Ladies and gentlemen, good day, and welcome to the DCB Bank Limited Q1 FY 2027 Earnings Conference Call. As a reminder, all participant lines will remain in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal the operator by pressing star then zero on your touch-tone telephone. Please note that this conference is being recorded. We have with us today Mr. Praveen Kutty, Managing Director and CEO; Mr. Sridhar Seshadri, Whole-time Director; Mr. Ravi Kumar, Chief Financial Officer; Mr. Ajit Kumar Singh, Chief Investor Relations Officer. I will now hand the conference over to Mr. Praveen Kutty, Managing Director and CEO, for opening remarks. Thank you, and over to you, sir.
Thank you, Ryan. Good evening, ladies and gentlemen. I am very happy to announce the quarter one financial results. This quarter was replete with geopolitical uncertainties, rising inflation, and supply chain disruptions. Our strategy in these times, as I mentioned in my Q4 results call, was to stockpile customer liabilities, work on improving productivity, focus on portfolio quality, optimize capital utilization, and finally, resulting in improving profitability. Let me take you to the key financial highlights. Our total deposits have grown by 20.06% YoY and total advances by 17.06% YoY. Our NIM at 3.35% has increased by 15 basis points over the last year, primarily on the back of lower cost of deposits and improving recoveries.
Our growth in core fee income from INR 134 crore in Q1 of last year to INR 175 crore in this quarter, 31% growth, has helped us offset a one-time treasury income impact of INR 85 crore between these two quarters. On the cost front, we have hit a historic low of 2.42% cost to average assets for the quarter. Remember, quarter one is when you have the salary increases. Traditionally, it is a higher cost quarter. We knocked off 10 basis points from the cost to average assets of Q1 of the last year. From 2.52%, we have come down to 2.42%. Even quarter-on-quarter, our cost to average assets has decreased from quarter four to quarter one.
If you were to dig into where the reduction of cost is coming from, you will see that our number of employees is currently at 11,554, which is lower than the 11,896 people we had two years back in June 2024. So we have grown somewhere in 18.5% year-on-year for two continuous years, and the actual number of employees in the bank is actually lower.
As a consequence of this, our business per employee is at an all-time high of INR 11.06 crore. If you were to look at the portfolio quality, it is consistently improving. Last year, I told you that we were at a seven-year low from a yearly basis. Our GNPA currently is at 2.43%, which is 50 basis points better YoY and 2 basis points better QoQ. Net NPA, on the other hand, was at 0.84%, 38 basis points less than YoY and 5 basis points less QoQ.
The credit cost for the quarter is 26 basis points. Our provision coverage ratio is a shade under 80%, and our recovery and upgrade as a percentage of fresh vintage is 92%. We continue to make optimal use of our capital. Our Tier 1 capital, including profit for the period, has increased to 14.9% from 14.26% at Q4. Finally, the bottom line for the quarter has grown 36% to INR 213 crores, which is the highest-ever quarterly profit in the history of our bank. In fact, in each of the last four quarters, in Q2 of last year, that was the highest ever, followed by Q3 of last year, which was the highest ever, followed by Q4 of last year, which was the highest ever, and so far, Q1 is the highest ever.
We sign off the quarter with the highest-ever quarterly EPS of INR 6.62 and a book value of INR 198.12. Last but not the least, our ROE for the quarter, for the first quarter, is 13.61%, which is a 2.05% improvement over Q1 of last year. What gives me some happiness is that the bank has shown the ability to give time-bound guidance and show the consistency to meet it within the time frame. The guidance on cost to average below 2.5%, GNPA below 2.5%, NNPA below 1%, ROE greater than 13.5%, have been met in Q4 and repeated in Q1. As you can see, we as a bank thrive on consistency, predictability, and sustainability. With this, I thank you for your patient listening. And now operator, if you can open the floor for the comments, observations, and clarifications. Thank you.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use their handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We take the first question from the line of Akshat Agrawal from Nirmal Bang Institutional Equities. Please go ahead.
Good evening, sir. Thanks for the opportunity. My first question is on margins. Yield on advances declined by 23 basis points QoQ. So sir, please could you elaborate on the key drivers? And with the loan mix gradually moving towards business loans and we have the benefit of gradual deposit repricing as well. So how do you see yields, funding costs, and overall NIMs evolving for the rest of the year? That was my first question, sir.
Our yield came at 10.75%, which was primarily due to the product mix that we went for in Q1. As you have seen, gold was the driver. The big movement has come from gold, which comes with a slightly lower yield and substantially lower cost and fairly minimal credit cost. We would see that as the year passes in Q2, Q3, and Q4, you will have higher yield mortgages contributing more. Over the next three quarters, the yield increase will come from a higher product mix of the mortgage sourcing that we do and the secured non-gold products that we would do.
Right, sir. If you could share the proportion of LAP versus retail home loans, even on a flow basis and if possible, on the stock basis.
Currently, we are at the 70/30 mark. What used to be a 25%/25% cut is now looking like 27/23 on business loan and home loan. That will continue. We are happy with the 70/30 kind of cut. Probably it will be a steady state, 70/30, unless there is something dramatic which happens, which makes us change the skew again.
Sir, secondly, on the gold loans slippages, if you could provide some color and how should we see this going forward? I mean, it is now 7.3, right? I know it is all secured, but still, if this will continue or is it going to come down by next quarter?
If I remember right, it is 5.3, not 7.3. Unless you said 5.3. Right. On the total slippage of overall, you are seeing that the non-gold slippage is considerably better. We are at 1.52%, which is very well within the norms. On gold, I would tend to see that slippage is not really indicated. If you look at the last eight, nine quarters, actual NPA stock of gold loan, it is fairly within the INR 20 crore- INR 30 crore mark, even though the book has increased significantly. On a close to INR 7,000 or maybe INR 7,500 crore book, you are having an NPA of 30% and credit loss, which is even negligible, not even worth mentioning this call.
Right. In terms of the growth trajectory going forward, what is your outlook for the gold loan growth in light of the recent softening in the prices? How do you see mortgage portfolio performing over the coming quarters with currently it is at 1% QoQ on year-on-year it is 10% YoY.
On gold loan, we have taken a conservative view, where even though RBI permits LTV up to 85%, we have been conservative and we give a maximum of 75% LTV. If you walk into a branch, 75% is the maximum LTV that you will get. Despite being conservative and being less competitive than what other players in the market, you are still able to grow the book sufficiently. If you notice, gold had a INR 17,000 per gram value in middle of this quarter. It has come down to INR 14,400. If you were to look back and with another hindsight look at it, I think it is a good call. You are able to go to your ambition and still not have to do any margin call. It helps the business considerably.
I would tend to think that the gold as a overall percentage of our book would be somewhere in the 20%- 22% mark. On mortgages, traditionally Q2, Q3, and Q4 are the months where the disbursal significantly goes up. One way of looking at it is, if you were to compare our disbursals of INR 1,500 crore with INR 1,100 crore, which you used to do in the same quarter one year back, that is 35% increase in disbursements. If you continue to increase the dispersal by that kind of a number, you will see the benefit flowing into the balance sheet growth as well.
Very well, sir. My last question is on fee income. Is it for the decline primarily seasonal in nature with low disbursement in 1Q?
We had INR 101 crore treasury income in quarter one of last year. This year we got INR 16 crore. We had to make up INR 85 crore of shortfall, and we made it up through core fee income, which is repeatable in nature.
Yeah, but it declined on a QoQ basis, so that is just seasonal, right? Because 1Q is a seasonally weak.
Third-party distribution in Q4 is higher. Also, the processing fee from loans which are higher in Q4 is the reason why it will be Q4 to Q1 will be less. But if you were to compare the Q4 to Q1 delta with the previous Q4 to Q1 delta, you will find that that is much more in our favor for this year.
Thank you very much, sir. Thanks a lot for answering all my questions, and all the best.
Very much.
Thank you. We take the next question from the line of Chetan Sharma from Systematix Shares and Stocks Limited. Please go ahead.
Thanks for the opportunity. Am I audible?
Oh, very well, Chetan. How are you doing?
Yeah. All good, sir. Thank you. Sir, my first question regarding the CASA ratio. How do you expect the CASA ratio to evolve going forward? As you can see that in Q1 FY 2026 it was around 23.32% and currently stands around 21.65%. What is the strategy to improve in the coming quarters?
I want you to look at the cost of deposit of the bank when the CASA ratio was 22% in Q1 and the cost of deposit today. Okay? Despite CASA decline, you are seeing that our cost of deposit, cost of funds actually has come down from 7.18% to 6.75%. Okay. In my mind, it is good to have CASA ratio going up. Specifically, car or car YoY growth is 5% only. I think that is a clear area for improvement. But CASA does not really reflect the truth as much as cost of fund does or as cost of deposit does. The way we look at it from management perspective is how do you bring the cost of deposit down, where one component, of course, is CASA.
Correct, sir.
Chetan, are you done with your questions?
One more, sir. It's just a request from my end that during the preparation of the Internal Control report, I tried to get in touch with the concerned team, but the earliest appointment available was around 45 days later. If possible, could you please guide me to the appropriate point of contact whom I can reach out to directly and quicker?
Certainly.
Response for and better coordination?
Certainly. We'll also tell you what the blackout periods are so that there is no surprise in that. Right. The least we can do.
Okay, sir. Thank you.
Thanks.
Thank you. Ladies and gentlemen, in the interest of time and fairness to others, we request you to restrict to two questions per participant and return the question queue for follow-up questions. We take the next question from the line of M.B. Mahesh from Kotak Securities. Please go ahead.
Welcome, sir. Questions one is, last quarter you indicated that the headroom to maintain margins was reasonably okay for 27. If you can just comment about this. The second question is on, while you indicated mortgages tends to be quite slow on disbursements in the first quarter, even the YoY numbers does not look particularly strong. Is it a choice on margins to depend the margins that this choice was taken, or is there some actions on the ground that you are saying which is making you to grow slower?
Hi, Mahesh. Sorry, did not recognize your voice. Okay.
Sorry, I am outside. Yeah.
On mortgages, there is no intentionally we are not slowing down or anything. It is not to improve the margins that the growth is not moving in. Consciously, we have decided about a year back that we are not going to do any further DA in mortgages. So the DA book will always be run down. It will never be replenished because we do not see the reason for that. Currently, it is all organic sourcing, better yield, much better portfolio quality, and considerably better ability to do cross-sell. That is the reason why we are seeing the momentum happening. On growth, the real early indicator is the disbursal. If you were to see the delta in disbursal, you are seeing a 35% increase in disbursal between Q1 of last year and Q1 of this year.
If we continue the same momentum, by the end of the year, you will see a very different growth path on the balance sheet growth. We are not seeing any considerably higher closures, foreclosures, or part payment coming in. If we maintain the similar level of disbursal, probably mortgage will outpace the overall growth of the bank as well.
On the first question, which is on margins, which had indicated last quarter that it will be stable for a year, how are you seeing it for this year now?
On margins, if you see, it is a 90-day quarter four versus a 91-day quarter one. So you will see a one day impact coming through. Our product mix was such that we had more gold loan in quarter one. Probably that will not repeat itself in quarter two. So you will see the mortgage product increasing its presence. You will see more of agri higher yield products having a higher amount of sourcing and impact on the portfolio. So we will probably see an upward curve in the interest yield curve. But having said that, 14 basis points is the reduction that we managed on cost of deposit between Q4 and Q1. I will be very happy if we continue with that 14 basis points, but realistically, I would expect something like a 7%-8% decline.
If you hold the portfolio to the standards that we are keeping to right now, there is no reason why NIM will not increase in Q2 and also going forward.
Correct. Thank you.
You are welcome.
Thank you. We take the next question from the line of Jai Mundhra from ICICI Securities. Please go ahead.
Yeah, hi, sir. Good evening and congratulations on a good quarter.
Hi, Jai.
Yeah, hi. Sir, we used to have actually a bit of an adverse seasonality in Q1, right? In terms of growth, in terms of slippages and margins also. If I see this quarter, it is less visible. In terms of the growth is flattish QoQ, but interest on advances have grown up decently at 4%. Slippages, while they are up QoQ, but they are not a dramatic change. Cost has also held up. Any changes that has happened in the business or that is something different which has happened? This usual seasonality is not there. So that is the observation or question.
We've given a guidance with a clear timeline on multiple metrics of the bank, including cost, NPI numbers and ROE. It's not like in the next six to nine months. It is exactly in the year 2026, 2027, 13.5%. We also said in the year 2027, 2028, 14.5%. We are ensuring that we have calibrated growth and calibrated growth of the right quality. You're seeing that the efficiency improvements that we have implemented a year and a half back is giving the kind of results that we want to get. And possibly this should continue. An ROE of 13.5% in this year should happen without a hockey stick kind of movement. Every year, every quarter, that kind of movement has happened. And the bank is geared up for that. We don't give a guidance unless we are reasonably sure of it.
That's why in September we gave that guidance. We could see what is coming in. And over a period of time, that guidance will be taken with more and more credibility if you have the kind of performance that we've been having for the last four to five quarters. Otherwise, there is really no dramatic strategic change, Jai.
Sir, secondly, on your co-lending book. We understand there was change in the co-lending regulation, et cetera. Hopefully that is done and how to look at co-lending portfolio growth going ahead this quarter? Of course, it is relatively weak, but how to think about as we go to FY 2027?
Expect it to go to 15%. The guidance we have given is that co-lending will not exceed 15%. We have a room of about 2.52% more to go. That availability is an opportunity which is there. They could go up all the way. But personally, I'd prefer organic lending improvement and co-lending can be somewhere in the area of 12.5%-15% kind of range, somewhere in between this. We don't want it to go far below this. But definitely we don't want to be kind of relying on co-lending for our growth. Organic will pick up. Co-lending will not be at 12.5%. It will be somewhere around the 13%-14% range. But we have the luxury to go all the way up to 15% as per our internal feeling and benchmarks are concerned.
On gold loan, I just wondered the growth is very strong, almost 100% YoY, 35% QoQ. Just to understand the risk framework, how do you, let's say, price the loan? Because there could be daily variation. Do you do some moving average? Do you do some minimum floor or maximum ceiling, et cetera? How much percentage of the gold loan book could be, let's say, above a 75% LTV? Not at the blended level, but individual cases where or what is the risk management that you have for gold loan?
Jai, you can test for yourself. RBI allows for consumption loans up to 85% LTV. For business loan, there is no upper cap. You can go 110% also, 120% also, if you want to. These are new rules applicable from January 1 or April 1, first April onwards. You can call up any of our branches or walk into any of our branches, and not one branch will be able to get more than 75%, despite RBI allowing 85%. We are able to grow. So you do not necessarily have to go all the way to 85%. If you are comfortable having a buffer there. Look, we are happy with the kind of growth we are getting at a maximum LTV of 75%. Now, that may change tomorrow. If there is intensive competition happening, that can change.
But as of now, we have taken this call and whenever a hindsight, I think is a good call because when gold price was INR 17,000 per gram, had we given 85%, it would have become 100% LTV today because 85% of INR 17,000 is INR 14,400, which is the gold price of yesterday. So we will be doing margin calling like crazy and spending a lot of management time. There has not been any hopefully, but there will be a lot of management time wasted on margin calling. So we remain conservative. Having said that, for co-lending, we go up to 85% as per the RBI norms apply. So what the originator source can be at 85%, but internally within the bank for organic sourcing, we do not go above 75%.
That is all right, sir. The question is, if hypothetically-
Jai, I would request you to please join back the queue for follow-up questions.
Sure. Thank you so much.
Thank you. We take the next question from the line of Parth Gupta from 360 ONE. Please go ahead.
Yeah. Hi, sir. Thanks a lot for the opportunity.
Hi.
Yeah. Hi, sir. My first question is, the disbursement which we see within the MSME segment has been falling on a YoY basis for the last couple of quarters.
Yeah, that's right.
What actually is happening there, or can you just highlight that?
Yeah. On MSME, there are three things we are working on which we need to improve, and I think all the three are interrelated. One is current account, two is MSME overdraft facilities, and three is trade finance. As you can see, our current account growth has been 5% YoY. SME has de-grown, partly because we stopped doing trades, which is a very low-yielding book. But fundamentally, getting the current account fraction going and improving SME are the critical focus area for us. It will also help us in getting the trade finance coming. The disbursement number going up is critical for us. A lot of work is happening on it. We are not seeing the output on it yet. We are also not seeing the output of it yet. But I am sure that maybe in quarter two, definitely in quarter three, that number is increasing.
We have put in higher quality people. We have opened up new sectors. It is a change that is down to show itself in output in Q2, definitely Q3.
Sure, sir. Sure. My second question is, first, how much of the deposit repricing is left or the cost from the last bottom round? Just to reason one more quickly, how much room is there within the OpEx to asset ratio to bring it further down from 2.4%? Of course, you have done a commendable job over the last six to eight quarters, but if I look at the next four to five quarters, then what is the headroom that Yeah. Thanks, sir.
See, keeping to the mandate of management is the guidance of 2.5%. We should come below that. Obviously, denominator increasing at similar kind of levels will help bring the cost down. Traditionally, Q1 is where you take the hit of salary increase, et cetera, with the denominator coming in later. So there is a good chance that we will be able to maintain or slightly improve the cost to average assets going forward. Your first question on-
Deposit repricing.
Deposit repricing. Q2 also has a benefit. So there is some tail of the old repricing still continues. One of the good benefits of having a long duration term deposit is that you continue getting the benefit for a longer period of time.
Sure, sir. Thanks a lot, sir.
You are welcome.
Thank you. We take the next question from the line of Punit Bahlani from Dolat Capital. Please go ahead.
Yeah. Hi, sir. Thanks for taking my question. Just two. Firstly, on the SME, I know you gave the explanation earlier, but the trade thing, are we building that up? I thought we already had a decent infrastructure in place for that, and is that the main reason for the rundown of the book? Secondly, even in the CV, I know CV is not a big proportion, but there also we have seen some rundown. Is that done to maintain asset quality or is there any other reason as such which I'm not aware of? Also, sir, on the margin bit.
Yes. Sorry, I'll answer the first one first. Punit, CV book is a, we don't have a CV team at all. It's a rundown book. We don't incrementally source anything. It's just a pure play rundown book.
INR 300 crore, INR 400 crore will be there. How much is it?
INR 350 crore, yeah. As long as it doesn't create a problem for us from NPA, there is no attention going into building the book. We have no intention also to keep building the book. So the historical legacy which we are just ensuring that we run it down without any incremental loss. On the MSME, my response remain the same. It's an area where we want to grow. We have not really gotten to the level of where we want to get it to yet, and that's where the opportunity lies for us. We certainly think that once we get the execution right on that, today we're increasing the cost, not getting the benefit. But Q3, I can clearly see we will be getting the benefit of the incremental investments we've done, both on people and technology. Opened up new sectors.
So yeah, right now just grinning and bearing it. We will see. Maybe even Q2, you will see an improvement happening on the MSME. Like I told, Parth of 360 ONE.
Got it. Sir, on the margin front, like we have seen your margins driven by the cost of fund decline, we are seeing margins remaining stable. On the yield bit, is it fair to assume that once we see the SME book picking up or any other segment which you could highlight, we will see some upliftment on the yield because this deposit repricing, I guess, a couple of quarters more, right? Or do we have any more leeway? And how much, if you could quantify how much bits we have left for deposit repricing? Just trying to ascertain what the trajectory will be going forward.
Look. You are getting it wrong. Deposit repricing is a natural phenomena. There is a lot of effort going into the bank to get deposits at lower rate, fresh deposit getting a lower rate. We are not relying only on deposit repricing happening automatically. Our frontline, the rates that we currently give are such that you get a We were, at one point in time, one of the highest deposit paying banks in the country. Today, that is changing. So it is not just automatic rollover renewal of old high-cost deposits which is coming through. There is a lot of effort in branch banking to get a lower cost fresh customer into the system as well. So that is the first point.
The second is, without changing anything else, the sourcing profile, when it changes, like similar kind of when you see the dispersal of mortgages going up, and that is bound to happen in Q2, you will find that the kind of yield that you get on mortgage is far higher than the kind of yield you get on organic loans. It will definitely add to the improvement of the yield. If you keep the portfolio quality at similar levels or improve it slightly, you continue to get a NIM benefit going on it. As a bank, the NIM improvement will be primarily driven by cost of fund reduction and maintaining good quality portfolio. I do not see us wandering into higher yield segment chasing NIM, and then potentially suffering the consequence of that one year down the line or one and a half year down the line.
Clearly the strategy is bring down the cost of deposit, keep the portfolio quality momentum going, and that would be the way the NIM improvement happening by changing the product mix. More of LAP, more of mortgages by itself. SME, frankly, is a INR 1,800 crore book. It cannot alter the destiny of the bank. But a INR 29,000 crore mortgage book certainly can.
Got it, sir. Thank you so much, sir, for answering.
You are welcome.
Thank you. We take the next question from the line of Aditya from Securities Investment Management. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity and congratulations.
Hi, Aditya.
On the set of results.
Thank you very much.
Sir, first, one clarification on cost of deposits.
Yeah.
Q2, we see a drop considering the repricing which is left. But going forward from Q2 onwards, do you see that remaining stable or it should increase? Considering if I look at your last two, three months, you have increased the fixed deposit rates by 25 basis points- 30 basis points. And with tighter liquidity in the system, do you think deposits would increase from Q2 onwards?
Aditya, good question. Let me tell you this. In Q4, we grew 21% liabilities. Okay? In Q4. In Q1, we've grown 20%. We were very clear that even if it means that you have a higher carrying cost, it is important to get money now than money later. And I'll tell you as a five trend lines. Our cost of deposit over the last five quarters was 7.12%, 6.96%, 6.86%, 6.84%, 6.71%. And these are times, like 6.84% was done in a time in Q4 when most banks were scrambling for deposit. In Q1, most banks were scrambling for deposit. We still got 20% growth, and we brought down 14 basis points on the cost of deposit. The best way to answer the question is by doing it, and by doing it consistently. And that's what you're seeing.
If you can grow by 20%, if you can bring 14 basis points down on the cost of deposits, and keep your top 20 well within the 7% mark, which you get deposits without ruining the profile, and you do it repeatedly quarter after quarter, especially quarter four is traditionally a very difficult quarter. You would have seen how the various competitive banks have performed on deposits. If you can keep it going, and there is merit in us squeezing the cost of deposit even further going forward. It is not just from repricing on deposits alone. That helps, but every passing quarter, the importance of that is getting less and less and less.
Understood, sir. Also, if I look at your Credit-Deposit ratio, it has come down. It is now around 80%- 81%. Is there room for that to increase going forward?
Yeah. We are at 80.49% right now. You will see there is a possibility that asset growth could outpace liability growth going forward, and we are comfortable with that because we are sitting on stockpiled money.
Got it. Sir, just two small questions. Do we see any benefit from the FCNR scheme launched by Reserve Bank of India? Secondly, any impact of ECL on us?
Yeah. FCNR, we are keen on it because they are individual deposits, they are long-term deposits, and maybe they are slightly better than cost-neutral. To that degree, it is not a bad thing. We are focused on it. As far as ECL is concerned, there are two things I want to tell you. You have seen how the GNPA, NNPA movement is. You have seen a credit cost of 26 basis points, and you have seen the trend line of how all the three have been going for the last seven, eight quarters.
For ECL, clearly, the recency matters. The fact that we are secured heavy matters, and also the fact that every quarter we are adding INR 6 crore- INR 7 crore to a floating provision, which is now INR 210 crore, from which we have not even dipped into it, even during COVID or demonetization or whatever it is, never in the lifetime. That gives enough buffer for us when ECL goes live in April.
Got it. Sure, sir. I am done with my questions, sir. Thank you.
Thank you, Aditya.
Thank you. We take the next question from the line of Krishnan ASV from HDFC Securities. Please go ahead.
Yeah. Hi, good evening, and thanks for taking.
Hi, Krishnan. How are you?
Absolutely fine, sir. Thank you. Just a couple of brief questions. Your asset quality that you just mentioned, your GNPA has been trending lower, your NNPA has been trending lower, and this is five quarters. This is about a year since the tariffs were introduced by the U.S., right? Does that surprise you that why are MSMEs so resilient? It is not just you. There is something that we see across the banking system now. I just wanted your thoughts because you have been an MSME-dominated bank predominantly. I just wanted to understand your thoughts on what is keeping the MSME engines running. That is one. The second I will probably come to once you have answered this please.
See, primarily the MSMEs that we look at is from the service and not from manufacturing. And as far as services are concerned, we clearly do not see any impact of tariff or inflation so far. I was more concerned about inflation.
Correct.
I had expected that the bounce rates or the slippages would increase because petrol prices were to increase by INR 15 over a two-month period. It has to result in squeezing of the wallet somewhere. But one of the things I can tell you is that we have moved up the ticket size. We did some mortgage DA in 2024, and that really bit us badly with the small ticket secured lending, secured DA that we did from some originators. That has not kept us in good stead. So at that time, we decided not only will we not do any DA on small ticket, but increase the average ticket size significantly. Partly, I would say that it's because you've gone to a slightly more resilient customer.
But even when I speak to other CEOs of other companies or credit bureaus, there is no indication of any big problem coming in the kind of segments that we deal with.
Right. What seems to be answering the inflation? Because even in services, including banks and financial services, I think the general cost of doing business is now higher than what it was, say, six months back. Right. So what is it that's keeping inflation at an edge now?
I just hope it's not the loan supply. There is supply. There is no restriction of credit. I just hope it's not just the supply of credit. Otherwise, you're seeing when I go for customer visits, et cetera, I'm finding increasing standardization everywhere. Both the height of the cup and the diameter of the cup is reducing for every cup of chai that you're having, whether in rural India or suburban India. Just to give you an example. There is some kind of pressure, but that's not really reflecting in the financial system. Frankly, loan demand is significantly [audio distortion] because we have an option to pick and choose. You can pick and choose the right kind of customers. There's demand across, and you're able to command an ability to choose. That's why it's not reflecting anywhere.
I generally believe that petroleum price increase will have a ripple effect on multiple other costs.
Got it. My second question is about your NIMs. You mentioned NIMs still has some leg room or should I say the cost of deposits has some leg room on the way down. Is this despite the hike in incremental cost of funds? Because what you expected six months back is a very different environment now.
Yes.
Do you see [audio distortion] the Reserve Bank of India is quite stubborn with rates, so they're not letting go on rates. There's no EBLR benefit coming through for banks yet. How are you so confident about NIMs going up in this environment?
See, I think the answer lies in inefficiency. As a bank, I think we have been giving a higher rate than what is required for the kind of growth that we had for a decade. We were putting more money on the market than what is required, and that's the honest answer. One way of looking at this, if you were there in the investor day presentation, I spoke about it. The difference between our rate and the-
Yeah.
Yeah, that delta decreasing, and that is good enough for bringing down the cost of funds and cost of deposits. That is not even after the reduction. There's enough for the avaricious, greedy customer to come to us because 45 basis points over what some other bank gives is also good money. You don't have to give 65 basis points. You only have to give 120 basis points more than what the biggest banks are giving. The movement from 120 to 70 is helping us in the cost of funds and cost of deposit and cost of funds. Any reduction thereon is still enough in our pricing to attract good customers. In a sense, I'm kind of shooting myself in the foot when I'm saying this. There is that opportunity. There is that efficiency improvement that we can do.
The whole theme of the bank for the last three years I've been MD CEO has been about improving efficiency in terms of productivity, in terms of cost of funds, in terms of capital utilization, in terms of output per person. I really think we are a very generous company earlier. Now we are being a bit more leaner, meaner, fitter, and that's reflecting in the kind of bottom line that you guys are seeing for the last four, five, six quarters.
Got it. Thank you. This was very helpful. Thanks a million.
My pleasure, Krishnan.
Thank you. We take the next question from the line of Param Subramanian from Investec. Please go ahead.
Good evening. Thanks for taking my question, and congrats on the quarter.
Hi, Param. Thank you very much.
Yeah. Hi, sir. First question is on the cost to asset. So you are at 2.4%, you are already doing better than the medium-term target that you set for yourself. So can we assume we are very much or near the bottom here or are there more efficiency gains that we can see? That's first one. Yeah.
In the last quarter, I said that I would expect the number of people increasing from 11,500 to somewhere around 13,000. I still hold on to it. We probably will be increasing people because for all the talk on digital, we still require feet on street in increasing the sales volume. So some bit of the efficiency improvement will get consumed by the incremental staff salary. But I would tend to think that we would be under the 2.5% guidance that we had given. We'll try and keep it within the 2.45% mark for the full year.
Great, sir. Perfect. Thank you. Secondly, sir, some of the midsize banks have called out sort of a lending rate sort of pressure on the gold loans. So if I can understand what is the, say, broad yield on your gold loan portfolio, and is there a pricing pressure you're seeing there, say, led by public sector banks that would hurt your margins?
Look, when I ask the sales folks, they will always say there's humongous pressure. Not a single salesperson will ever say there's no pressure. But the fact of the matter is, and you can check it out, like I told Jai Mundhra earlier. You call up our branch, you check, you walk into our branch, you will not get more than 70% LTV. Whereas the bank next door or the gold loan company next door will give you 85%. And 10% is a lot of money. So if you are able to grow the way we are able to grow without giving 85% LTV, right? Keeping LTV down by 10 percentage points. Why would you face a pressure? There is enough in the market. So maybe we haven't seen that pressure coming in, either pricing pressure coming in or the market pressure coming in.
But if we do, then we will probably revisit how we do the gold loan business. But if you see Q4 and Q1 both, we have not seen too much of pricing pressure or LTV exposure pressure coming into us. From an organic perspective, I am not talking about gold lending at all. I am talking about our own book.
Fair enough, sir. If you are comfortable sharing, what is the broad portfolio yield on your gold loans?
We do not give product-wise, do we?
No worry.
We don't.
Perfect. Thank you so much, and congrats once again on the quarter.
Thanks, Param. Thank you very much.
Thank you. We take the next question from the line of Vaibhav Mehta from Axis Mutual Fund. Please go ahead.
Hi, sir. Thanks for taking my question.
Hey, Vaibhav. How are you?
Yes, I am fine. Sir, my question was regarding with the branch additions and branch growth vision that we are having. I have seen that you have seen good number of additions over past few quarters, though June was flattish. Going forward, what would be our vision for that and what would be the markets we would like to penetrate going forward?
Maybe another 20 branches this year. We are very branch-focused for our growth. Maybe 500 would be a good number to have at the end of the year, maybe slightly more than that. At least for the next two to three years, I do not see branch being central to our growth story. Where will the 20 branches come in? Mostly second, third branch in the existing cities which are doing well. So increased penetration in existing neighborhoods would be the way to go. Otherwise it will be more of people increase than the branches. Proportionately more of people increase than branches increasing.
Got it. Thanks.
You're welcome.
Thank you. We take the next question from the line of Vaibhav Garg from VVPL. Please go ahead.
Hi, sir.
Hi, Vaibhav. How are you doing?
I'm good. Looking a bit ahead, your tenure is till April of 2027. Has the bank board indicated anything about an extension? If the board decides to offer an extension, what would be your willingness to accept it? Secondly, any update regarding the fundraising plan of the bank for the current financial year?
Yeah. Has the board spoken to me? No. I think it's a bit too early. What my personal choices are, I've been with this bank for 19 years. I can work for another 19 years in the same bank. I have the energy, willingness, and I've got a great team which we're working with, so no two ways about it. But again, it's the board's call or RBI's call. That's a simple answer to that question. With regard to fundraise, it's weird, right? 14.26% was at Tier 1 capital three months back. Now that has gone to 14.9%. If you were to look at one year back, YoY, our capital adequacy has gone up from 14.20% to 14.90%. Overall, if you were to look at Tier 2 included, CAR has gone from 16.66% to 17.03%.
That's very weird because all of you know, banking is an industry which is very, very guzzling capital. We're in a good space controlling RWA. But the reason why you have capital is not to control capital, it's to expand on it. I think the model is more or less proved that we can run a secured book where 13.5% definitely, and next year you will see 14.5%. That model comes into place and we demonstrate that, look, it is very much possible to run a 13.5% to 14.5% kind of ROE book. Keeping it secured, the kind of small ticket secured granular assets that we have. Then the whole idea is how do you get incremental capital for the next phase of growth? Maybe what is good enough for the next three years. Last time we raised capital was eight years back.
Maybe nine years, eight years back. For the next three years, what is required, we will take it up. There is no urgency, but we are open. We are having conversations. We had an AGM where an enabling resolution was passed for INR 2,000 crore, which is INR 1,500 crore of Tier 1 and a total of INR 2,000 crore capital raise that has gone through pretty smoothly. Obviously, with the kind of consistency that we are bringing in, there is interest. But the timing, quantum, and pricing will be decided by the board.
Thank you so much, sir.
Thank you. We take the next question from the line of Devam Modi from Ardeko Asset Management. Please go ahead.
Yeah, thank you, sir, for the opportunity.
Hi, Devam. How are you?
Yeah. Hello, sir. Hi.
Hi.
Firstly, on the non-interest front.
Right.
Given that our fee income is partly liability linked and we have seen a very strong deposit growth, plus there is a potential of higher advances growth during the year given the disbursement run rate and the existing Credit-Deposit ratio.
Could one expect the current outperformance of core fee income in the first quarter to only extend and grow in the remaining part of the year? Also, any branch-level intervention or initiative you have taken to enable this as of now?
Look, by definition, core fee income is something which is replicable and recurring in nature. Okay? I will tell you what is working well for us, what can work better for us, okay, what can improve. Mostly our core fee income is driven by third-party distribution and processing fees. Q1 usually is lukewarm in terms of asset disbursement. We expect that to improve in Q2, Q3 going forward. So processing fee naturally, if just by extension of logic, should go up. Third-party distribution, Q4 usually is a great quarter and Q1 is a very sleepy quarter. We managed to kind of change that, okay? That is a big mover because usually four months' worth of output happens in Q4 and two months' worth of output happens in Q1. We have managed to kind of change that Q1 behavior.
So that also, logically speaking, we should see an improvement happening in Q2 and Q3 because that is a natural flow of things. The area where we need to improve a bit more is trade finance income. It is tied to how well we do current account in SME, and if you heard me speak to the earlier folks either you can call it inefficiency or you can call it an opportunity. Getting the current account SME right will, by force of nature, improve our trade finance. That is a recurring income, that is core fee income. That I think is a real big opportunity. The other two, I think we are doing fairly well, and we will continue to do fairly well.
So trade finance, how well we build it up, which will also partly address our current account issue and partly address our SME momentum is one area where we are focusing on. We are putting a lot of effort, not seeing great results, but we are patient about it. Things do not happen overnight in retail banking. So putting the effort you sow now, you reap maybe after three, four, either years or quarters.
Sir, any branch-level initiative or intervention that you have taken that seems to be working well on this front?
There is huge number. I mean, there is nothing like a branch. There are 480 branches, and each branch is different. So it is not a one measure, one size fit all. Some just go gangbusters on gold loan. Some are fully term deposit-oriented. Some are practically current account. It really depends upon what kind of market it is, what kind of competition is there. So the sum total of that is what you see as the output coming in, either in the balance sheet or in the fee growth or even in the asset growth. So it is different horses for different courses.
Finally, sir, we do recognize that you have done a very disbursement in this quarter. But at the same point of time, there seems to have been a high rundown as well. Any thoughts on that front and whether that was on the balance transfer side? What would be the general churn in the mortgage book and the overall tenor of the same?
Okay. In the mortgage book, there are two things you have to look at. One is that, like I told you, we did some wrong calls in 2024 and got some DAs which contributed to NPAs. It still does. So we stopped that completely. So if you see the mortgage book today, it is practically fully organic. Right? Secondly, the disbursement of today will lead to the growth of tomorrow. So if you have a 35% increase in dispersal, it is unlikely that you will see a 35% increase in growth. But if you continuously do a 30%, 35% increase in dispersal over the Q1 of last year, Q2 of last year, Q3 of last year, and Q4 of last year, then you will see that the growth will not be 9% as you are currently seeing. It will be upwards of 20% to 23%.
If you ask me how are we on the premature closures, the non-contractual closures, I mean, Q1 is slightly better than Q4. I almost said they are equal. No. Q4 was more aggressive. There was far more of takeovers. Q1, there has been lesser takeover. So on the mortgage book, I am happy to see that the lead indicator of growth coming in, which is disbursement. If we continue on the same path, there cannot be two ways about growth not coming through. Because we have a very good retention management system. Very highly tech-driven. AI plays a big role in identifying the goods and the bads, probability of defaults. So I think it is reasonably well-managed, and I do not lose sleep over mortgage growth.
Thank you. Ladies and gentlemen, we take the last question from the line of Khushwant from KPAC. Please go ahead.
Yeah. Hi. Am I audible?
Hi, Khushwant. How are you doing?
Very well, sir. A small question. Congratulations, first of all, on decent set of numbers.
Thank you.
I remember also in previous quarter for most of the banks, one common question that was coming was the impact of food oil prices and war and any stress coming into the banking system in the later part of the year. Just wanted to seek your thoughts on that.
I believed that then, and I believe that now also, but honestly, I do not see an impact of that hitting us. It is because of these fears that we significantly increased our liquidity. We increased our deposit growth significantly. That is the reason why we kept our LTV very conservative and went after gold loans in Q1. But honestly, look at the slippage ratios, non-gold slippage ratios, the balance ratio, which we do not publish otherwise, but these are the early indicators. Our 12 MOB, 12 months on board, 30+, 90+. There is no indication to believe that there is going to be a problem in terms of repayment based on historical facts. That is what we did. We just stockpiled liabilities and turned our sourcing engine towards safer assets. But frankly, that is clearly Q2, Q3, where the mortgage business, mortgage sourcing will significantly increase.
Has already increased in July. Similar with MSME and MSME. All the other asset verticals will start kind of rolling it in. That is our indicators, and if you look at external indicators of credit bureau also, one does not see any impact of that in this particular target market. By saying that, I mean a ticket size of X and above in locations that we are currently present in. We just do not see any negative impact.
That is so lovely to hear. My best wishes to you all. Thank you so much.
You are welcome. Thank you.
Thank you. Ladies and gentlemen, with that, we conclude the question and answer session. I now hand the conference over to Mr. Praveen Kutty for his closing comments.
Thank you very much whoever is there still in the call. We hope to keep getting the same kind of questions and same set of answers and the same set of results. The whole idea is to bring in the consistency of performance. Not just of growth alone, but also of all the engines of growth. We are focused on it. What we did not speak about in this particular meeting is the kind of investments that we are continuing to make in technology, the incremental use in AI, et cetera. But hopefully, we will come back to you next quarter with the results of quarter two, and you will see how well our talk of being consistent, being predictable, and being sustainable is. There is nothing to prove as much as results can prove. Keep watching out for results. Thank you very much.
Thank you. On behalf of DCB Bank Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your line.