CSB bank looks interesting, and seems to be one of the best-run banks in terms of KPIs: it has great NIM, ROE, CRAR and NPA ratios.
Sharing Rajeev Agrawal’s thesis for investing in CSB bank from June 2023: https://youtu.be/WkAf1w3JRGA?si=ms6sPzYDr0_0p2QU&t=554
Some questions that I’m still not very clear about:
- What is CSB Bank’s moat exactly?
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Is it just their history, bank branch network and customer relationships? What is preventing the other banks from taking market share from them? If it is just the branch network? Would their moat potentially decline in the future, when more people start using mobile and digital banking? If that happens, the branch network becomes more of a liability than an asset, as you need to rent out the branches and pay staff even though branch footfalls decline.
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On a national level, how can CSB bank compete with the likes of HDFC, ICICI, Kotak (traditional) and Jio finance / PhonePe (digital / neo-banks)? The traditional banks have much bigger scale and investment power, while the new digital banks are much more agile in terms of offering mobile and digital banking solutions. CSB seems to be somewhere in the middle of these two
- Gold loans: their loan book is heavily skewed towards gold loans (~48% of total loan book). What would happen if gold prices decline? Looking at historical gold prices, there have been periods with large declines: gold price dropped ~40% from 2011 to 2015. Would CSB be able to absorb this sort of decline? They hold 11,818 Cr. of gold on their books as collateral. If gold price declines 40%, that is a decline of around 4727 Cr. (close to their current market cap of 5718 Cr.). Of course, it wouldn’t be a direct loss for the bank, as the gold is not “owned” by them, but rather owned by the customers who’ve taken a loan against the gold. However, in a recession-like scenario, where loan defaults increase while gold prices drop, would it cause an existential crisis for CSB bank?
Disc: researching; not invested
Thanks,
Sharad
OpenSourceInvestor @ Substack
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