Ladies and gentlemen, good day and welcome to the DCB Bank Q2 FY 2026 earnings conference call. We have with us from the management, 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, Managing Director and CEO, for the opening remarks. Thank you, and over to you, sir.
I am happy to announce the quarter two financial results. The key highlights include total deposits, which has grown by 18.79% YoY to INR 64,777 crores. The total advances have also grown by 19.14% YoY to INR 52,975 crores. This signifies a consecutive five-quarter pattern of high growth in line with our stated strategy. Post the repo cuts, one of the questions I have been constantly asked is how our NIM would stack up, and I am happy to inform you that our total interest income YoY has increased by 16.22%, while in comparison, our total interest expense has increased YoY by only 15.79%. The management action implemented has ensured that our growth has come with a cost-of-deposit decrease from 7.12% - 6.96% between Q1 and Q2. That is a 16 basis points decrease in cost of deposit. It softened the impact of our rate cut to a much better degree than what was anticipated earlier.
For the similar period, the cost of fund also decreased by 17 basis points. We have reduced our higher cost of borrowing and also our lower cost investments are further leading to the better margins. That is also the reason why our balance sheet growth is marginally lesser than the assets and deposits growth. All these actions, in addition to a strong showing in credit cost, have ensured that our NIM has increased from 3.2% in June to 3.23% in September quarter. Our fee momentum continues to be strong despite the tailwind of treasury gains reducing. A strong display in third-party distribution and trade is helping our core fee income growth. It gives me pleasure to inform you that the tightening that you see is not limited to the cost of deposit or to the cost of borrowing alone, but is percolating across the bank.
There is a higher ask on productivity, a greater focus on technology, both of which resulting in better cost control. One year back to the day when the Q2 results of last year was announced, I made an assurance that the number of employees that we have would come down not only for that financial year, but also for the year ahead. I also announced that the cost to average assets will come down. We have grown our advances and deposits by about 19% YoY, despite having 1,118 employees less than what we had a year back. That is a 9% reduction of the employee base while growing 19% on our advances and deposits. Suffice to say, the advances and deposits still continue to maintain a structure. Our top 20 has not altered. Our greater than INR 3 crore loans have not altered.
The net output is that the cost to average assets is now at 2.43%, lower by 32 basis points over the same quarter last year. This is the fifth consecutive quarter of lower cost to average assets. Another comment I made at that time, this time not a year back, but when the last quarter results were announced, was that I do not expect the overall credit cost for the year to cross the 45 basis points mark. I am very proud to say that the team has delivered a credit cost of 31 basis points for this quarter, and if we were to look at both the quarters combined, the credit cost for the half year is about 45 basis points. We continue to make optimal use of our capital. Our Tier 1 capital, including the profit for the period, has increased.
Yes, increased for the second consecutive quarter despite the 18%, 19% growth to 14.85%. Another query that we used to get on many of these calls and many of our interactions is that of promoter stake increase. We would like to inform you that as committed, the promoter capital has been received post the RBI approval, but it happened post September 30th, and as of October 10th, it is at 15.27%, including the profits for the year. Finally, the bottom line is that our profit after tax for the quarter has grown to INR 184 crores. The highest ever quarterly profit in the history of our bank. We sign off the quarter with the highest ever EPS of 5.84 and a book value of INR 180.41. This is without including the promoter capital, which came post the results.
Our ROE for the half year at 12.39 is the highest first half ROE for our bank in this decade. With this, I thank you for your patient listening, and I will open the floor for your comments, observations, queries, and clarifications. Operator?
Thank you. Yes, thank you very much. Our first question comes from the line of Akshat Agarwal from SMIFS Institutional Research. Please go ahead.
Good evening, sir. Thank you for the opportunity and congrats on delivering a very strong set of numbers.
Hi, Akshat. How are you?
All good, sir. Thank you. My first question is on asset quality. We saw a very benign credit cost this quarter with just 31 basis points. Do we expect this to continue? Secondly, sir, on fees, if you could provide more color on the increase in fee income and sustainability of fee drivers.
Yeah. Our credit cost for a year, for a full year, I am reasonably confident that we will not cross 45 basis points. The model seems to suggest 45 basis points- 55 basis points generally, but we are very confident that we will be below 45 basis points. The second question on the fee income. Q1 had the benefit of treasury fee income, exceptional treasury fee income. Q2 did not. Our core fee income at INR 158 crore is coming on with a strong showing in third-party distribution, trade finance, cards. These are contributing reasonably heavily and our belief, our management conviction on this is that we have enough repeatable core fee income, which offsets the one-off that we got on treasury in Q1, and that's demonstrated in Q2 and probably you'll see that in Q3 and Q4 as we go along.
Thank you, sir. My next question is on margins. Have NIMs turned around finally, and what kind of expansion do we expect going forward? How much repricing of deposits is already complete and how much is qualitatively left for next quarter? What led to CASA ratio expansion this quarter, as in, has it finally turned around?
Okay. We will go one by one on this. On the NIM, has it turned the corner? I think we have turned the corner unless there is more rate cuts coming up. Okay. How much of expansion can it happen? I will just give you two parameters to think about, and you can extrapolate from there on. 13 basis points reduction in yield of the stock and 17 basis points reduction in cost of deposits. That gives you an indication as to what can come. Also remember this, the pass-on is instantaneous, but the benefit on cost of deposit is complete only when the cycle, the duration of the term deposit, gets over.
Right.
The third question. Typically, 13-14 months is the average duration, maybe even 15. You can use that as an assumption to kind of extrapolate till when you will get the cost of fund benefit going through.
Very well, sir. Just if I could squeeze in one more question. Can we understand drivers of loan growth going forward? While headline growth is very strong, it seems to be driven by co-lending with mortgage being very weak and SME is negative. MFI seems to have increased QoQ. That was my question, sir. Thank you.
Yeah. Going forward, at the end of this year, our co-lending book will be less than 15% of the overall growth. As far as overall growth is concerned, there is reason to believe that over the next three years, three and a half years, we will be doubling our book. So you have seen the growth happening over the last five, six quarters. I would tend to think that in a similar kind of fashion, the growth would continue. If you look at the mortgage pie chart, it is 54% of the book a year before. Even a year before that, even now it is 52% of the book, and will continue to be in that range going forward.
Thanks a lot, sir, for answering my questions, and congrats again.
Not at all. Thank you very much.
Thank you. Our next question comes from the line of Mona Khetan from Dolat Capital. Please go ahead.
Hi, good evening, and congratulations on a good quarter.
Hi, Mona. Thank you very much.
Hi. My first question is on the OpEx bit. You have been guiding for a 2.5%-2.6% kind of OpEx to assets. We are already below that. From a quarterly perspective, of course, could this kind of improvement sustain or further improve? What is the broader thought process here?
Probably, we will settle around the 2.4, 2.42 mark. The reason I am saying that is that the number of employees that we have have dropped down to 10,700 odd. We still are in line to open about 20 more branches, so we will have more people coming in on the deposit side. We will also be increasing our staffing on a few products like the INR 3 crore-INR 10 crore secured SME business, educational institution finance. These are critical elements where we are putting resources behind that. The number of people which we will have at the end of the year will be slightly higher than what we have today. So you will find a slight increase in the total cost, of course, offset by the balance sheet size also over the next two quarters.
I would think that we should be somewhere around 242, 243; we should be stabilizing there.
Okay. The similar level of cost status could continue what we have in this quarter.
It should.
Secondly, if I read it right from your previous comments, is it fair to say that margins have bottomed unless assuming that there are no further rate cuts?
Yeah. If further rate cuts are not happening, then you will see NIM expanding, yeah.
Okay. Again, on the direct assignments book, just wanted to get a sense, how big is this portfolio out of this INR 53,000 kind of loan book in your case? How big is the direct assignment book?
Single-digit percentage. I don't think we reveal it, but it's a single-digit percentage.
Okay. And this includes products across the board, including secured, unsecured, and-.
Correct.
Across products within that.
Absolutely correct.
Okay. And just finally, on the ECL circular, if you could just give us some thought as to what will be the impact for DCB Bank, and also, in case you could share the SME 1 and 2 books in your case so that we get some better sense of how the ECL provisions could play out.
Right now we are evaluating it. We do a retro calculation of this to see how things are. At an approximate basis, I think it will not cause a ripple in our bank. As for the SMA 1, 2, we don't reveal it now, but, yeah, there is a possibility that we may even be putting it forth. If slippage ratios can be given and the NPA recovery upgrade is also given, then, yeah, maybe we can look at that.
So I am basically assuming the draft circular comes in the current form, draft circular is executed the way it is, you do not anticipate much impact on additional provisions in your case?
Very unlikely. Not material.
Okay. Thanks, and all the best.
Not at all. Thank you.
Thank you. Our next question comes from the line of M.B. Mahesh from Kotak Securities. Please go ahead.
Praveen, good evening.
Hi, Mahesh.
Congratulations. Hi there.
Thank you.
Just two questions from my side. On disbursements, there is some slowdown that we see in the mortgages side.
Right.
Just some color on that.
Yeah. So see, it's a culmination of what I've been speaking for the last a year and a half or so. What we have done in mortgages, and thankfully we did that in mortgages, is that we increased the ticket size. We moved up the ladder on the ticket size, number one. Number two is that we have not compromised on the yield. So we have tightened up the yield considerably. Also the product mix. When we spoke like Q1 and Q2 of last year, we were running at a 50/50 HL, BL kind of ratio. Now we moved to 65, 35 in terms of fresh sourcing of mortgages. Obviously, LAP has a far higher yield than home loans. So that has resulted in the volume being lowering, but it has significantly helped us get higher profitability going in.
Fourth element was that in expenses, a large amount of our mortgage sourcing was coming from the DSA. We really, really ramped it up, tightened it. We tightened multiple things. One of the things that we tightened up on cost is the depreciation. It is a payout to DSAs, and that has resulted in a lower volume. In my opinion, that is a good thing to do because from a long-term perspective, it is important to have operational efficiency coming in and own sourcing capability coming in. So in a nutshell, higher LAP as compared to home loans, more organic sourcing, higher demand on productivity, and better yield. These four things have contributed to slightly lower volumes, and I am sure the volumes will pick up as we increase our front-end FOS. This is not a theme only for mortgages, Mahesh. Across the bank, we are leaving less on the table.
We are leaving less on the table on cost of deposits. For every stakeholder, we are renegotiating things. There is a tightening across.
Mahesh, your line is again unmuted. Please go ahead.
Sorry, I think I got briefly disconnected, sir. The second question was on the margins, which you kind of alluded to, it will start improving. From the cost of deposits side, how much more leeway do you have in terms of it reducing? How fast do you anticipate that you can get to now to closer to 3.5 in terms of timeline?
Mahesh, you will have to do the extrapolation. I will give you the ingredients. Average duration of a term deposit in a bank is about 14-15 months, okay? You can start from April onwards. Our cost of deposit has gone down by 16 basis points, 17 basis points. Cost of funds have gone down by 17 and cost of deposit by 16 basis points. That is one quarter. You know what a CASA ratio is, 23-odd percent. The rest is term deposit. It comes up for maturity, and then on renewal, you do get the benefit coming through. The bank is betting reasonably well on the renewals for the next three, maybe four quarters more. You can guesstimate how much can come from NIM on that front.
But one question, sir. Is the pricing pressure on the asset side more than what you are anticipating or how are you seeing on the asset side?
Are you asking me whether there is going to be more yield pressure coming in the asset side? Is that the question? Sorry.
Either you talk from a sales perspective or from a downward pricing perspective.
I will tell you how the math works. On the new sourcing, there is very little impact. The new sourcing continues at a similar level. The rate cut impact is hardly there. But on stock portfolio, which used to be a hybrid every month, some portion of that hybrid, which is partly fixed, becoming floating at the end of two years or three years. Every month, some portion of that from what we sourced two years back, three years back will come into the floating point. And at the time of the floating, we will have a reduction of rates. To that degree, there will be every month some sort of reduction in the yield. But on fresh sourcing, very low impact.
Perfect. Thank you.
All right.
Thank you. Our next question comes from the line of Rohan Jitendra Mandora from Equirus Securities. Please go ahead.
Yeah. Good evening, sir. Thanks for the opportunity.
How are you?
Yeah, good, sir. How are you?
Very good.
Sir, on the NIMs question, because of this hybrid portfolio, would it be fair to assume that the improvement of NIMs that we will see over the next three, four quarters, assuming there is no rate cut, would be lower than some of the other banks which are having good portion of external benchmark-linked portfolios?
You have seen the quarter two of our bank. I have not seen the quarter two of other banks. You compare our reduction with other banks' reduction and extrapolate.
Also the next quarter.
Wait for Q3 to come in and see what our performance is, then you compare with other banks.
Right. Because this quarter, for them, the transmission was there of the repo.
For us also.
A good part of the tax time was there.
Every bank. For us also it is there. There are two ways of doing it. You look at the Q2 results of us versus others. Look at our Q3 results, compare with our Q2, or compare our Q3 results with their Q3 results. You will get the answer.
Okay. But sir, is it possible for you to give a broad indication of how much is this hybrid portfolio?
We are extremely confident. I cannot talk about others, but we know exactly what is going to happen next quarter and the quarter after that.
Sure, sir. Any quantification that can be done on the hybrid portfolio? Broad range or ballpark range?
You have to compute what the monthly volume of loans a year back. We have been giving dispersal volume by product in our investor presentation. You go back to two-year-old investor presentation, you will get a sense of how much was there. Then assuming that those customers stay with us and some do not, they close and go, it will give you an indication of how much will come every year or every month.
Got it.
You understand? There is a disbursement by product that we give in investor presentation. Right?
Got it.
Some will be two years, some will be three years, but we give an indication.
Sure.
But what you need to know is that the play that you have on the renewal of term deposit is much higher than whatever asset which will come from fixed to floating in any given month.
Got it.
For no other reason other than look at the liability base. Liability base is at some INR 64,777, whereas the asset base is INR 52,000 odd.
Right.
Even assume that all the one by twelves of all come in, the save that you have on one is higher than the save you have on the other, the spend on the other.
Got it. Okay. And sir, same is on this draft norms on the risk weight which has come out. Since we have high mortgage book, we would have, I think, a reasonably good benefit on the release of capital. Any estimates there?
Yeah, we should have, but that is not what we are looking at. Let us look at what has happened over the last one year. Between Q2 of last year and Q2 of this year, DCB Bank has grown its advances by 19 odd percent, 19.14%. Our Tier 1 capital, including profits, without including new capital that is coming, promoter capital coming, has increased. That is the kind of control you are keeping on capital. Whatever comes through risk-weighted asset benefit is a benefit. That is okay. But the model is so tight. We run a very tight ship on this.
Got it. And sir, during this call you indicate that you are adding your resources in INR 3 crore-INR 10 crore secured SME business.
That is right.
Is this a segment where we are going to incrementally focus aggressively, or how should one look at your presence in this space?
You see, just like educational finance, you built it up over a period of time. This also we'll build it up. It's a part of our strategy to go slightly higher ticket size, keeping in mind the secured nature of it. As a bank, what you're looking forward is to go away from single product sales to all product, all financial solutions providing institution. That's the challenge. One of the activity we are doing on the 3- 10 is to capture the cash flow of the customer entirely. We're doing similar kind of things on our existing mortgage book. We're trying to get their CASA accounts, their insurance, their trade finance needs, et cetera. So it'll take time before you see the results of it happening. This is like a cost to average asset which I spoke to you one year back.
You haven't seen the benefit of it, but maybe a year and a half down the line, you'll see the benefit of that happening where we want to be the full banking provider for the customers that we currently have. And 3- 10 we think fits in very well with that strategy. Trade finance, surplus in our CASA accounts, getting the customer to transact with us. That's the way we want the entire set of customer base to be in an ideal world. Today, most of our mortgage customers do not transact with us. Their operating accounts are with somebody else. They take insurance from somebody else. They do the trade finance from somebody else.
What we're doing right now, which is not visible in the outside world, we are really working hard to ensure that we are a single source, all financial solution provider for our existing customers. So this fits in very well with that concept.
Sure, sir. Thanks a lot.
Thank you. Our next question comes from the line of Nitin Aggarwal from Motilal Oswal. Please go ahead.
Yeah. Hi, Praveen. Congrats on a very good quarter.
Hi, Nitin.
Hi. Congrats on a very good quarter.
Thank you very much. Very generous.
Absolutely. Very strong performance. I have few questions, like one is on the operating leverage that you talked about that DCB Bank has been exerting a very tight control and utilizing the existing infrastructure. Any sense as to how long we can continue to pursue growth before we start increasing headcount branches, and where should the cost ratios be in a year from now?
Ideally, we want to increase that. 10,700 is a good enough base. We don't want to go any way lower than this. We want to increase it. This increase will come with increased volume. Just look at this. About INR 600 crore of IBPC is still there. It's not accounted for in that sense of the word, right?
Yep.
You can see that page number 21, maybe. That is there. There is an asset opportunity, there is a liability opportunity coming in there. It is already there. If you were to look at it, we still are a people-dependent business. Much as I do not want to add the people, the reality is it is still an FOS-driven company. We will need it. We are building it up. Overall cost will increase, but the bet that we are taking is that the denominator will grow at a faster pace than the top line or at least in a stable base. We are very comfortable being under 2.5 and definitely comfortable at below 2.45 as the year goes by.
Okay. Second is on the ROA. Now we are in the striking distance of 1% ROA with upcoming margin expansion and these cost efficiencies further improving. Will you like to talk about as to what kind of medium-term ROA that the bank can deliver in FY 2027 and beyond? What is the aspiration that you have?
I think we should close the financial year 2026-2027 with an ROE of 13.5% and close the financial year 2027-2028 with an ROE of 14.5%.
And- [crosstalk].
And if there is capital coming in between, that will be adjusted for the capital.
Right. And ROA, as in what kind of number you are looking at over these two years?
Even, we can reverse calculate that. Why I am talking about ROE is that is what we would like to go in for. And I will tell you where it is coming from, more importantly. We have done so much work over the last year and a half, two years, and now we have the confidence that the effort that we are putting is really translating into results. I know there are external issues can happen, things we do not know can come from behind the corner. But from what we know, I think there is a reasonably good chance that we will be at 13.5% ROE for the coming year, coming full financial year, and 14.5% the year after.
Okay. Sure. And lastly, just a small clarification on the Tier 1 number. How much did you say after this promoter infusion what the new Tier 1 number is? Ratio?
It is number 40, and it is in very small font, but I will just read it for you. Page number 40. It is post-issuance promoter shareholding as on October 10, 2025, stands at 16.27. That is the promoter contribution. On Tier 1 we are at 14.85 without the capital, and with the capital, add another 21 basis points, so 15.06.
Okay. So very comfortable position.
Right. You have seen that happen time over time. Our RWA is now under 49, maybe even under 48 also possibly. So there is enough gain. That will increase because we will bring the co-lending book, which is primarily gold, below 15% or at 15%. So there will be more usage of capital in Q4.
Okay. Sure. Okay, Praveen Kutty, thanks so much. I wish you all the best.
Thank you very much.
Thank you. Our next question comes from the line of Jai Mundhra from ICICI Securities. Please go ahead.
Yeah. Hi. Good evening, sir. Thanks for the opportunity.
Hey, how are you doing? Long time, Jai.
All good, sir. All good. Very well.
Very good.
Sir, on SME book, it looks like this book has been de-growing or at least has de-grown this quarter on both YoY and QoQ basis. We, of course, had this aspiration of providing the check-in account of CC facilities to gain market share here. What is happening, sir? Is this a bit of a worry on the tariff-related thing or what is leading to subdued outcomes here?
It is a very simple answer. We did not have a good experience in Q1 and the previous Q4 on our unsecured experiments. In Q4 and Q1. Because of that, we cut down on TReDs. Primarily DA was a problem, unsecured co-lending was a problem. But since we saw that happening, we have cut down on TReDs significantly. What you see here in SME book is the OD/CC book as well as the TReDs book. That TReDs book has come down as a part of our action only. Let me put it the other way around. The bank has declared war on high-cost borrowing and low-cost assets. I am taking this conversation slightly away from the question you asked, but I will come back to it.
Have a look at our cash, have a look at our interbank balances, have a look at assets, have a look at borrowing. There is significant reduction happening. We have been tightening. For every stakeholder, we are tightening the bank. For the depositor, it is going to be less easy increasing the yield, lowering the cost of deposit, renegotiating with all types of AMCs and various vendors, running a tight ship both on credit and capital. On SME book, we decided we are not going to be vain on top line. It is okay. For us, the asset has to sweat. It is okay to give up on TReDs, lower it. On the second question, coming back to your direct question, how are we progressing on the multiple product strategy? We have something called a no to singles.
We do not want a single customer in our bank who has got only a single product. That campaign is started. Are we happy with the progress that we have made? Not really, but it is going in the right direction. These things take time. You have to nurture it and let it happen, let it grow. You will see the result of it, I think, only in about two to three years' time. But that does not mean that we will not focus on it. It is a very important initiative for us. We will drive that. It is not just about SME loans and OD and CC. It is about making mortgage customer transact with us, getting their current account with us, and then the whole world opens up of using them for trade, using them for the deficit need, using it for the surplus needs.
That story very much is center plate for us.
Right. Sure. Sir, on this ECL, while I agree that you are very comfortably placed, but I wanted to check, sir. We have a specific PCR, which is around 60%, while the LGD for our bank has been much lower given the secured nature of NPA. Do you sense a need to increase the PCR from current levels by the time we transition to ECL, or you believe the 60% PCR is reasonably good even if we were to move to ECL?
Jai, I will tell you what is my single biggest priority as far as portfolio quality is concerned. It is neither GNPA nor PCR. It is slippage ratio. I will fix the slippage ratio. It is unnecessary waste of time. You do not collect one EMI when you can collect one, and then you go ahead and collect four EMIs when the customer becomes NPA. It is a complete waste of time. It is just an increase of the OpEx cost. It shows wrong lead indicators while it does not impact the credit cost. I want to fix that slippage ratio, that is my number one priority. Otherwise, we are very comfortable at 45 basis points of credit cost. That is really not the issue. Why slippage and recoveries are a problem is that it just increases the OpEx, right?
I do not know if you saw this, but 81% is your recovery as a percentage of your slippage. Right? Why would not we do that upfront? It begs a question. That is the real priority. Fix that in the front and as far as the sourcing metric is concerned, template is concerned, underwriting is concerned, frankly, no issues. This is a decent business with good LGDs.
Sir, on slippages part, while this quarter slippage is, let us say, is around 3% annualized.
3.17.
Is this number a good 3.17? Is that number a decent number? I mean, considering the business model, how should be the gross slippages? In the rough range.
We want to make it somewhere below 2%.
Okay.
Okay, 2.5% is it without the gold. We would like that 2.5% to come down to 2%.
All right.
Yeah.
Okay. This 60% PCR, sorry, because we would have to make a transition, right? Because this PCR on existing stage 2, stage 3 loans would have a bearing on the net worth adjustment, and maybe the ROA that you make over the next seven, eight quarters. Would this 60% number suffice or you need to increase it to 70%, 75% as per the system level? System is around 75%. I was checking on that point also.
See, essentially, if your business model is built on unsecured loans, which has a higher loss given default, you will have to. Just look at where our NPAs are stacked up. You got the product wise NPAs. You see where the growth is coming in from. INR 23 crore growth in AIB is the highest, and that is partly driven or rather significantly driven by the MFI book which they have. The BC MFI book that they have in AIB. That is where the issue is coming in. Other are all secured assets where there is marginal growth coming through. So we are very comfortable with the kind of loss given default we have in our system. I do not expect it to be anything more than that.
If anything, the new model will suggest a slightly lower than the current provision that we take, but obviously it will be the higher of the two. So one does not see too much a change happening there. The real story, the real need to address is to ensure that the focus that we have on the later buckets is brought right up front so that OpEx comes down. It is not about credit cost, at least in my opinion, for the products that we have.
Okay. Sure. And sir, last quarter, we had some higher, let us say, higher slippages in unsecured DA and small ticket LAP. This quarter, of course, the gross slippages have improved sharply. But is there any seasonality element also or you believe that whatever issue we had in unsecured DA and small ticket LAP is clearly behind in terms of gross slippages also?
See, in retail banking, nothing gets over in a quarter. So there is always a long tail. So this quarter is better than the previous quarter, but the next quarter will be better than this quarter. So it goes on like that. It does not stop. Right? So we have that. It is not a great book. It is not a book that we are very proud of. But the impact of that book is decreasing as we go along. So is with the MFI. The MFI Fresh NPAs are progressively getting smaller and smaller.
The same is the case with unsecured DA and small ticket.
Same.
That book is improving.
Yeah.
Sure. Lastly, sir, the co-lending share as a percentage of overall is still around 16%. How should one look at, let's say, as you end FY 2026 and maybe beyond? Thank you.
The way to look at this, it's currently 16.22%. You add INR 1,575 crore of IBPC to the bottom line. 16.22% will automatically look like 15.75%, and that 75 basis points reduction will happen in quarter four because of the following reasons. One, new technology will come into play. There will be blended rate on co-lending which will happen, and there will be a handshake timeframe where things may not flow at the same seamlessness as current. I'm just imagining this. If that is the way it is, then you will find the lower volume coming through automatically. Otherwise, what we'll do is we will ensure that the incremental book remains at the 15% level of what we think the March 31st advances book is going to be.
In Q4, you will find changes happening. Blended rate is one, CLM technology interface is the other. All these things will come in and usually when these kind of new rules come in, you will find some bit of hiccups coming in. In that sense, you could say that we have upfront it, kept some fat, and then we will be releasing it as we go into Q4. If it doesn't happen, great. If it's seamless and continues to happen the way it is, great. Instead of stopping it in March, we'll stop it in February and keep it to that particular level.
Sure. That explains it all. Thank you. Thanks very much.
Not at all.
Thank you. Our next question comes from the line of Aditya from Securities Investment Management. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity.
Hi, Aditya.
Just a clarification. Yeah. Hi, sir.
Sure.
Sir, just one clarification, sir. Was there any run-offs in NII like IT demands or interest reversals or anything of that sort?
Sorry, run-off in? Not in.
One-off.
Oh, one-off. Nothing which is worth materially speaking about. No.
Okay. Sir, secondly, one metric which we used to track was the deposit rate of DCB Bank as compared to other banks. So that gap used to be pretty high. Now with the recent cutting term deposit rates, has that gap been maintained or we have tried to lower that gap?
We have a number in mind in terms of cost of deposit and cost of borrowing. We have tasked the team to the growth rate that we want based on the targeted cost of deposit, and the team is reacting very well, as you can see with the results. Right? So partly it has been achieved through reduction in the savings account rates, which has got an instantaneous benefit coming in. But that petered out in Q1 because there is only a limit to which you can cut it. In Q2, most of what you see has come from reduction in term deposit on the renewal of deposits and also on the new deposit, it is coming at a lower rate. CDs which mature and are getting new CDs which are coming in are coming at a lower rate.
Borrowing, we reduced a lot of borrowing, and incremental borrowing, which has been taken, has come at a lower rate. It is a combination of multiple factors, which you are seeing in both cost of deposit play as well as cost of fund play. What I can tell you is cost of deposit play will continue into the coming quarters because as a bank, our sweet spot on deposits is more than one year. For every month of renewal which comes in at least for the next 9-12 months, we should be able to see some benefit of cost of deposit coming through, if you are able to retain the customer.
Wonderful. Sir, just to go further from a strategic standpoint, most banks have taken rate cuts of 80 basis-100 basis in the term deposits. Would you say that we would try to match that sort of rate cuts, or is it an opportunity for us to increase the rate cuts like 110 basis or 120 basis? Do you think there is an opportunity for us, or it is only possible because it would affect our deposit growth going forward?
I think what we are attempting to do in the bank, and I am seeing the success of it coming, is to bring in a culture of growth with the constraint of cost. Okay? I genuinely believe with the hindsight of Q1 and Q2 that we were giving more than what we need to give for the kind of growth that we need to get. That is true for cost of deposit. That is also true for other operating cost. From a cultural perspective, the bank is tightening its belt. You are beginning to see the results of that happening in cost of deposits. You are seeing that in cost of funds, and we have been seeing it in cost of operating the bank cost to average assets. You see that five continuous quarters of one way, one direction movement. It is a cultural thing that we are attempting to build.
As a bank, I think if our bank has to be reckoned with, we have to find the ability to find low-cost liabilities. It is time to demonstrate that. That will have, over a period of time, salutary effect on not only the asset growth, but also on the asset quality. So cost of deposit is something which we are focused upon. It does not mean that it is mutually exclusive. Lower cost of deposit does not necessarily mean lower growth. That is a challenge and our team is bearing the challenge very well.
Thanks for that. Sir, let's talk about co-lending. In our earlier commentary, co-lending book used to be majorly gold loan dominated. Would it be fair to say that it would still be the case now as well? If you could just give a rough indication of the share of gold loans in our co-lending book.
Very high. Upwards of 90.
Understood. Got it. Lastly, now if I look at the core fee income growth, which earlier used to be equal to or higher than our advances growth, but now it has been trending below advances growth for the last two quarters, with Q2 we seeing a 14% growth as against advance growth of 19%. How should we look at this core fee income growth going forward? Should it mirror advances growth or it would be below our advances growth?
The better way of looking at it would be look at core fee growth histogram. Okay? Just see the way the bars are stacking up on core fee income. The INR 158 crore, which we achieved in September 30th, is the second-best in the last five quarters. That's page number-.
33.
Page number 33. Right? Do you see that?
Yes, sir.
Yeah. As we look at quarter by quarter, if I can see that kind of improvement happening, we are very comfortable with it. I will just read out to you 139, 141, 161, 134, 158. And 158 is not too far from 161 anyways. And March is traditionally a very good quarter for most banks. And in September, if we can touch 158, then that is the way you have to look at it. I would not correlate non-interest income with asset growth because substantial chunk of our core fee income comes from third-party distribution, trade fee income, card fees, and of course, processing fee for loans also. Just to pick up one part of the balance sheet and check it may not be the right indicator. What would be the right indicator is look at the core fee income by itself and see how that is progressing.
Understood. Sir, one of the themes which you had earlier mentioned was that fee income growth should be higher than our advances growth going forward. It was one area where the bank was lower indexed as compared to other banks. So ideally, if we have to improve the fee income as a percentage of assets, the fee income growth should be higher than our loan growth. That was the whole point of asking the question.
Yeah. What I want to clarify is, a significant portion of our fee is coming not from assets. It is coming from branch banking. It is coming from third-party distribution. It is coming from branch banking, Forex. It is coming from our cards which is DCB Bank Niyo card, is being used in multiple countries abroad. That nothing to do with assets. That is where the core fee income is coming in. What we are looking at is if we keep increasing the core fee income the way we are increasing it currently, it will help us meet the guidance that we set for ourselves for the next year and the year after.
Sure, sir. Thanks for answering my questions.
Not at all.
Thank you. Our next question comes from the line of Sanjay from Bastion Research. Please go ahead.
Hi, sir. Thank you for the opportunity.
Hi, Sanjay.
Hi, sir. Sir, just wanted to know our cost to average asset has been going down while in terms of when we look at cost to income ratio, that is not the case. How should one look at that metric? Because in the past we have guided that it would be also slowing down as well. How should one-
Let's take this forward. Let's take this cost equation forward. I would request you to look at the cost-to-income ratio in Q1. It is not there in this investor presentation, but in a laptop it should be there. It is about 67.8, in Q1 of last year. That 67.8 has come down to 59.97 in Q1.
Right.
Now let's look at the September quarter. It was 64.23. It has come down to 61. If you're shaving 700 basis points in one quarter, shaving off another 300 basis points in the next quarter. We're very happy with that kind of shaving off.
Okay. Understood, sir. My next question would be, we are saying in the last quarter only that we will be targeting INR 3 crore-INR 10 crore SME segment. Just wanted to understand how are we progressing there? What are our strategy on that side? If you can guide on medium-term, what is the percentage of loan book we are targeting on that side? If you can share some things on that side from a longer term perspective. I'm not asking from a quarter-on-quarter perspective.
I don't know. Maybe first year we'll lose some INR 200 crore-INR 300 crore. We just test it, see how good it is, and then build it up from there on. For us, we don't want to enter in a big bank, rush in there, and then repent at leisure. Build it slowly, like we build the educational institution finance. It's a INR 1,000 crore book, doing extremely well. Like we did the gold loan book. It's now a INR 3,000 crore book, organic book. Likewise, we build slowly. Build the capabilities, get the right kind of people, align the ducks, and then results output will happen. Get it right. We want to ensure that we get the ingredients right. As a bank, we suffered badly by delving into things like CV, doing hobbies, and then getting our hands burnt. So we're not doing it for immediate balance sheet growth purpose.
It is to build a franchise, a proposition which will last for the next decade and more. Maybe INR 200 crore-INR 300 crore, maybe INR 400 crore we'll do in the first year. Build upon it, pick and choose, and then maybe over a 5-10 year timeframe, it'll be a very good proposition to have. But over the next 1.5 Years, we will see the pie chart will look more or less the same, only thing the pie will increase.
Okay. Understood, sir. Sir, my another question would be on, as you already highlighted your guidance on slippage side from 2.5%- 2%, and currently we are hovering around 3%.
Sorry, that's not a guidance. That is an ambition. Okay?
Okay.
It's not a guidance. The only guidance I said is that in the financial year, next year, we want to get to a ROE of 13.5% and then move it to a 14.5% the year after. All the rest are ambitions. I mean, we'd like to get there.
Okay. Incrementally, things if we have to look it from that perspective. Incrementally, I assuming that the slippages cost would go down, and I'm not saying within a year. You are saying that for 2.5% or so, that number. But incrementally, we are looking reducing quarter-on-quarter basis. That's the point to look at. Is that the right thing to work on?
See, in the overall scheme of things, it's not such a high priority. But within the credit cost environment where we're doing reasonably well on the credit cost, that is one of the priorities. So from a focus sense, just by getting the slippage down, our credit cost is not going to go down.
Okay.
Our credit cost will be around the same level only, but my OpEx will go down.
Correct.
But look at OpEx. I'll tell you where the bigger OpEx is. The bigger OpEx is on the people productivity. Okay? It is on the new branches that we're putting in. Those are the productivity we'll be focusing our torchlight on. If the slippage continues to be at 2.5 non-gold, it is an irritant, but it's not a showstopper. As long as the credit costs are low, we are okay with that. But in terms of at some point in time, yeah, we need to bring it down.
But right now, getting the productivity up, the incremental employees that we're going to put up, how well do we get the bang for the buck for those investments that we make of people? That will take over the management's focus and attention, in a priority sense, more than getting the slippage ratio down, because that has, frankly, very little impact on the credit cost.
Okay. Thank you so much, sir. Understood and all the best.
Thank you very much, sir.
Thank you. Our next question comes from Somil Shah from Paras Investments. Please go ahead.
Yeah. Hi, sir. Good evening.
Hi, Somil.
Yeah. It's Somil. Sir, my question is basically on our capital requirement. Do we require any more Tier 1 or Tier 2 capital in next, say, maybe one or two years?
No.
Sir, to raise capital. We don't need.
We don't want it. We don't have it right now.
Okay. I mean, for next couple of years, we are not going to raise any capital.
For the rest of this year and the next year, I don't see a reason why we need to raise capital.
Okay.
The reason is capital will be dependent upon the price movement than on real requirement for capital in that sense.
Yeah. Correct. Because-
If the opportunity arises at the right kind of price, maybe we will look at it. But honestly, look, 19% growth in advances and the Tier 1 has increased. Right? The Reserve Bank of India has been kind enough for reducing the risk weights in some of the products which is significant and big for us. That will also have a positive impact. Why would you dilute it at this point in time?
Yeah. That is why the question was because just management. We wanted to know the management thought process, because to dilute below book value may not be the right time to dilute.
I think dilute at a significant portion above the book value would make sense. Why would you do it at book value also?
Correct.
Okay. For the first half of this year, if I were to look at our advances growth, I think it is around 3%-4% if you compare with March 2025 numbers?
Correct.
How confident are we to cover this in the remaining half of this year? I mean, to grow at a 20% yearly run rate, now we really need to gear up for the remaining half of this year. Is it fair to assume that- [crosstalk].
Look at IBPC.
One second.
You look at the IBPC number.
Okay.
IBPC will come in at some point in time. The INR 1,585 crore of IBPC is going to come back. Hopefully it will come back. If it does not come back, we have a different problem. That is going to come back. Conventional wisdom is that second half of the year is much better for assets as compared to the first half. That is conventional wisdom. I am not talking from a DCB Bank perspective, but industry, I mean, all of us are in the industry for long enough. Second half is a better half. Let me add to the complication that you are putting. There will be a reduction, possibly or a standstill on the co-lending book because we said that we will not go above 15%. So that is also there.
We are comfortable with that. I think there is enough ability in the system to generate anywhere between 18% and 22% for growth going forward.
Okay. Is it fair to assume that next couple of quarters we can have 8%-10% QoQ growth for next two quarters?
Usually what we do is we comment on three to 3.5 years of doubling, which translates to about roughly 18%- 22%. That is the band in which we will move.
That is it from my side. Thank you and all the best.
Not at all.
Thank you. Our next question comes from [Rakesh Kumar ] from Valentis Advisors. Please go ahead.
Yeah. Hi, sir. Thank you.
Hi, [Rakesh].
Hi. Just some questions on co-lending.
Right.
I was looking at that-.
Yeah.
Incremental credit composition of your co-lending book is around 98% for the first half.
Yep.
Most of the lending on the net basis, net addition-.
Yeah.
To the loan book basis-.
Right.
It is entirely from the co-lending. You said that it is like 90% or close to that number is the co-lending book is the gold book.
Correct.
So sort of question what came to my mind is that if I look at your advances number it fell from INR 11.54 -INR 11.11. Such falls would not have happened, right? Because there is improvement in the asset quality number, gross slippage number. Gold book would have supported with a higher yield, our blended yield number. For yields fall, which number would explain that apart from EBLR?
Repo rate cut.
Yeah. EBLR is the one reason. Other than that, should have it's fallen so much with total addition of gold book from March to September.
It would have, no. See, you've taken a hit of 100 basis points in this six, seven months. That's a lot to take. I know it's been compensated by some treasury income, thankfully, but that's a real hard hit to take on the yield front. That is the number one reason. Number two reason is we still have an MCLR book. Okay? Because our liability team has done a fabulous job of reducing the cost of deposit, straight impact happens on the MCLR book also. Not only does the EBLR come down, MCLR also comes down. That's good in a way because these are good customers. We want to keep them. Even if it's a lower rate, you'll be able to hold them for longer. On both front, you have taken a hit from a yield perspective. Right? It's not just EBLR alone.
Our fixed rate book is not too very high. I do not think it is revealed, but it is not very high. Like I told M.B. Mahesh earlier in this call, which I am sure you were listening to, that every month there is some bit of previously fixed loan which becomes floating. While each month volume is very low, over a period of time, that also accumulates. These are reasons why you are taking a yield hit.
Second thing, in the slide 22, I was looking at the disbursement trends.
Right.
In the gold in the Q1 or maybe in Q2, the way the addition on the net basis has happened, because 100% has virtually come from the co-lending and 90% of it is gold. Why it is not reflecting that kind of disbursement number in the gold in the stack, like you have given for Q1 and Q2?
I am so sorry. I am not sure whether I understood you.
No.
Sorry. Yes.
Virtually 100% of net addition to loan book has happened from the co-lending and 90% of it is gold.
There are multiple things that have contributed to our asset growth. You are talking about disbursement or you are talking about growth?
Disbursement. I am talking about disbursement.
You are talking about disbursement. Okay.
Yes, sir. Disbursement number which is given in the slide.
Oh, okay. Look, the disbursement is only organic disbursement. That is the reason.
Okay.
Okay. I understood the question right now. Sorry.
The only request is that now co-lending book is 16%, and it is now in the first half, the entire contribution is from the co-lending. Just if we can add maybe one, two slides on the co-lending itself, that would give us some more clarity and comfort that what could happen maybe one year down the line. Some visibility, some understanding.
Maybe go to page number 21 and row number two. It gives you what the co-lending book is and what has grown over the year and over the quarter.
All right.
Right? That shows you where you are. I do not know whether we have enough time for it, but I will be very quick on this. Our co-lending book dramatically dropped in the first half year of last year. That is because one of our partners had an embargo on fresh sourcing. Our book from somewhere around INR 3,000 crore became somewhere around INR 1,200 crore. I would be slightly wrong in these numbers, but it dramatically dropped. I am talking about a 60%, 70%, 80% drop happening because co-lending did not happen at all. It is in Q3 and Q4 it picked up. What you are seeing essentially is a base effect. That base effect is going to go away when you look at the Q3 and Q4 number of this year.
Okay, got it. This co-lending book, particularly for gold loan, what would be the yield differential from the blended yield on advances and this book yield on advances?
That is something we do not reveal because we have multiple partners with whom we have different.
Got it.
Kind of arrangements. It may not be a good idea to make that public.
Sure, sir. Thank you. Thank you so much.
Not at all.
Thank you. Our next question comes from the line of Gopinath from PNR Investments. Please go ahead.
Sir, thank you. Sir, we are planning to increase the book by double in three and a half years, and you are looking that at the same time to serve the customers who are like one-stop shop, wherein you can give all the services to the customers, which I assume that it costs a lot to build all those new services that we want to give. Are you giving this guidance of 13.5% ROE and 14.5% by the next year, including those expenses as well, considering them as well as a part of expenditure or?
We have a very divergent view from you as far as this is concerned. Our belief is it will dramatically cut down our acquisition cost. It will dramatically reduce our credit cost because these are customers of the bank. We know them. We have a history with them, but we only have one product history with them. Our idea is, I will give you a straw man. This is a person who is a self-employed customer, has a store of his own in one of the streets of Bombay, let us say. He has a LAP with us, a business loan against the collateral of his house. But his operating account is not with us. Whatever he imports or exports is not done through us. His fire insurance, burglary insurance, his motor vehicle insurance is not done through us.
His wholesalers and the people who supplies to, not done through us. The QR code that he uses for swiping the customer's card or for his G-Pay, PhonePe, et cetera, are not done through us. His current account is not with us. We are assuming that we have the capability to provide all these services to that customer because his single biggest asset he owns is mortgaged to us, and we are very competitive in all the other things that we just now mentioned. If you get that banking with us from one customer, you will be able to not only get a higher revenue, which is good, but also will be locking the customer with us for a very long period of time. So in my opinion, Gopinath sir, I think it will reduce the cost and also the operational cost and the credit cost significantly.
The early success that we have proves my point and not yours.
Thank you very much, sir. Your conference call is almost like a lesson. We learn a lot from this. Thank you.
You have been very generous, sir. Thank you so much.
Thank you. Ladies and gentlemen, as there are no further questions from the participants, I now hand the conference over to Mr. Praveen Kutty, Managing Director and CEO, for closing comments.
Thank you for your patience. For the questions, I hope you have clarified everything. If you have any questions, feel free to reach out to us or the industrial relations team. We plan to do an investor day on the 14th of November where if you have any questions based on what we just now spoke about or any other thing which comes to your mind, happy to address. We are very excited to wait for the next conference call, maybe in another three months' time. 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.