Ladies and gentlemen, good day and welcome to the DCB Bank Q3 FY 2026 Earnings Conference Call. As a reminder, all participant lines will be 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 an operator by pressing star then zero on your touch-tone phone. From management, 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 now hand the conference over to Mr. Praveen Kutty, MD and CEO, DCB Bank. Thank you, and over to you, Mr. Kutty.
Thank you. Good evening, ladies and gentlemen. Welcome to DCB Bank's Quarter Three Earnings Call. At the outset, I would like to run you through the headline numbers. The customer advances have grown YoY by 18.46%. Customer deposits have grown YoY by 19.54%, and profit after tax has grown YoY by 22%, despite a one-time impact of INR 26.87 crores. We will come to that in a minute. Consistency, predictability, and repeatability, I keep saying this every meeting, every interaction with all of you and as well as the management team. This continues to be a key cornerstone of our business strategy, and you have been seeing the results of this over many quarters now. I would like to give you some finer details and texture on both the top-line and bottom-line numbers. NIM continues its upward momentum, clocking 3.27% for the quarter, thanks to reduced cost of deposit, which now stands at 6.86%.
That is a 10-basis-point drop in the quarter. It is pertinent to note that the net interest income as a percentage of total asset for Q3 this year is higher than the net interest income for Q3 of last year. Q3 of last year, remember, was prior to the rate cut cycle. The fee growth continues to be encouraging. What is more, the core fee income at INR 182 crores, led by third-party distribution, trade finance, and processing fees, is looking robust. On the cost front, we have taken an impact of INR 26.87 crores on account of the new labor code. Despite this, our cost to income is at 61.84%, which is lower than Q3 of last year, and cost to average assets is the same as of Q3 of last year. I want to clarify that the quarterly incremental impact of the wage bill would be marginal.
Also, what is pertinent to note is that we have grown 18.5% in advances and 19.5% in deposits with less number of employees than we had in Q3 of last year. We had 11,339 people same time last year. We have 10,981 people now. Our focus on organic sourcing vis-à-vis DSA sourced business, vendor renegotiation, impact of digitalization, and improved use of AI is helping us rein in the cost. The jaws are widening, with income growing at 16% and expenses, including the one-time, growing at 15%. This has resulted in the operating profit growth of 19% YoY. On the portfolio quality, our credit costs are benign at 0.37%, much below the minimum stated goal of 0.45%. What is truly heartening for us is that our slippage ratio for the quarter at 3.08% is the lowest we had in 18 quarters.
Our GNPA at 2.72% is the lowest we had, again, strangely, in 18 quarters. Our net NPA at 1.1% is the lowest we had in the last 11 quarters. The net outcome is that we have posted our highest-ever quarterly profit of INR 184.74 crores with an ROA of 0.91% and an ROE of 12.73%. Let me talk something hypothetical. It is interesting to point out that without the one-off regulatory expense impact, our PAT would have been INR 205 crores, ROA would have been 1.01%, and ROE 14.10%. As far as the future goes, we continue to remain confident about our guidance of 18%-20% growth year-on-year and the 13.5% ROE in 2026, 2027 and 14.5% ROE for 2027, 2028. That remains unchanged. I would leave the floor open for questions or clarifications. Operator?
Thank you very much.
If you can unmute everybody in the call, please.
Thank you very much, sir. 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 the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Akshat Agrawal from Smith Institutional Research. Please go ahead.
Good evening, sir. Thanks for the opportunity.
Hi, Akshat.
Hi, sir, and congrats on a very good set of numbers.
Thank you.
Apologies if I missed part of initial remarks as there was another result call at the same time. My first question is on fee income momentum, which was very strong at 15% QoQ. If you can provide some insights, what is driving this? Is it all core? Do we think we can sustain this level of momentum?
Mostly the core fee income has come from a very decent third-party distribution fee income which we got. The asset growth has been good, so the processing fee by definition looks very good. Traditionally, Q4 is a good quarter for both third-party distribution and also for loan growth. In the short- term, I see that coming through. What we are seeing on a go-forward basis, I think a fee of 1% of the average assets is something which we should be getting through. Currently, let me tell you, we are at 1.1%, but on a go-forward basis, one seems very achievable on a consistent basis.
Very well, sir. My next question is on margins. How much of NIM expansion was related to tax refund? Was it 2 basis points? How should we think about the expansion from here in terms of residual deposit repricing, continued benefits from HL to BL transition, as well as hybrid fixed mortgage lending moving to floating? Is incremental flow for BL to HL still 60 to 40, or has it improved further?
Okay, let's go one by one on this. BL continues to be a large share, even more than 60%, of the incremental sourcing. I think that's a good call that we took. It is helping us both in terms of interest income, as well as in terms of bounce rate, as well as the NPS. Number two, there are mixed activities happening on the margin front. The full impact of CRR is not boxed in yet. That's a positive for Q4. What is not so very positive is that the full impact of the 25 basis point repo cut has also not been boxed in. You'll see the full impact coming in the coming quarters. You've seen the 10 basis points reduction in cost of deposit. You would also have seen our borrowings come down dramatically, and I want you to pay attention to both these items.
Because we have a long duration term deposit, our belief is that until Q2, there is clear visibility of reduction through repricing. The challenge we have is if we continue to renew term deposits the way we do, then we will see the benefit of it coming in all the way to quarter two of next year, probably even quarter three. That's one element. The second element is we had a total borrowing of INR 8,400 odd crores. Now it is about INR 4,700. It is just repricing with our ability to get lower cost of deposits by giving away borrowing, which is more expensive, is coming into play very quickly. That's also one of the reasons why if you see the balance sheet is growing only 14%, whereas clearly we are growing our key areas of customer deposits and loans and advances at a much higher pace.
In short, we see this upward movement of NIM should continue definitely till Q1, Q2, unless some repo rate action is done by RBI in the near future.
Right, sir. Follow-up on that, the tax refund part, was it 2 basis points this quarter? The hybrid fixed mortgage moving to floating, how do we see about that for all these quarters?
It exactly follows the pattern it has been following right over the last two years. We haven't changed that. Every month we see some bit of repricing happening on the fixed to floating conversion. That's very marginal. Very marginal, which comes in.
Right, sir. The tax refund this quarter, is it 2 basis points for impact this quarter of the 4 basis points?
I am sorry, are you talking about taxation impact?
Tax refund, sir. There is a note in.
Oh, yeah. There is INR 4 crores of interest on tax, rather. Not a tax refund. Yeah, of course.
Right, sir. My last question is, sir, on asset quality. Roughly INR 73 million floating provisions were added this quarter. Is it all for the expected ECL implementation, and what kind of recurring impact are we likely to see with the.
As a bank, we want to get to 1% or less in NPA as soon as possible. We are doing all that it takes to ensure that net NPA comes down to 1% or below. We are sure about the direction. How soon will we stay? We will get to know soon enough. If you see, it is a bounce rate coming down, slippage coming down, gross NPA coming down, net NPA coming down. Gross NPA is a net outcome of all these activities that you are doing. We are very clear it is not meant for ECL. You see our recoveries and upgrades as a percentage of our fresh flow, it is 86%. We have never touched that before. We intend to not only touch, we need to continue that and maybe even go better with the improved new vintage bounces and new sourcing portfolio quality.
It has got nothing to do with ECL.
Right, sir. Thanks a lot for answering my all questions, and congrats again.
Thank you very much.
Thank you. The next question is 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. Hello, sir. Sir, my first question is on NIMs. Sir, NIM improvement has majorly, I think, come from higher CD ratio and balance sheet improvements, which you mentioned, which were undertaken on the borrowing side. Because if I look at your spreads, they seem to have dropped QoQ. So yield on advances has fallen at a faster rate than the cost of funds this quarter. Going forward with 25 basis points rate cut impact going to be seen in Q4, when do you see cost of funds falling at a faster rate than the yield on advances?
I want you to look at the COD, cost to deposit. On a base of almost INR 65,000 crores. On a INR 65,000 crore base, you are dropping 10 basis points. You have to compare it with average assets where there is a drop to average yield drop by about 10.98%. The momentum which we will get will be from continued cost deposit coming down. If you were to see the fall in cost of deposit is sharper than the fall in cost of funds, which basically means that the impact of cost of borrowing is much lesser.
Yeah. I understood that point, sir. But if I look at your yield advances, they have fallen by 13 basis points this quarter as against a drop of 10 basis points in the cost of deposits.
Right.
The 25 basis points rate cut impact to be seen in Q4.
Yeah.
Do you see the yield on advances falling faster than the cost of deposits in Q4 as well?
The full impact of the 50 basis points rate cut which happened in the previous quarter is taken in Q3. The full impact. What you are seeing is a lagged impact. For the 25 basis point repo rate cut which happened in Q3, the impact you will see happening in Q4. The full impact you will see happening in Q4. It is a lagged impact which you are seeing from a yield reduction perspective. Whereas the NIM growth is fully predicated on our term deposit and our Savings Account interest rate going southward. We have clarity on. We have done this playbook once. Not once, twice. The last two quarters, we have seen this happening. We are confident that we will be able to grow as we grow 19.5% at a lower cost of deposits, 6.86.
The third thing, which is very important, I want to tell you, is on granularity. Our top 20 has gone down to 6.61. It is all the three. Many of you who have been in the investor day presentations that Ravi and I did, we said that it is not two out of the three or one out of the three, it is all the three together all the time. We are very confident that our cost of deposit will come down. The growth rate will continue in the 18% to 20% range. In addition, we will also be able to maintain the granularity.
Understood, sir. Also, if I look at your growth and deposits, this quarter a large part of growth has come from bulk deposits. Should one consider this as a one-off or considering the rate reduction we have done on the deposit side, there has been some impact on garnering retail deposits?
You would see that our ratio of retail to bulk remains the same at a portfolio level. There is no reason to believe that it will be any different. I don't see a big change in bulk deposit versus retail deposit. Having said that, the reduction of rates on both is on par. The reduction in the rate of interest on both bulk deposits and retail deposits, Q3 over Q2 is practically the same. You're getting the benefit from both retail and bulk deposit re-pricing.
Understood, sir. Sir, just lastly on this advanced growth, there is this others under advances book which have grown strongly this quarter. What is this book?
It's a INR 2,000 crore book. It's not a large book. It's a INR 2,000 crore book once again, which is a mix of all things. Page number 21. Some loan against term deposit, those kind of things have. The largest component here will be about INR 600 crore-INR 700 crore of loan against term deposit. This is a mixed bag of whatever is not mentioned in the other products.
Got it. Sir, mortgages have been flattish now for the last three, four quarters. When do you see that returning to the normal level of growth rates which we expect from DCB Bank?
I think 12.4% is our YoY growth on mortgage. We have really curbed DSA sourcing. We are running a higher organic book, and more importantly, our HL growth have been curtailed and there is far more BL that we are doing. I would tend to think that mortgage will come back to an 18%+ growth, similar to the bank growth in the next full- year. The reason for that is simple. People take time to get used to the new way of thinking and implementing that. We have done it consistently for the last nine months. We would tend to think and I plan for the whole of next year, mortgage growth will be equivalent or higher to the bank's asset growth.
Sir, thanks for answering questions and all the best.
Thank you very much.
Thank you. The next question is from the line of M. B. Mahesh from Kotak Securities. Please go ahead.
Just a couple of questions. One on.
Sorry.
Yeah, go ahead.
As there is no response from the line, we'll move.
No, no. There is lot of response. I could hear Mahesh.
No, sir. The person has left the queue. We will move to the next question, which is from the line of Suraj Das from Sundaram Mutual Fund. Please go ahead.
Hi, sir. Congratulations on the good quarter.
Thank you very much.
Sir, just one question. Sir, on the RWA, it has jumped almost 80-90 basis points QoQ. Just wanted to check if this is a function of the loan mix or there are anything else?
Our RWA is well below the 50% mark. I don't know. One second. Just hold on.
I'm just thinking probably because of the mortgages.
One second. I think it's a scale issue because the graph. This movement of risk-weighted asset is INR 40,000?
49.8%.
Yeah. One second. Sorry.
Yeah, sure.
I just checked this out. The RWA movement is 5%, which is similar to the overall growth of the book. It has grown in similar terms to the asset growth, the QoQ asset growth.
Sure, sir. Probably we'll.
Yeah. On a 7% asset growth, we have had a RWA increase of 5%.
Sure, sir. Okay.
Thank you. The next question is from the line of Jai Mundhra from ICICI Securities. Please go ahead.
Yeah. Hi, good evening, sir, and thanks for the opportunity.
Hi.
Congratulations on a steady quarter. I believe, sir, if I remove this one-off staff cost provision, then the ROE would have been around 1%, right?
1.01%.
Right. So, what you had said in the strategy meeting that we are very much on that 1% mark. Except for this one-off, we would have been there, right? Hopefully margins, asset quality, there is no imminent pressure as such, right? As you said, the third-party income should be slightly better seasonality. Hopefully, NIM should also be stable, if not improving or maybe improving. Right. So that assessment looks fair, right?
It looks reasonably fair, but I do not want to comment on a Q4 as much as. Over the next few quarters, that is exactly the way we see it. Also secondly, in the strategy meet, I spoke more about 13.5%, 14% ROE and not about ROA. But the same way, 1.01% ROE also translates to 14.1% ROE in this current quarter. Yeah, so they are related there, honestly.
Sure. Secondly, sir, you have multiple savings rate, right? Depending on your customer profile and those rates have also changed given the competitive dynamics. Do you have the blended number of, let's say, what is the blended savings rate cost for us and maybe how that has behaved, versus last quarter or maybe last two, three quarters?
So Jai, there is one way I can answer that without having to reveal more than I need to, which is kindly look at the cost of fund reduction. Q1 to Q2, 7.18 became 7.01. Our cost of deposit moved from 712 to 696. That's a 16 basis point reduction. Are you seeing that?
Yes.
Whereas in the current quarter, there is a 10 basis point reduction. You can imagine why, because in Q2, we reduced the savings account rate. Savings account rate is not like every time you make this cut, you can't cut deeper than what you're cutting. Currently you're at 1.5% at the lowest- end of the scale. So the difference honestly between the delta of 16 basis points and 10 basis points is the impact of savings accounts cut. So one way of looking at it for the future is that you'll get the benefit from TD going forward. There may not be too much benefit coming from a SA reduction. Unless there is more repo rate cut happening in the future.
Right.
You got me?
Yes, sir. I got that. Okay. On SME book, we also have a strategy of moving towards maybe slightly bigger ticket size and capturing the OD as a tool to protect and retain and maybe acquire more SME customers. So where do I look that SME, because the SME number that we give in the product mix table. Is that the right number to assess that strategy? Because that number of INR 2,249 is QoQ, YoY, both parameter is somehow not impressive. So which is the number? Should I include this along with corporate or how is it?
Jai, we are in an embryonic stage where we just put in the people in various locations. We found the credit folks. We are setting up the team. Now it is working in four locations. There is another six more locations where it has to come in. So, you will see the impact of it happening in about, I don't know, three, four quarters time, where it is a meaningful impact, I mean. So right now it is about getting the right people, putting the right structure. So we got the NSM, we got the RSMs, the people in certain locations. It is a buildup. This is a long game. It is very clearly a long game.
Right. Sure. And sir your mortgage, what is the proportion of HL and BL broadly of this INR 28,000 crore loan book?
See, it used to be 50/50, now it is less than 50/50. HL is less than 50. Number one. Number two, if you were to look at our investor presentation maybe about four quarters back or maybe six quarters back, that mortgage used to be 54%. Now it has come down to 51%. Okay?
Right.
Clearly there is an increased focus on the BL, on the lower ticket less than affordable housing segment, et cetera. There is a bit of a withdrawal. There is more focus and growth coming in the BL. While sourcing has really skewed in the favor of BL, which is what the management action for the last two and half years was, the impact of it you are seeing on the portfolio now. It is becoming big enough to being visible in the portfolio.
Right. And sir, on your capital raising, any sort of a timeline or you just had this $10 million infusion, but from a capital perspective, do you have any timeline in mind?
We have both a timeline based as well as event based. We are pretty much clear of how much we want to take and at what rate we want to take it. Right now there is no urgency for capital, but for future growth we require it. And the belief is that if you are able to increase your book value by INR 5 every quarter for the last N number of quarters, and the future also, we are reasonably confident about repeating our business in a similar fashion. I think there will be an opportunity coming in. So at some point in time, I really do see us raising capital because our ambition and our growth rate will require capital earlier than later.
Sure, sir. And last question, sir, have you done any assessment of the ECL requirement? A lot of banks are, because now it is five quarters away. You have secured book, but still, have you done any assessment that if you were to transition what kind of additional provisioning or one-time provisioning the bank may need to make?
We've been doing it parallelly for, Ravi, how long now?
For almost four years now.
Yeah. Three, four years we've been doing parallelly. It doesn't keep you awake in the night, let me put it that way, Jai. It's more or less in line. With the increasing and improving asset quality, things will only get better, but you will not be able to get a benefit. It's the higher of the two.
Right.
We are focused on getting our portfolio quality right. Like I told the gentleman earlier also, get the NNPA down to 1 or less, and keep moving in the direction. When all these things are aligned, slippage ratio is down, GNPA is down, NPA is down. SMA also is down, bounce is down. Just keep getting that right, and ECL will take care of itself. Honestly, when you look at it, there is hardly anything to worry about.
All right, sir. Thank you and all the very best.
Thank you. Thank you very much.
Thank you. The next question is from the line of M. B. Mahesh from Kotak Securities. Please go ahead.
Sorry, I got dropped. Just one question. In the past, in a slightly difficult deposit environment, usually DCB Bank has found its cost of funds kind of going faster. We seem to be heading into one such situation again. If you just kind of tell us how are you seeing the next couple of quarters on the deposit front?
I'll give you a bit of a contextual answer on this, Mahesh.
Yes, sure.
As a bank for the last, let's say about 10, 15 years, the reason to buy has always been price. That's changing. That has changed. Close to 3,000 odd employees in the branch banking system are now fighting a battle in the market where the reason for coming to us is not the pricing in itself. People are finding it a bit difficult. But a low-cost liability franchise is absolutely essential for us in the medium- to long- term. I'm pretty much happy with the way the last three quarters have panned out because we got all the three things right. I know I'm repeating this, but the cost of deposit, the growth, and the granularity. Getting it all right is not easy. Getting 3,000 people who always been selling based on we are one of the highest, that's kind of moving away.
I have the September data, I have now the December data. The difference between our retail peak rate and the composite highest peak rate of six biggest banks in India is now down to 60 basis points. We're converging. People are learning. We're getting there, and we're not losing time or growth while we are making this change. Pretty much confident about getting this momentum going. One last thing, I don't know, Mahesh, whether you saw the strategy presentation, which we did for the investor day. We have a pretty good base of neo customers who have come in for us primarily for low-cost forex card purposes. We're finding that cross-selling the savings account and deposit to them is a big opportunity. Half a million customers we have on that base. This is not a traditional self-employed customers.
We are getting the benefit of that also. Slowly, but we are getting it. Each incremental month is a better month in terms of higher savings account balance from these neo customers who are primarily salaried and definitely affluent and high net worth.
Perfect. Second question, sir. On the ground, is the demand for the SME kind of products as robust as what we are seeing in the numbers or is this a little bit unsustainable that one is seeing on the ground recently?
I think for the customer segment that we are in, there clearly is a demand and I can see it from both sides. Us losing our good portfolio customers to competition for a higher exposure or for a lower cost. There clearly is demand there. The frontline, if you see our leads to conversion, we are seeing that there is real competition happening. If you are not able to disburse in time, customers have multiple offers and they are going away and increased login is happening. For example, December logins are very similar to March login. March is usually a special month. We are neck to neck on that as far as the logins are concerned. Conversion still is a bit more conservative, but definitely there is a requirement from multiple regions. It is not region-specific. Across India, I am finding that there is increased demand.
When you speak to DSAs also, you are seeing the same thing happening. In this segment, there is competition.
The problem which is seen is that the growth that one is seeing out there, is it because lenders are more than happy to lend or are borrowers generally wanting to see that credit coming through in their respective companies? That is the direction of the question.
Clearly, I would think it is the latter. It is that there is a requirement. There is a hunger.
Perfect. Okay. Thank you.
Thank you. The next question is from the line of Rohit Arora, an Individual Investor. Please go ahead.
Sir, my question has already been answered.
Thank you very much.
Thank you.
If you have any more questions you can ask.
The next question is from the line of Khushwant Pahwa from KPAC. Please go ahead.
Hi. Congratulations on good set of numbers. Am I audible?
Thank you, Khushwant. You are audible.
I've got two questions. One is more immediate, and one is more strategic. I'll ask the immediate one first.
Right.
I recall in the beginning of the year presentations when we had given this guidance for this year. You had mentioned that we should be achieving an ROE, and I am talking about when we did March 2025 results, that this year we will be targeting what the guidance was closer to 14% ROE. Now, when I look at what we have achieved in nine months, and I annualize it, I mean, nine months start, we are around 9.4% current and if annualize it, we are close to 12.6% ROE. So where do you see closing this year, particularly given the fact that a lot in Q4 is dependent on the fee income. Are we likely to hit our targets for this year or are we likely to fall short?
I want to clarify. The guidance given was 13.5% ROE for 2026, 2027 and 14.5% ROE for 2027, 2028. We have not necessarily given our guidance for this current year. As far as the progress is concerned, growth of 18%-20% and we tend to repeat ourselves. If you see the last three quarters, you would have seen it is a repetition. Every quarter is similar to the previous quarter.
Right.
In our top-line growth as well as in our bottom line growth. But for next year.
The reason?
Sorry, Khushwant, just one more thing. We did not know that there was going to be a wage bill impact. We did not know that there was going to be a but still we still posted whatever the bottom- line that we posted. In the same vein, we are very confident that the 13.5% ROE, which we gave a guidance for in 2026, 2027, we are reasonably confident of achieving it. Similarly for 2027, 2028 as well.
Sure. The reason I asked this was because March is heavy on fee income and given the usual banking business will play out, will play out, driven by growth, driven by improving asset quality and driven by repricing of term deposits. But I wanted to check with you on the confidence you have on the fee income side, given the competition that exists.
Right.
It is becoming increasingly more cutthroat. So any color on that?
I really don't comment on the next quarter, but in general the fee looks kind of robust. There is no and NIM, you heard the story, so every quarter we.
It's now very clear.
Yeah, that benefit coming through. This exceptional expense of INR 26 crore.
INR 26 crore.
Yeah, would look more like INR 1 crore incrementally for quarter. So it's hardly anything.
Understood. On the long-term perspective, we have seen some articles being written around that IRDAI may be considering reducing the commissions that are payable on insurance products. Given that fees is an important part of our annualized P&L, how do you see in long-term impacting us? Do you have any thoughts on this that you would want to share from a vision two to three years perspective? There have been a lot of articles on this and I think some regulatory movement also.
Third-party distribution is a big component of fee structure. What we're doing is that we're using this time to feverishly build the trade finance volume. Some other investor analysts had asked this question about the INR 3 crore -INR 15 crore mid-segment, SME segment that we are entering into. The whole idea is that we have to build a third, fourth string in our fee bow. I believe that TF trade finance is an important component, so we have to build it up. That's an area of opportunity which we have because we do cater primarily to self-employed customers who have a trade finance need.
Many people on this call would have heard it ad nauseam, but for a long time, we have been treating customers as products, giving a fill it, shut it, forget it kind of product when we should be getting into relationship with the self-employed customers and meeting surplus deficit insurance and trade finance need for the customer. That's something which we started about six months back. The progress is painfully slow, but in this job you've got to be extremely patient because nothing happens overnight in retail banking. We are primarily a retail SME-oriented bank. Over a period of time, you'll see the benefit of it happening in about two and a half years, you will see the snowball turning into an avalanche. Or we hope.
All right. Thank you. Thank you so much, and wish you all the very best.
Thank you very much.
Thank you. The next question is from the line of Ravi Purohit from Securities Investment Management. Please go ahead.
Yeah. Hi. Congratulations on all good set of numbers.
Thank you, Ravi.
Most of my questions have been answered. Just one, just wanted to check. We have seen a lot of increase in commodity prices, generally speaking, in the last couple of months. Typically what we have seen is whenever commodity prices see these kind of increases, you have seen working capital across the board go up. Have you witnessed any on-the-ground increased demand on SME, MSME side on credit growth owing to this? Typically, you have credit growth either due to higher CapEx or due to working capital requirements. If you could just share what do you see on the ground on credit uptick because after a long time we have seen our aggregate system-level credit uptick to hitting about 14-odd percent, right? Maybe 14.5. If you can just share something, what do you see on the ground at DCB Bank?
For the SME, the self-employed segment, we are seeing an uptick not in the CCOD but in installment loans. That is where we see the movement happening. In fact, quite contrary to what you are saying, we are in a way struggling on the SME book. As you would have seen, it has been stuck at the INR 2,200 crore level for some time now.
Yeah.
We clearly do not have a working capital problem in that sense of the word, but we do have a working capital problem in the sense that we do not have enough of it. Clearly on the installment lending, there is demand happening. Our business loan portfolio, the kind of login volumes that you are seeing is indicative of a decent demand and the performance of those customers also are reasonably good. Post-pandemic, this is perhaps the best few quarters I have seen in terms of new vintage bouncing.
Okay. Just one thing. Over the last one year, I think you have kind of mentioned at various occasions about our idea to get higher yields or in a sense also higher employee productivity in that sense, right? On mortgages, for example, our ticket sizes on an average, our idea was to increase the average ticket sizes. Second was we were working on this product for merchant ODs where we had said that we were competing with the NBFCs and OD is a very important product. If you could share, I do not know, it not generally gets covered in our presentation, but if you could share on both those counts as to what has been the average ticket size increase that we have seen on the mortgage side and how has the traction been on the merchant OD on the product.
Let me tell the good story first. Clearly, we are seeing an uptick in the mortgage dispersal. It is marginal if you talk it from an average ticket size perspective. Let's say approximately INR 27 lakh going to INR 32 lakh. You may say it's only INR 5 lakh. But that INR 5 lakh actually is a 19% growth.
Right.
Okay? Which is what the bank is growing by, right? 18.5%, 19% is what we are growing by. So we are clearly seeing that the increase in ticket size coming through and that's a tick box for us. The BL to HL has been a tick box. Clearly, that has come through very clearly. We haven't been very successful in the OD part, and we didn't expect to be successful overnight also because what we're doing is we're going back to a term loan customer and then getting into the relationship. And the relationship is not built over a phone call. So these are customers who've been with us for four and a half, five, six years. We haven't had too much of interaction with them. We're just going and restarting the wooing process. Some amount of relationship is happening, so it'll take time.
But when it works, you will get the incremental benefit coming through for a pretty long time. So on merchant OD, on OD of all sorts, it's still in the infancy kind of area. I haven't seen real good progress happening yet. But effort is on and it's only a matter of time, right? We should be able to get the benefit of the work that we are doing. Once the relationship matures, you should be able to get the benefit through. And the benefit is not just OD, it is that the relationship will translate to current accounts which are happening.
Right.
It is translating a bit in trade finance and OD, which you spoke about. And it's happening very well in terms of insurance. So by the time we get the story right, I would tend to think it'll take another 12-18 months before it becomes large enough for it to make a difference to our lives.
Oh, okay.
Effort is still on.
Oh, okay. Great. Thanks a lot, and all the best.
Thank you very much.
Thank you. The next question is from the line of Nitin Aggarwal from Motilal Oswal. Please go ahead.
Hello. Yeah, hi, good evening.
Hi.
Thanks for the opportunity and congrats, Praveen and the entire team for another great quarter.
Thank you very much. I quite like the "another." Very nice to hear that.
It's been a very consistent performance. Pretty happy about that.
Yeah.
Three questions, Praveen. One is about the fee growth. You talked about it and the effort that the bank has taken. But the growth rate that we are seeing in terms of even the sequential growth, YoY growth all looks very strong. How sustainable is this? Can one build a fee growth significantly higher than loan growth in the coming years? How do you look at that fee intentionally?
Nitin, it's a very important question because a lot of people ask me this question. In the beginning, I used to get totally confused with this question. Now I understand the question much better. Our fee growth is less linked to loans. It is more linked to deposits.
Okay.
When earlier people used to ask me, I used to get totally befuddled by the question as to what is the correlation because I don't have experience of another bank. But in our bank the processing fee is a component. But look at where the other fees are coming from. You're getting fee from third-party distribution, which is more liability linked. Trade finance, largely still liability linked. FX income, DCB Remit, foreign remittance, et cetera, liability linked again. Penalties and fees or processing fees is one component. ATM fees, again, liabilities. I'm not too sure for us. We don't even link it to the loan growth.
Okay. But this quarter, the 15% sequential fee growth that we are reporting, how should one look at this in the coming quarters? Because I believe both deposits and advances are, you are guiding to grow around 18%-19% run- rate.
Around that, yes.
So.
We should see the core fee income continue at a similar rate. We will see unless there is some regulatory action happening, which one is not aware of. Unless that is happening, we should be having a fairly consistent growth coming through in terms of core fee income.
Right.
Let me put it this way. Nitin, while we are at 1.1% total income on average assets, 1% is something which at least from a template sense, 1% is what we look at.
Okay.
As the fee income we look at.
Okay. Got it. The other question is around deposits. If I look at the CASA, while CASA I understand like SA has been going down for most banks, but even on the CA front the mix has been shrinking and CA deposits over the years has been very range bound. I understand that the size of the bank and those limitations are there, but any initiatives that we are working on or areas which can help us to improve our CA deposits?
Yeah. So good that you asked this, Nitin. It's an area of inefficiency or opportunity, depending on the way you look at it. My belief is that the lack of CA growth has an impact, of course, on the cost of deposit, but it also robs us an opportunity in a trade fee income and our SME book. So it's all interconnected. We are aware of it. We have put up a very senior resource to drive the current account, and I really don't believe in the big bank, small bank thing. It's about who's more hungry and who's more process-oriented, who's more digital, and who can get things done. Anyway, we're starting from a very low base. So getting current account moving is very critical for us. While the term deposit rebooking related repricing will help us, it is important to add current account to our arsenal.
It has been flatlining for too long, so it's very high on my priority list and my team's priority list. That we haven't got an action going is another matter. But it is real high priority. It is a multiple impact on the bank.
Right. Lastly, on the ROE, now that adjusted for this labor code impact, we have reached 1% ROE. While I understand our guidance is more hinged around ROE, can I take that 1% ROE as now kind of a baseline ROE for the coming quarters? Or do you see any risk to that?
See, since the guidance of 13.5 is given, we would like to stick with the 13.5 guidance for the next year and 14.5 the year after. Let me try and answer your question in a slightly less straightforward manner. We said we'd like to repeat our quarters. That's what we said when the Q2 results came out. At that time, I have absolutely no clue that there's another repo rate cut happening.
We never knew that there was going to be a INR 26 crore-INR 27 crore impact happening because of a labor code. We still repeated ourselves. At that time also people asked, "Now that you're shown this, wouldn't you be able to" So there could be some headwinds of some sort. We don't know which headwinds. Some headwinds will be coming in there. But consistency, the whole predictability, consistency, they're not just terms and words alone, Nitin. We really want to live by it.
Right.
Is there an opportunity? Perhaps there's an opportunity, but is there some You never know. It's okay to be a bit conservative in terms of estimation because the promises that or the guidance that you gave is sacrosanct, and unless something really dramatic happen, we don't want to renege on that. We don't want to go back on that.
Got it.
I will still go by 13.5% and 14.5% for the next year and the year after.
Right. I got it. That is very clear. Thanks, Praveen. Thank you so much. I wish you all the best.
My pleasure. Thank you very much.
Thank you. Participants who wish to ask a question may press star and one. The next question is from the line of Varun Bang from Bandhan Life. Please go ahead.
Yeah. Thanks for the opportunity and it is heartening to see-
Hi, Varun.
Hi. Heartening to see the continuous steady performance. One question on Praveen. Could you outline the current share of DSA sourcing in the mortgages segment? And how do you see that evolving over medium- term? And in terms of investments, what investments are needed to build a scalable direct sourcing front end and the way we are looking at building it? And is there execution risk in this? Can you share some thoughts?
We had a 18% - 20% + mortgage book, and we are growing mortgage by 20% in the last year. This year we are growing by 12.4% so far. What is happening is, while the bank is growing at somewhere between 18% - 20% on our assets, we are changing the wheels of a moving train, so to speak. We have already invested, reworked the strategy. There were three big movements which happened in mortgages. I am using past tense because it is already done. Now we are seeing the benefits in some sense coming through. The first change we made was the reorientation of BL and HL. The second was to increase the ticket size. The third was to move from, not entirely, change the skew of DSA-originated loans to own originated loans. Most of you have connects with DSA. You can check it out in the market also.
You will get to know that the sourcing, the contribution to DCB Bank has come down. With any national DSA, you can check it out. You will get to know that. We have already done what it takes. It is almost nine months now, and we are seeing the benefit of that coming through. What we have seen is a lower cost. What we have not seen is the longevity. We have seen that the non-DSA sourced accounts stay with you for far longer than DSA sourced accounts. In some cases, you do not even recover the cost of valuation and the legal and account fulfillment by the time the customer forecloses and goes away. With a zero foreclosure charges, in many cases, there is hardly any recovery possible. From a long-term perspective, this is the way to go. Do we reveal the DSA and organic?
No, we do not do that. It is not limited to mortgage alone. Even in the other products where DSAs are involved, while keeping the relationship going, we are trying to lessen the skew towards the DSAs.
Got it. On the co-lending, we have seen a very strong growth in co-lending. Is it largely led by gold loans? Are we expecting some regulatory hurdles in co-lending model? What is your expectation now?
We were 16.22% of the book in co-lending in Q2.
Right.
We have come down to 16%. I publicly said that our co-lending book as of March 31st will be 15% or lesser of the total asset book. We are comfortable with 15%. There are multiple originators we work with. Of course, we are aware that from January 1 onwards, we have had this new CLM 1, new rules of co-lending coming into play. We see that this will continue from a growth perspective. Our co-lending book will grow from 26, 27 onwards at the same rate as our total book. While we grew 108% last year, currently we are at about 60%, 65%. Next year onwards, if the bank is growing by 18%, we will grow by 18% on the co-lending. If we grow by 20%, we will be growing co-lending also by 20%. That is the way we foresee this.
To the question whether it is largely gold loan, yes, it is largely gold loan. Multiple players but largely gold loan-based.
Got it. Thanks.
Thank you. Ladies and gentlemen, that will be our last question for today, which is from the line of Dixit Doshi from White stone Financial Advisors. Please go ahead.
Hi, Dixit.
Yeah. Thanks for the opportunity and congrats for a good set of numbers.
Thank you.
You have been focusing on improving the efficiency of the people we have. If we see in last nine months, we have opened five branches. Going forward, do you see that this kind of 18%, 19% growth will require new branch or still there is a lot of scope for improving the efficiency?
I think it is both. I do not know whether we will ever stop improving the efficiency. That is a continuous thing. No way. I mean, there is no finish line there. I mean, for us, improving efficiency, going digital, war on paper, these are not epithets or slogans. These are real thing. We live and die by it. So it will continue. There are no two ways about it. Having said that, if you see Q2 to Q3, there has been a slight increase in the number of people. While it is still lesser than the number of people we had a year back or in March, a slight improvement has happened. So we will increase it. There will be more investment in people coming in. We will be increasing our branches. Next year, we should be touching the 500 branches mark. So that most likely will happen.
But increasingly, it is not one or the other, it is both. A large proportion of our benefits will come from efficiency improvement, from increased digitization. That does not mean that we will not increase the number of people. We are still people-dependent in terms of our growth, specifically assets. So there will be more branches put in and more people put in. The game changer could be if something like a Unified Lending Interface happens, where digitization of the land records happen across India, and then you could see a different type of game coming into play. So we are involved in it. Let us see how that emerges. If ULI is anything like ULI, we have a very interesting time ahead.
Okay. Yeah, that is it from my side. I think pre-COVID, we have doubled our branches, and even before getting the benefit of that, we were hit by the COVID. I think now the real benefit is visible in the numbers, so congratulations for that, and all the best for the future.
Thank you, Dixit.
Thank you. Ladies and gentlemen, as this was the last question for today, I now hand the conference over to management for closing comments.
Thank you very much for your patience, and hope to interact with you at the end of March or after the March results are declared. In the meantime, let's go back to the grind and ensure that we continue to be predictable and consistent and boring. Thank you very much.
Thank you. On behalf of DCB Bank, that concludes this conference. Thank you for joining us and you may now disconnect your lines.