Our Asset Portfolio Doing Well with Low NPAs, Healthy Credit Profile: CSB Bank

Even as competition intensifies across segments of the lending economy, questions around credit quality, underwriting discipline and long-term sustainability remain central to any conversation on growth. In an environment shaped by granular policy shifts and emerging digital rails, lenders are having to reassess not just whom they lend to but how. The sharper focus on data-backed risk models, deeper integrations with RBI-backed infrastructure, and a measured posture towards underserved borrower segments mark a clear shift in how many banks now balance growth with prudence. 

CSB Bank, a regional lender with growing national presence, finds itself navigating this terrain. In an interview with FE BFSI, Shyam Mani, Head of SME Banking at CSB Bank, outlines the institution’s evolving approach to credit expansion, especially amid rising competition from fintechs and non-bank players. He speaks about the bank’s focus on digital infrastructure in mitigating information asymmetry, maintaining asset quality, tailored products for small businesses, and more. Edited excerpts:

What’s your credit outlook for FY26 amid current sentiment and regulations? Do you see risks of overleveraging or loose underwriting as competition grows?

Given the current economic sentiment and the evolving regulatory stance, SME demand is expected to get a boost. The overall demand in the SME sector appears positive and is well supported by government initiatives, which include increased credit guarantee cover, revised MSME classification, and the National Manufacturing Mission (Make in India) initiative. Emerging markets, where SMEs play a vital role, are expected to drive economic growth. Improving credit infrastructure, such as credit reporting systems and collateral registries are essential for increasing SME access to finance. 

While there are concerns about over-leveraging and underwriting discipline, we maintain robust credit assessment processes to ensure that borrowers can repay their loans. Regular reporting to credit bureaus also helps build creditworthiness and prevent over-leveraging.

How have RBI’s digital initiatives like AAs, GST data, and TReDS shaped your lending strategy and efficiency?

In line with the RBI’s push for digitalization, we are committed to building a robust digital infrastructure, which is crucial to support the ever-growing demand for digital lending services. Digitization has helped us in areas such as improved credit assessment, increased efficiency, enhanced risk management, and streamlined processes. By leveraging digital inputs, the bank can build strong customer relationships, develop customized products, enter new geographies, and regularly monitor and evaluate SME lending portfolios to identify areas for improvement and optimize lending strategies.

CSB Bank’s loan book is relatively small compared to larger private peers. How central is the SME segment to your medium- to long-term growth strategy? Are you treating this as a volume play, yield driver, or both?

SME is a crucial part of CSB Bank’s growth strategy. It contributes significantly to the growing Indian economy (roughly 30% contribution to GDP). The segment has very high growth potential. With the right investment and reforms, the sector has the potential to contribute even more. We are taking a balanced approach to expanding the business, while profitability combined with credit hygiene remains our primary objective.

Volume can be driven through surrogate/scorecard-based sourcing. Unlike most peer banks that have a pan-India presence, CSB is expanding into new markets to tap more business opportunities.

In funding first-time borrowers, we do face challenges such as information asymmetry, lack of collateral, high default rates, limited credit history, regulatory hurdles, risk assessment issues, and funding constraints. However, we are committed to addressing these challenges and focusing on structuring loans for first-time borrowers.

How has the asset quality changed over the past 12–18 months?

Asset quality for the portfolio has remained standard. The overall asset portfolio is performing well, with low NPAs, timely repayments, and a healthy credit profile. The NTB (new-to-bank) borrowers’ contribution to the total SME portfolio stands at 45%. The overall MSME book share in the bank’s advances for FY25 was 13.3%. The WC-to-TL (working capital to total liabilities) ratio stood at 84:16 for NTB disbursements in FY25. In the overall portfolio, the ratio is 73:27.

Is CSB Bank exploring tailored SME products or partnerships to compete with larger players offering bundled credit, advisory, and digital tools?

We have a well thought out roadmap to engage with small businesses across various locations. We have already launched multiple tailor-made products like CSB SME Turbo Loan -- a scorecard-based loan product up to Rs 5 crore and Shubhmangal credit -- a bouquet of surrogate products based on GST-Overdraft and bank statements to address the credit needs of small businesses. We have also been engaging with trade and industry associations, fintech companies and other industry stakeholders to deepen engagement with small businesses.

How is CSB Bank differentiating itself in SME lending amid pricing and turnaround pressure from fintechs and NBFCs?

CSB Bank is differentiating itself in SME lending through several key strategies. For example, in relationship management, we have personalized relationship officers who understand the unique needs of each SME customer and provide tailored support and guidance. The bank also has designated regional heads to ensure a strong regional focus, providing localized support and attention to customers. 

On the technology front, CSB Bank offers digital platforms for loan application and processing. We provide a range of loan products tailored to specific SME needs. These loan products cater to various industries, including manufacturing, trading, and services, demonstrating the bank’s focus on supporting diverse SME sectors. By combining personalized relationship management, digital technologies, and sector-specific solutions, we are well-positioned to meet the unique needs of SMEs and differentiate ourselves in the market.