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CSB Bank (Target Price - ₹470, BUY) - Slippages spiked in Q3, normalization expected in few quarters

ICICIdirect Research 30 Jan 2026 DISCLAIMER

CSB Bank delivered a mixed Q3FY26 performance, with strong balance sheet growth and stable margins offset by elevated slippages and higher provisioning. Gross advances grew 29% YoY (7% QoQ) to ₹37,161 crore, led by gold loans (15% QoQ) and wholesale (9.3% QoQ), while deposits rose 21% YoY (2% QoQ) to ₹40,460 crore. Going forward, management expects asset growth of ~25%+ YoY and deposit growth of ~20%+ YoY.
Core operating metrics remained supportive, with NIM improving 5 bps QoQ to 3.86%, aided by a gold-heavy loan mix (~51% of advances) and a higher CD ratio. However, RoA moderated to 1.22% in Q3FY26 (vs 1.33% in Q2FY25) due to higher credit costs.
Asset quality was the key drag, with slippages rising sharply to ~₹197 crore (vs ₹62 crore in Q3FY25), largely from the SME book (~12% of advances). Management indicated these were driven by ~10–12 accounts, which are 80%+ collateralized, with ~40–50% expected to upgrade and ~₹30 crore has already upgraded post quarter-end.
Management expects credit costs to normalize by Q1FY27 as SME stress eases. Despite near-term pressure, the underlying growth strategy remains intact, and valuations appear reasonable post correction, Hence, we maintain our positive stance on the bank.

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