CSB Bank Tightens Gold Lending Policy Following NPA



Mumbai: Sponsored by Fairfax CSB Bank changed it gold loan the policy that was the backbone of his low-risk lending model. According to the bank, lowering the credit-to-value ratio for these loans to 90% was a mistake, as it led to the launch of auctions and as a result, the portfolio – otherwise the safest among loans – registered some non-performing assets (NPA).
Managing Director and CEO of CSB Bank CVR Rajendran told TOI that for the first time a bank needed a recovery team gold loans. “One mistake was that when RBI said that you can lend up to 90% of the value of gold, we shouldn’t have followed that because a fall in price could wipe out the margin and require us to demand additional margin, ”he said. In December, the bank returned to 75% LTV, although the RBI allowed an easing of LTV rates until March 2021.
Most recently, the bank revised its pricing strategy to link interest rates to LTV. “At the portfolio level, there is nothing to worry about, but recovery efforts are much higher,” Rajendran said. Recovery problems were compounded by isolation measures. The Kerala government has declared each alternate day a holiday in accordance with the Negotiable Instruments Law. Given the market conditions, there are not many participants in the auction, and the return is about 95% of the value of gold.
CSB Bank with 100 years of history, which is majority owned by a Canadian billionaire. Prem Watsafrom Fairfax group announced plans to transform into a new generation bank. After cleaning up loan books and injecting capital, the bank decided to focus on gold lending until the transformation took place. Last year, the gold lending business grew by 60%, and the share of such loans rose to 40%.
The bank is currently working to reduce its cost-to-income ratio even as its network expands. Rajendran said the bank added 100 branches last year and will add 100 more in the first half of its 22 fiscal year and 200 throughout the fiscal year. “This will lead us to 700 branches, and in two years we plan to reach 1000,” he said.
The bank withdrew from a wage agreement with the Association of Indian Banks as productivity levels are below the industry average. Earlier in the income statement, Rajendran told analysts that the bank was acquiring branches that were vacated by PSU banks after the merger. Ten PSBs, which merged into four, are in the process of consolidation: they close or relocate branches when more than one is located on the same street due to the merger.
Banking is working on server systems to prepare for the future. Digital transactions, which were just 27% before the 2018 acquisition, rose to 73% at the end of March 2021, and have grown to 77% over the past three months. The bank appointed Pralai Mondal as its president to lead its functions in retail, small and medium-sized businesses, operations and IT. Mondal, who has played a key role in HDFC Bank’s retail and credit card business, is also working on the bank’s digital strategy. This includes working with partners to build a cloud-based platform, buying plug-and-play technology in the medium term, and partnering with fintech companies with a large customer base. In the short term, the bank uses digital instruments for banking services and customer acquisition.


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