on Jun 28, 2021)Mumbai: Fairfax-backed has tweaked its gold loan policy, which has been the mainstay of its low-risk lending model. According to the bank, relaxing the loan-to-value ratio for these loans to 90% was a mistake as it has triggered auctions and resulted in the portfolio — otherwise the most secure among advances — registering some non-performing assets (NPAs).
CSB Bank MD & CEO C V R Rajendran told TOI that for the first time the bank has had to have a recovery team for gold loans. “One mistake was that when the RBI said you can lend up to 90% of the value of gold, we should not have followed that as a price fall can wipe out the margin and require us to call for additional margin,” he said. The bank reverted to 75% LTV in December, although the RBI allowed the relaxation in LTV norms up to March 2021.
More recently the bank revised its pricing strategy to link interest rates to the LTV. “There is nothing to worry about at the portfolio level, but the recovery effort is much higher,” said Rajendran. Adding to recovery problems were the lockdown measures. The Kerala government had declared every alternate day as a holiday under the Negotiable Instruments Act. Given the market conditions, there are not many participants in the auction and the recovery is around 95% of gold value.
The 100-year-old CSB Bank, which is majority-owned by Canadian billionaire Prem Watsa’s Fairfax group, had announced plans to transform itself into a new-age bank. After a clean-up of loan books and infusion of capital, the bank decided to focus on gold loans until the transformation is in place. Last year, its gold loan business rose 60% with the share of such loans rising to 40%.
The bank is currently working on reducing its cost-to-income ratio even as it expands its network. Rajendran said the bank added 100 branches last year and would add another 100 in the first half of FY22 and 200 in entire financial year. “This will take us to 700 branches and in two years we aim to be at 1,000,” he said.
The bank has exited the Indian Banks’ Association wage agreement as the productivity levels are below the industry average. Earlier during an earnings call, Rajendran had told analysts the bank was taking over branches that were being vacated by PSU banks following a merger. The 10 PSBs that have merged into four are in the process of consolidation where they are closing or relocating branches when there are more than one in the same street because of the merger.
The banking is working on the back-end systems to prepare for the future. Digital transactions that were just 27% before the acquisition in 2018, have gone up to 73% at the end of March 2021 and in the last three months have risen to 77%. The bank has taken on board Pralay Mondal as president 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 working on the bank’s digital strategy as well. This involves working with partners to create a platform using cloud solutions, buying plug-and-play technology in the medium term and partnering fintechs with a large customer base. In the short term, the bank is using digital tools for banking services and customer acquisition.
