CSB Bank Ltd.: FIIs, MFs, retail investors all banking on a 100-year-old lender to script a mega revival
Yet, in the quarter ended December, these three sets of investors did converge on a particular stock – CSB Bank, a Kerala-based small lender owned by Prem Watsa’s Fairfax. The stock stands out in this respect among all Nifty500 peers.
The stock of CSB Bank, founded in 1920, has underperformed massively since its listing in December 2019. The stock is yet to recover to its listing day price of Rs 275 despite having more than doubled since late March.
Concerns over the impact of the Covid-19 pandemic on its retail and small business loans division sparked a selloff in March. Its recovery since then has been less-than-impressive, as investors aren’t yet confident of its asset quality.
The Street’s view on the lender, however, appeared to have changed in the December quarter, as the lender showed relatively low stress in its loan book and appeared confident of registering strong loan growth on the back of a bounce in the economy since the end of the lockdown.
Mutual funds raised their holdings in the stock by 85 basis points sequentially to 7 per cent in the December quarter, whereas retail investors’ holding climbed 12 basis points to 11.4 per cent. Similarly, foreign portfolio investors raised their stake by 187 bps to 5.12 per cent.
The change in outlook for the lender was reflected in the bank’s earnings performance for December quarter and the management’s commentary on various aspects of the business. The lender reported an 88 per cent year-on-year growth in net profit and a 62 per cent jump in net interest income.
The lender’s strong loan growth impressed investors the most, as advances soared 22 per cent year-on-year suggesting signs of credit demand returning and net interest margins rose to 5.17 per cent. Crucially, though, the lender did not record any fresh slippages in the quarter, but prudently set aside money for any potential slippages that may arise due to Covid-19.
CSB Bank now aims to clock 25 per cent year-on-year growth in loans in the next financial year, helped by a revamped retail lending division and rebound in small business loans. While gold loans have done the heavy lifting in the recent quarter for the lender, the lender expects other loan segments to pick up going ahead.
“Once we start growing, minimum 25 per cent, and it can be much more if the opportunities are there and if everything is in place. I expect a higher growth rate in the years to come,” Chief Executive Officer CVR Rajendran said in an analyst call recently.
While all three sets of investors are betting on the bank to deliver on its ambitions, the stock’s performance has not replicated the enthusiasm. In the December quarter, the stock fell 3.5 per cent and has traded largely flat in the current quarter. The lender and its shareholders will hope that its optimism will translate into better stock price performance from here on.
