Karur Vysya Bank is the most improved bank in terms of asset quality in the last 3 years. Bank’s asset quality has witnessed significant improvement with GNPA and NNPA reduced to the levels of 1.99% and 0.59%. It is pretty much comparable with some of the largest banks in the country like HDFC and Kotak.
CSB Bank is on a path of decadal growth journey. The bank sets an SBS target for itself which means Sustain, Build, and Scale and they are looking to accomplish this by 2030. Inherently they were more focused towards gold financing but with the inclusion of Mr Pralay Mondal from HDFC Bank and CSB Bank went through some structural organizational changes and now they aspire to become a PAN India Bank.
South Indian Bank was on the verge of reporting losses when their current MD & CEO Mr. Murali Ramakrishnan joined the bank after retiring from ICICI Bank and since then the bank has transformed the business tremendously. Last year the bank reported a 17x jump in its Net profit and is confident of maintaining this profitability number.
–Competition From Other Players
All three banks majorly focus on gold loans as their primary products. However, this segment has become overcrowded due to the involvement of numerous other small banks and NBFCs catering to the same market. Moreover, with the aggressive ongoing approaches from large lenders like HDFC Bank, SBI, and Bajaj Finance the competition intensity in the gold loan segment has become too high now. In fact, HDFC has grown its gold loan offering branches to 3x in just 9 months. And it is too difficult to beat these lenders because they have the advantage of lower operating costs.
-Strategies for Growth
The majority of branches are present in the South region. So to become a PAN India bank, branch expansion into newer geographies is their prime objective going forward. Additionally, in order to mitigate any risk arising from the loan losses, these banks have proactively strengthened their balance sheet by increasing the Capital Adequacy Ratio.
These banks are now tapping retail customers to build a robust deposit franchise. Currently, all three have a very low CASA base like Karur – 33%, CSB – 31%, and South Indian Bank – 33%. This low CASA is affecting the overall costs of the bank as they aren’t able to earn decent margins because of the high cost of deposits.
|
Bank |
Loan Book (Cr) | Net Interest Margins % | Cost of Deposits % |
|
Karur Vysya Bank |
65973 | 4.19 | 4.96 |
|
CSB Bank |
21103 |
5.40 |
5 |
| South Indian Bank | 74102 | 3.34 |
4.85 |
–Outlook
Karur Vysya and South Indian Bank are following a conservative approach when it comes to growing the loan book. Both banks are targeting 12%-14% or 2x of GDP growth going ahead. Whereas CSB Bank is a little aggressive and looking to grow the book by around 20% for years to come. Considering the size of these banks, achieving a growth rate of 12%-14% appears feasible, as the demand for credit cannot be met by just 2-3 large banks. Therefore, we believe that these banks have promising prospects among the small banks.
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