CSB Bank shares drop 7% despite 27% profit rise
CSB Bank's shares dropped 7% after a seasonal sequential profit decline overshadowed a 27% year-on-year jump driven by lower provisions and a 47% surge in gold loans.
CSB Bank posted a net profit of Rs 150 crore for the June quarter, a 27% increase from the same period last year. However, the stock fell nearly 7% to Rs 344 on the BSE as investors reacted to a 26% sequential decline from the Rs 202 crore recorded in the March quarter.
Management dismissed the quarter-on-quarter drop as a predictable seasonal pattern. "Our business is seasonal—the first quarter is typically slow and the fourth quarter the strongest, aided by fee and PSLC income. As a result, quarter-on-quarter comparisons are less meaningful for us," Pralay Mondal, managing director and CEO, said.
The year-on-year profitability improvement was supported by broader balance sheet expansion and lower bad loan buffers. Net interest income rose 26% to Rs 479 crore, while provisions fell 19% to Rs 49 crore. The net interest margin improved to 3.66% from 3.54% a year earlier, though it contracted sequentially from 3.83% in March.
Total advances grew 24% to Rs 40,867 crore, even as overall quarterly disbursements dipped 1% to Rs 11,922 crore. This advance growth was heavily anchored by a 47% surge in gold loans, pushing the gold portfolio to Rs 2,190 crore.
The expansion into collateralised lending reflects a deliberate strategy to avoid the risks currently plaguing parts of India's retail credit market. Unsecured retail loans make up just 2% of CSB Bank's total portfolio, and the lender has no unsecured SME business.
Instead, the bank is targeting borrowers with income-generating assets. "Right now, we have three to four retail products doing well: commercial vehicles (CV), construction equipment (CE), healthcare, and some retail LAP (loan against property). We favour these because portfolio quality is better — these are income-generating assets for the customer, effectively functioning like pseudo-SME loans, since the borrower uses the loan to generate income."
For market participants, the share price drop underscores how seasonal volatility can obscure underlying credit quality improvements. CSB Bank's strict adherence to secured lending positions its balance sheet defensively, even if it sacrifices the rapid disbursement growth seen in less risk-averse peers.
