eventually, the ROA will play out there. So in the transition, least summer it can happen. And that will be managed to do the gold portfolio is not going down in 1 year's time from 54% to and we'll get that time to manage this. So I think we should be able to benefit in agri. And you will see that this year also let's start forget that we had to -- we delivered this result this quarter in spite of the most difficult scenario on the fee business, especially on the [indiscernible] side. So the upside on this, nobody has seen the future can vary the future. But we have taken a large move on the [indiscernible] which during the period when came out with that regulation probes, hoping that we will lever that last year -- but instead of leveraging EBITDA other way. So what added that from 6.6%, [indiscernible] will everybody continue to 61%. So eventually, that will net once the price gets over. So fully on a full year basis next year, there is a significant leverage there on the ROA and automatically on the reason. So -- and also with capital reduction going high, that's for Technical and [indiscernible]. Obviously, the RO naturally will improve, but that thing, I think you guys will factor in. So that's broadly the answer of it.

Ladies and gentlemen, that was the last question for today. On behalf of CSB Bank Limited, that concludes today's conference call. Thank you for joining us, and you can now click the leave icon to exit the meeting. Thank you all for your participation.

Thank you very much and look forward to everybody joining the call again in Q1. Thank you. Have a good evening.

Thank you so much.