Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil A/Stable/Crisil A1+’ ratings on the debt instruments of CSB Bank Limited (CSB Bank).

 

The ratings continue to reflect the healthy capitalisation levels along with the commitment of support from Fairfax, in case of exigency and stable deposit profile. These strengths are partially offset by the modest earnings profile and limited track record in the new non-gold loan book, as well as modest scale of overall operations.

Analytical Approach

Crisil Ratings has considered the standalone business and financial risk profiles of CSB Bank.

Key Rating Drivers & Detailed Description

Strengths:

Healthy capitalisation levels along with commitment of support from Fairfax, in case of exigency: Capitalisation remains healthy with Tier-1 capital ratio of 20.59% and overall capital adequacy ratio (CAR) of 22.46% as on March 31, 2025.

 

Fairfax, via its company, FIH Mauritius Investments Ltd, holds 40% stake as on March 31, 2025, in the paid-up capital of the bank, which is subject to dilution schedule as mandated by the Reserve Bank of India (RBI) and relevant RBI guidelines.

 

Crisil Ratings believes that CSB Bank’s capital profile benefits from Fairfax's stance that it will extend support as and when required and RBI will not object to Fairfax's support in a distress situation. Furthermore, the bank has sufficient headroom to shore up the capital ratios by raising additional Tier 1 and Tier II debt capital. Fairfax, if required, can also support the bank by investing in its Tier 1 and Tier II debt as well. The overall CAR is also supported by benefit of lower risk weights on gold loans. Going ahead as the proportion of non-gold loans is expected to increase, capital ratios are expected to reduce from current levels, albeit these are expected to remain comfortable.

 

Stable resource profile: The deposit base for the bank remains stable. The total deposits improved to Rs 36,861 crore as on March 31, 2025, against 29,719 crore as on March 31, 2024.

 

Current account and savings account (CASA) share of the bank stood at 24.19% as on March 31, 2025, compared with 27.20% as on March 31, 2024. CASA ratio has declined for many banks in general due to stronger demand for credit and increased preference for term deposits.

 

Being a community-linked bank previously, it has created a brand name among NRIs (non-resident Indians) in the South region, which has provided steady inflow and stability to its deposit base. The bank also benefits substantially from a sticky and large NRI deposit base, which too has remained stable. Fixed deposit renewal rate over the past five fiscals has remained above 88%. The fixed deposits of less than Rs 1 crore accounts for ~50% of the total fixed deposits as on March 31, 2025. The average cost of deposits also remains competitive at 6.15% in fiscal 2025 compared with 5.35% in fiscal 2024.

 

The bank has added 56 branches in fiscal 2025. Incrementally, it is planning to open branches outside of South India and increase its presence in other geographies within the country. As the bank now scales up outside Kerala, the ability to garner pace in deposit growth commensurate with advances growth will be a key imperative.

 

Weaknesses:

Limited track record in the new non-gold loan book with modest scale of overall operations:The bank’s scale of operations, as reflected in deposits and gross advances, stood at Rs 36,861 crore and Rs 31,842 crore, respectively, as on March 31, 2025. While it has grown at 24.0% and 29.6%, respectively, in fiscal 2025, the scale remains small with it accounting for a share of around 0.16% of deposits and advances in the banking system.

 

Though the bank’s concentration in Kerala is gradually coming down, it remained high at 33% in fiscal 2025. Overall, the loan book continued to be marked by 44% share of gold loans followed by corporate loans share of 23%, retail loans of 20% and SME loans of 13% as on March 31, 2025. While retail loan book is also growing, it remains a relatively smaller proportion of overall advances. Going forward, the bank plans to increase the scale of non-gold retail loan book across secured segments such as home loan, auto loans, MSME loans, CV/CE loans amongst others.

 

The gross non-performing asset (GNPA) metrics for the bank stood at 1.57% as on March 31, 2025, against 1.47% as on March 31, 2024. Nevertheless, sustainability of asset quality metrics as the bank scales up its portfolio, especially in the non-gold loans book, and ability to keep incremental slippages under control while scaling up its portfolio remains a key monitorable going forward.

 

Modest earnings profile: The return on average total assets moderated to 1.42% in fiscal 2025 from 1.74% in fiscal 2024 due to an increase in cost of funds and consequent impact on the net interest margin (NIM). The NIM declined to 4.13% in fiscal 2025 from 5.09% in fiscal 2024. The operating cost (as a percentage of average total assets) stood at 3.7% during fiscal 2025 against 3.9% in fiscal 2024. Operating expenses remained elevated due to increased investments in technology, people, distribution, amongst others. Operating expense is expected to remain high over the medium term as the bank plans to recruit additional manpower and make investments on the technology front as well as continue to open new branches to expand its non-gold loan share. Hence, the sustainability in the improvement in the earnings profile as the bank scales up non-gold loan portfolio will remain a key monitorable going forward.

Liquidity: Strong

The bank maintains a strong liquidity. The ALM (asset liability management) has no negative cumulative gaps across buckets except for 2-3 months’ bucket as on March 31, 2025. Liquidity coverage ratio (average) for the bank stood at 124% as on March 31, 2025.

 

ESG profile

Crisil Ratings believes that the environment, social, and governance (ESG) profile of CSB Bank supports its already strong credit risk profile.

 

The ESG profile for financial sector entities typically factors in governance as a key differentiator between them. The sector has reasonable social impact because of its substantial employee and customer base and can play a key role in promoting financial inclusion. While the sector does not have a direct adverse environmental impact, the lending decisions may have a bearing on the environment.

 

CSB Bank has an ongoing focus on strengthening various aspects of its ESG profile.

Key ESG highlights:

• ESG disclosures of the bank are evolving and it is further strengthening the disclosures going forward
• CSB Bank has put in place a policy not to finance borrowers for setting up new units producing ozone depleting substances and manufacturing aerosol units using chlorofluorocarbons
• The company’s gender diversity (31%) is higher than peers, and its priority sector lending above regulatory norms. Attrition rate is an improvement area, with a high attrition rate of ~46% reported in fiscal 2025
• Separate verticals are in place for supporting socially beneficial sectors such as agriculture and microfinance institutions
• Its governance structure is characterised by 60% of its board comprising independent directors, ~20% being woman board directors and split in chairman and CEO positions. Furthermore, the bank has an independent chairperson and has extensive financial disclosure.

 

There is growing importance of ESG among investors and lenders. CSB Bank’s commitment to ESG will play a key role in enhancing stakeholder confidence, given shareholding by foreign portfolio investors and access to both domestic and foreign capital markets

Outlook: Stable

Crisil Ratings believes that CSB Bank’s capitalisation will remain adequate to meet its business growth and manage its asset-quality related risk.

Rating sensitivity factors

Upward factors

• Substantial scale-up of operations with return on average total assets of around 1.75% on a sustained basis
• Track record of profitably scaling up non-gold loan book

 

Downward factors

• Significant deterioration in asset quality, as seen in GNPAs increasing to beyond 5% and translating into pressure on earnings and capitalisation metrics
• Any pressure on the deposit profile with deposit outflows
• Weakening of capital position with significant deterioration in the CET 1 ratio

About the bank

CSB Bank Limited is an old private sector bank with a history of over 100 years and operates 829 branches as on March 31, 2025. The business is concentrated in Kerala (~33%) with the remaining spread across Tamil Nadu, Andhra, Karnataka, and Maharashtra.

 

The bank’s capital position deteriorated prior to 2017 and hence, it decided to bring in a partner and raise capital. In the second half of 2018, the bank partnered with Toronto-based Fairfax that would invest Rs 1,208 crore for a 51% stake. It is the first time the RBI had allowed a foreign firm to take a majority interest in a local lender. At the same time, the RBI told the bank that it should list its shares before September 30, 2019. Eventually, the bank concluded its IPO in December 2019, after which the promoter entity, FIH Mauritius Investments Ltd, continues to hold 40% stake in the paid-up capital of the bank, which is subject to dilution schedule as mandated by the RBI and relevant RBI guidelines.

Any other information: Not Applicable