Ladies and gentlemen, good day and welcome to the DCB Bank Q1 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. Please note that this conference is being recorded. I now hand the conference over to Mr. Praveen Kutty, Managing Director and CEO. Thank you, and over to you, sir.
Thank you very much. Good evening, everybody. I will give you a short commentary on the results, and then we are happy to take questions. I want to tell you that in keeping with our ethos of consistent, predictable, and sustainable performance, happy to inform that we have grown the deposits by 20% and assets by 21% year-over-year. This is the fourth consecutive quarter where we have grown the balance sheet by 19% to 20% year-over-year. What is even better is that the bottom line is also growing in line with the top line, the bottom line growing by 19.72% in Q1. This is a quarter where we had many firsts. Our operating profit of INR 327 crore was the highest ever, and not just highest ever in quarter one, but highest ever in any given quarter. Our fee of INR 236 crore is again the highest ever.
Of course, it had some one-timers, but what is of equal interest is that the core fee income has registered INR 134 crore, a 17.5% increase from the previous Q1. Our operating revenue growth of 28% and our operating cost growth of 13% has shown that the jaws that we command, the operating leverage that we command of 15%, is the highest in the last four years. Going ahead, we thought it was prudent to take accelerated provisions during this quarter. The entire NPA stock of March 31st, 2025, of MFI and unsecured DA has been 100% provided in quarter one. We are also happy to inform that despite the three rate cuts across this financial year adding up to 100 basis points reduction, our NIM reduction over Q4 was 9 basis points. Some seriously good work has happened on the cost of fund and cost of deposit front.
On the improvement side, our slippage ratio has creeped up. This is on account of three items, two of which were obvious and one which was kind of surprising. There has been a higher slippage on MFI and unsecured DA, both of which we were aware of, and that is not a surprise. But what really was a surprise was the small ticket secured DAs that we have taken have taken a higher than normal flow into NPA. As you all know, we do DA and PTCs. DAs more as an experiment to figure out. It is a sandbox to us. We figure out what works, what does not work, and then it gives us the ability to test, validate, and either reject or go ahead with a preposition. School finance that the bank launched was an ideal example of that. So that exactly is where we are on the commentary on Q1.
Happy to take questions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. First question is from the line of Akshat Agrawal from SMIFS Institutional Equities. Please go ahead.
Good evening, sir. Thank you for the opportunity. The first question is on asset quality. Aside from the MFI and unsecured DA, there seem to be uptick in gross NPA ratio for mortgages as well. Is it from the legacy mortgages in FY 2023 where sourcing was not very good, which were flagged in previous quarters? Do we see credit costs to be maintained around current levels at 60 basis points or will it go back to 45 basis points- 55 basis points? Further on, PCR, provision coverage ratio, it fell down by 3%. Is it just all the accelerated provisions in write-offs or it is something else? That is my first question, sir. I have a few more. Thank you.
Hi, Akshat. Let me answer the first question first. The bank has taken accelerated provision primarily on MFI and the unsecured DA and the secured DA also. The secured DA, frankly shows up in mortgages. If we had not taken our accelerated provision, our credit cost would have been in line with what we demonstrated in December 2024 and March 2025. It will be in the same range itself. The reason why the accelerated provision is taken is that we thought it will be more prudent or I am not sure about the MFI recovery ability. It makes sense for us to cover the exposure that we have through accelerated provisions in the beginning of the year itself. The second part on the PCR, the reduction is primarily on account of write-offs that you have done. Every year, we write off somewhere between INR 100 crore- INR 200 crore.
Last year, I guess it was about INR 120 crore of write-offs that happened. This year, I think it is about INR 170 crore, INR 173- odd crore of write-off. Technical write-off, let me clarify out here. Technical write-off that we do, which is the reason why the PCR has come down. What is of equal relevance is that our PCR otherwise is 74.04% for the quarter. A 44 basis points reduction from what it was in March of this year.
Right, sir. On the credit cost, as you said it—
Okay. Sorry. Yeah, Akshat, on the credit cost. Sorry, thanks for reminding me. On the credit cost, what will the future look like? The future should, it will neither be 60% nor it will be within the 45 basis points- 55 basis point. We expect it to be below [45] basis points.
Great, sir. Thank you. In terms of core fee income, which has, whilst it is a year-over-year growth, it has declined sequentially. And in last eight quarters, for seven quarters it had a sequential expansion. Is there some seasonality now which is creeping in where Q1 is weak versus rest of the quarters? What is the average fee run rate we should look at? Is it like INR 134 crore this quarter or more like INR 160 crore, which was in the last quarter? Thank you.
I'll answer the first part and leave the second part because I don't know, comment on immediate next quarter what the number is. What is important is that the core fee income has got third-party distribution gains. It has got processing fees. So these are two of the parameters. Usually Q4 of a year has got a significantly higher contribution from third-party distribution. Also, the net disbursements in Q1 are usually less than the net disbursements in Q4, resulting in PF being of a lower nature. So the right indicator for that is compare the quarter with the corresponding quarter of the previous year. I'm not too sure that it's really quite feasible to replicate the Q4 TPD income in the subsequent Q1. So core fee income, we are very confident should grow in line with the balance sheet or slightly lesser than the balance sheet.
Secondly, treasury incomes or one-time incomes are not forever. So we have a solid plan on ensuring that trade fee income which is recurring in nature and sustainable nature, will over a period of time cover for the one-timers as and when they vanish.
Right, sir. Thanks for that. Just one, if I can squeeze in a question or two. For costs, the bank continued to perform well on costs with CTI now at 60%. However, employee expense sequential growth was elevated despite headcount reduction. So if you can provide some insight on that. In terms of branches, there was only one branch addition during the quarter. What's the plan for rest of the year? Are we seeing any productivity benefits besides the headcount reduction and slowing down of branch expansion? That was my question. Thank you.
Thanks, Akshat. So on productivity increases, clearly between last year and now, we have reduced our headcount by about 800- odd people. We've been growing by 20%. So effectively, that is resulting in a higher productivity. Plus, there are a lot of technology gains, et cetera. So our front-end LOS systems across multiple products have not only been modernized but also been made into the mobile. So quite a lot of non-productive work has gone away with the advent of technology. So that is helping us reduce the operating cost. Why has the staff cost gone up? Well, people do deserve a hike and a bonus and that happens in quarter one. So obviously it'll be on the higher side. But remember, we have brought down the cost-to-income ratio by over 700 basis points corresponding quarter to the current quarter of last year.
There is a 7% reduction which you see on the cost-income ratio. On the cost to average assets, we are at 2.52. The stated objective is to be below 2.5, and we can clearly see a roadmap to that.
Thank you for that. Sir, last question on loans growth. Sequential loans growth is coming from actually co-lending, gold loans, corporate banking, as well as mortgage under AIB. You are looking to slow down co-lending to balance sheet growth and corporate lending is generally not a focus for you. If you could provide some insight on what would be the major drivers of growth going forward.
I would like you to take page number 21. Page number 21, update on advances.
Right.
There you can see that we have done IBPC of close to INR 1,500 crore. Had we not done the IBPC, you probably would have seen asset growth in excess of 25%-26%.
Right, sir. I just wanted to just follow up on that, the co-lending growth, is it like you still plan to slow down there?
On co-lending, the co-lending book will be 15% of the bank's book. That we are very clear on. What we've done in Q1 is clearly to focus on shorter-term loans, fixed rate loans. And the reason for that is very simple. With rate cuts coming through, we wanted to focus more on short-tenor loans and on fixed rate loans, which basically meant that we could do the 15-year, 20-year loans post the impact of the full rate cut of what we currently know. In April and May, there has been more focus on gold loan and co-lending. And after the entire 100 basis points have been passed on, you would see that there is incremental uptick on the longer-term loans that the bank gives. Most of the corporate loans that you see, disbursement that you see, compare it with the actual growth.
The actual growth is only INR 200 crore, even though disbursement is about INR 1,200 crore. Okay? We are focusing on the shorter term in the first quarter. But that will change. That is a very tactical move at the time of multiple rate cuts coming through on what is essentially a floating rate book.
Thank you very much for answering all my questions. All the best. I will rejoin the queue.
Thank you.
Thank you. Next question is from the line of Rohan Mandora from Equirus Securities. Please go ahead.
Good evening, sir. Thanks for the opportunity.
Hi, Rohan.
Hi, sir. Just touching upon the asset quality piece.
Yeah.
The slippages that we have taken this quarter on the segment that you alluded to.
Right.
Is there any overdue book which is still pending to slip in second quarter? Overall at a bank level, how should one look at the slippage for the rest of the year?
The way you should look at it is that the DA book which the bank has is a limited book, and within that, the small ticket size book. The INR 2 lakh-INR 6 lakh loans given a secured lending is an extremely small book. If the same trend were to continue, then the impact on the overall credit cost, like I said in the previous discussion, would be low. On the unsecured book, just want to repeat in case you haven't heard earlier, we have taken 100% of the provision of the unsecured book, which basically is the MFI book and the unsecured DA that we have as of March 31st. So incremental aging provision on that will not come in. What fresh flows happen in Q2 and Q3, there is a possibility of that book flowing through.
But because the volumes are not large, the impact to the credit cost will not be much. The DA book that we have is actually for experiment. It is where we try out different things. We do unsecured business lending, we do school finance, we do various things which we do not do in There is a cost component of commercial vehicles. So there are multiple asset products that we do under the DA program. It also tests the locations, it gives an understanding of the business and understands the credit behavior of certain geographies where we are not present. So that is the logic of doing DA. What a surprise for us is that for the first time we are seeing the small ticket secured lending, not organic. Organic has absolutely no, I mean, we do not have that book, so we do not know.
But in the small ticket DA lending, we see the pains coming in, which is very similar to the unsecured lending book and the MFI book.
Sure. But sir, just to understand the thought process here. See, if we go back into history last five, six years, we have experimented with several products and we have seen asset quality slippage coming in from those segments, which are disproportionately higher than the overall book that we see. And as you rightly alluded to, the core book has been performing fine. So why are we keeping on experimenting on these things when it keeps hurting us on a recurring basis? That was one.
So we have a KCC book, which is about 3%-4% of the entire book. The industry has got practically double-digit NPA. Ours is a very well-run book. We have a school finance book, which is close to about INR 700 crore book, which is again an extremely well-run book. So these are different products that we have benefited from. And I think that is the right way to go instead of going it like the way we did with CV. We went headlong into commercial vehicles and took up a beating on that. So the right way to do it is test, validate, and scale or ditch based on a DA performance because you are doing small, you are doing originations which are in different locations. And then using that, pick up the ones which are working very well and building on it.
Sure. What were your total outstanding under DA book?
I don't think that's something which is being—w hat you see on page number 21 is what is being shown.
Okay. Sure. Sir, second was on your movement on yield on advances. The ratio has come off by 30 basis points Q-on-Q.
Yeah.
But if you look at the interest on advances, that's up 3.3%, despite loan growth being sort of flattish this quarter. How do we reconcile these numbers?
Then flattish—
The question is—
I am sorry. We will go one by one.
Sure.
We will go one question because then I do not want a situation whereby I miss any of your questions.
Sure.
On the first part, the flattish loan book, you just look at page number 21. There has been an IBPC of INR 1,500 crore.
Right.
Okay? That does not make it so flat, right?
This IBPC of the entire amount happened towards [inaudible] of the quarter?
It happened during the quarter.
During the quarter, okay.
Yeah. Actually, the majority of it happened during the quarter.
Okay.
It is not flat. What is the second question?
The yield compression that happened of 30 basis points Q-on-Q. If you look at the interest income in absolute terms, it has gone up by 3.3%.
Right.
The delta is almost 6% if we adjust on the yields and the interest earned. How do we reconcile these two numbers? It is like—
Volume. What you are seeing as flat is not flat. Flat is two end points.
Right.
You make money on the assets that are there during the quarter.
Got it. On the repo transmission, how much of that has been passed on to the borrowers?
Whatever is legally supposed to be transmitted has been fully transmitted.
We do it on a T plus one basis?
We do it as per norm. Yeah.
Right.
Like we ask the norm.
Some banks do it on T plus one, some on one third, one third every month, and some on the end of the say quarter or something like that. What is our transmission policy?
This is standard policy. There are four calendar quarters, and based on which we pass it on.
Got it.
Pass it on or hike it up depending upon how the rate movement is.
Sure. Got it. Finally, any guidance on the loan growth and NIMs for the full year?
See, for the last four quarters, we've been growing by what you're seeing, and I don't see any reason why it should not be any less than that.
Sure.
Both on the deposit side and the loans side.
Okay. Sure. Anything on NIMs?
We are very happy with the way that we have managed the NIMs so far. Despite the yield going down by what you said, despite the repo rate cuts of three tranches, there has been 9 basis points drop. Will that continue? We are doing what it takes on the cost of fund and cost of deposit front to ensure that the NIM impact is minimized. That work is continuously on, and it will continue happening whether there is a future rate cut or not.
Sure.
We still are growing the liability book by 20%, and we still are keeping the top 20 well below 7%.
Wonderful. Sure. Thanks a lot.
Right.
Thank you. Next question is from the line of Sanjay from Bastion Research. Please go ahead.
Hi, Sanjay.
Hi, sir. Yeah, hi, sir. Thank you so much. My question would be on loan book side. Since we failed over the last 10 quarters, sequentially, we have grown our loan book by approximately 5% Q-on-Q. You have explained that because of IBPC, the growth was not there. Could you explain more onto that? What has been changed and how things. H as a BT out in our case or a prepayment sort of things, or I am thinking on a wrong line? Can you explain me on that line?
Essentially, IBPC is used to ensure that the NIM impact is managed better. We have basically PSL as well as non-PSL IBPC is there. We get a very decent rate on it and which helps the NIM in the IBPC tenor. That's the reason why we did it. The important thing at that point in time was to ensure use all the means to reduce our cost of deposit and cost of borrowing. One of the items that is on the agenda was IBPC. It will come back at the end of the tenor. It make the perfect sense for us and the price was right, so we are comfortable with it.
Sir, since we are saying that over the years, we will grow at 20%, that is excluding IBPC?
No. When we say we will grow, we will grow. There is no excluding, including. We will grow.
Okay. Another question would be on, as you already said that the credit cost would be in the range of 40 basis points-45 basis points or below 45 basis points or 40 basis points over the year, below 40 basis points over the year. This impact has been, so the Q1 has been, you have largely included all the MFI and unsecured loan books. So over the years, over the quarters, there will be no further incremental cost which incremental slippages is moving on to that book. Right?
Going forward, theoretically, you will have, because there could be fresh flows happening, and to that fresh flow, you will have to take the incremental provisions required. What I want to clarify is in quarter one, we have taken full provision for all unsecured and all MFI book, all unsecured DA and all MFI book as of March 31st, 2025. So if there are incremental flows going to happen in quarter two or quarter three or quarter four, we will have to take incremental provision for that.
Largely, sir, when we, in the previous con call, we have said that since we are a secured private lender and largely our book, the recovery over the quarters has been quite strong once things have been taken into the slippages part of this.
Right.
That thing you are saying for after quarters or beyond that or this book has been quite lucky on that side and could not comment right now. What's the sense we should take on?
The sense I wanted to look at is that we are not changing our guidance on overall credit cost. What we usually say is between 45%-50%. I'm saying that going forward, we should be below 45% on credit cost for the next oncoming quarters.
Great, sir. On the fee income, we are already saying that as we are moving up, it would be upwards of 1% of the asset side, right?
Average assets?
Yeah.
Yes.
Okay, sir. Thank you. I will come back in the queue. Thank you.
Anytime.
Thank you. Next question is from the line of Chetan Gindodia from Mahindra Manulife Mutual Fund. Please go ahead.
Hi, Chetan.
Yeah. Hi, sir. Sir, just wanted to understand what is the total quantum of this DA book and also the total unsecured exposure we have, and the unsecured exposure is just the MFI part, or is there any other unsecured MSME portion with you?
The entire asset the bank has taken is given in page number 21. Okay? You can have a look at it. That gives you a good understanding of what are the various products that we have. By looking at the name itself, we can figure out which one is secured and which one is unsecured. If you want me be specific, MFI, we have a INR 625 crore book, which is lending to MFI institutions. We have a INR 500 crore book, slightly less, maybe INR 499 crore book, which is lending through BC. These are to JLG customers who being given through the business correspondents that the bank has. Then we have a personal loan book on retail banking of INR 271 crore. Right? There's a mixture of that in the others, which is the miscellaneous will have about some, all the others are clubbed into that.
Some very small portion will come there. Broadly, this is the book which is unsecured in nature. A proportion of this, whatever was NPA as of March 31st, we thought it was prudent to take it. We had a choice not to take it also, but we said, "Look, it makes sense to, it's more prudent to take it." If recoveries come in, work is continuing to happen, if recoveries come in, great. It helps going forward.
Okay. Got it. The fresh slippages that have come this quarter, can you help us quantify which segment, what quantum of slippages we have gotten?
Sure. I'll give you a kind of broad brush as understanding. Mainly, it has come from MFI, which is understandable. Unsecured DA, which we had kind of geared up for. What was a surprise for us is that within the secured, what you see in the mortgages book, there is a secured DA book of INR 2 lakh-INR 6 lakh and INR 6 lakh-INR 10 lakh also. These are areas which organic lending doesn't happen, where we are seeing pains. These are originated by somebody, by certain NBFCs/HFCs, where we have done our DA with them, and we are finding that that was a bit of a surprise that their deterioration. This is cherry-picked pool, mind you. These are hand-picked, cherry-picked customers which are in the DA book, where the performance is deteriorated in the last quarter.
Okay. Is there an incremental risk of this particular section to further escalate and give us more slippages in the coming quarters?
It may, but the fact is like I mentioned in the call earlier, I do not expect the credit cost to be at the higher end of our guidance also.
Okay. Got it. Lastly, any plans on capital raising because given our aspirations for growth rate, we will be consuming our Tier 1 pretty fast. Any changes that have happened around that front that will be lost.
Chetan, this may sound flippant, but it is a fact. It may sound flippant to you, but it is an absolute fact. In the last one year, we have grown 21% assets, and our Tier 1 has increased by 20 basis points.
Right.
Are you with me?
Right.
We are super stingy when it comes to cost and when it comes to capital. But having said that, our ambition, our hunger, our growth ambition is far higher. At some point in time, we will need to get capital. What we are hoping for is, one is take capital when it's available. The other is to ensure that keep doing what you've been doing for the last three, four quarters, which is consistent performance, top line as well as bottom line. Keep doing it in quarter one, quarter two, quarter three. At some point in time, the price would reflect the actual value, and that probably is the time when we will be going to the market.
Got it. Awesome. Thank you. Thank you and all the best.
Right. Thank you very much.
Thank you. Next question is from the line of Suraj Das from Sundaram Mutual Fund. Please go ahead.
Hey, Suraj. How are you?
I am good, sir. How are you, sir?
I am very good.
Sir, couple of questions. I have actually quite a few questions. Sir, first—
Shoot. We have all the time. You can go over all the questions.
Right. I think beyond what you mentioned in terms of this MFI and DA transaction, I think there is increase in the gold slippage as well. Anything to look into that or it is just probably one-off or something like that?
I wouldn't look at it if I were you. It is hardly anything. You're talking about gold, right?
Gold.
No, not at all. It is INR 35 crore of NPA on a pretty large book. Page number 21, I kept. Gold book is how much? It is about almost [inaudible]. Yeah. It is a pretty large book, so hardly anything.
Right. No, but if I look at your slippages slide 28. So your overall slippage has increased by—
Okay. You are right. Overall slippage is 4.6% and 3.1% is non-gold slippage. You are looking at that. So slippage ratio is high in gold but there it is a question of delay because we are dealing with customers who are INR 2 lakh kind of average balance, and most of which are OD customers. So you have that November 12 circular, where if a customer doesn't pay, where the manual payment over the previous 90 days is less than the interest debited during the previous 90 days, then you will be deemed an NPA. So slippage is there, but it doesn't result in loss rates.
Superb, sir. Understood. When you give this number of 3.1%, is this only including the retail gold or including the AIB gold as well?
Everything. Basically non-gold means non-gold.
Okay. Understood. The second question is, sir, on the DA part, DA and IBPC part. This IBPC that you have done, would it be fair to assume that it will be mostly in mortgage because your mortgage growth this quarter is quite—
It is everything. Mortgage growth is not weak. I mean, it is weak compared to Q4, yes. But otherwise, it is okay. It is not something to write home about, but it is a decent thing. So the IBPC mostly consists of secured assets and our—s ee, whichever way you look at it, 54% of the book is mortgage. So there will be a large component of mortgage in the IBPC also.
Right. The reason for asking that question is, if I look at your mortgage growth quarter-after-quarter for last, I think, several quarters, it has been 4%-5% or 6% range. This quarter it has been only flat or hardly 1% QoQ growth. Is anything changing in your view on the mortgage book side going ahead?
Very—
Sorry.
Go ahead. Please go ahead.
Yeah, and I think given that you are also seeing some stress on this small ticket kind of mortgage segment that you were mentioning.
Okay. On the small ticket, it is not impacting us at all in the organic side because that's not a segment that we are into. We are not present there at all, so it doesn't impact us. But in mortgage, in April and May, we focused more on other assets which are short-term in nature, which are fixed rate in nature. Primarily to ensure that, look, in a demand- and- supply equation, the customer is willing to give a rate. And then within a period of, let's say, a month or even less, there is a reduction which is going to happen. And then you have to hold it for a long period of time. We up-fronted most of April and May with short-term loans, which comes up for renewal quickly or fixed rate loans.
Mortgage is pushed to the last month where the impact of future rate cuts, at least that which we consciously know, is lesser. You got that, Suraj?
Right. No, sir, I got that.
That is one point. Secondly, Q1 usually there is lower disbursal than Q4. Q4 you get a much, much better thing. That is also reflecting in the processing fees.
Right. Sure. Sir, last question. In terms of this small ticket mortgage that you were mentioning, INR 5 lakh or less, that segment would be primarily sitting in agri and inclusive banking book, right? Not in the retail, right?
Actually, it is a part of a DA book, so it is neither retail nor agri. It is a bought out book. I actually don't know the answer where we put it, but it is not an organic book. It is not a self-grown book. So we take it in. The entire thing probably is sitting in —let me ask my finance people. Is it in retail? Yeah, it is put in retail. Sorry. But that is immaterial to the rest of the book, right?
Understood, sir. And sir, last question, in terms of this mortgage, that journey that we were on in terms of that LAP to home loan.
Yeah.
Home loan to LAP, that journey is still on or you will be saying that we are there in terms of incremental disbursement and outstanding book as well? The mix that we wanted to.
Why would you think that the three repo rate cuts is resulting only in 9 basis points reduction in NIM? A lot of it has got to do with caution deposit. A whole lot of it has got to do with the kind of assets that we have put in. Also, it has got to do with the product mix also. There is quite a lot of LAP in there.
Sure. The mix of LAP in the outstanding book is still increasing?
Yeah. Every month after month.
Okay, sure. Thank you, sir. That is clear.
Not at all. Thanks.
Thank you. Next question is from the line of Jai Mundhra from ICICI Securities. Please proceed.
Hi, Jai. How are you?
Yeah, good. I am good, sir. Thank you. Sir, a few questions.
Sure.
First on this asset quality and DA book only.
Yeah.
Is it fair to assume that MFI loan is given to institutions, so ideally, that would not have caused you trouble, right, in terms of slippages?
So far, no.
[crosstalk]
Not at all.
Right. Okay, sir. If I exclude that, then INR 500 crore, INR 499 crore, INR 271 crore, INR 954 crore, INR 620 crore is roughly around INR 2,500 crore. This quarter, we have seen slippages rising from INR 366 crore to INR 580 crore, so roughly around INR 200+ crore increase.
Yep.
I would believe that MFI slippages would have only increased marginally, right? A lot of this seems to be stemming from DA unsecured book, right?
Sorry about that, Jai. That is not a right assumption. There has been a flow-through in MFI also. So you had a MFI flow. Actually, even gold, the flow was higher, even though the net impact is low. There has been a higher slippage and higher recovery.
Okay.
But clearly across multiple lines. That is why in my commentary also, I said we are not happy with that high slippage. 4.6% is not a good slippage ratio, right? Our non-gold 3.1% is not it. We want to get it down to a 2.5% kind of level.
Right. Okay. What I am trying to understand is that, what we have seen is whenever any product segment starts to show some deterioration it does not end in one quarter until unless there are some very drastic measures that are there or there was some event-specific thing which deteriorated, right?
Right.
For example, what have you done, let us say, in the last 90 days that will make you believe that incremental credit cost will only be 40 basis points? Because it looks like what has caused the trouble in this small ticket DA, either you would have stopped them doing, that is number one, or you have some very strong recourse from the DA partners that will insulate you. Or how is it that this is the first quarter or maybe the beginning of the deterioration in this segment? The outstanding book is also around INR 2,500 crore.
Yeah.
How do we get a confidence that incrementally it will only be 40 basis points credit cost?
Let us go by this. One is that from a slippage perspective and secondly, from a credit cost perspective. Okay? The confidence which we have as management is based on the fact that the pool is small. Okay? The second is, imagine a situation whereby we were not prudent and did not provide 100% on the MFI book and the unsecured DA book. We probably would have had a credit cost similar to what we had earlier. So we would have had a higher slippage and similar credit cost. Credit cost, I am not considering it. It is just that we had accelerated the provision, taken it to a 59- odd basis points level. So even if you had done nothing, just by not taking the incremental provision, our credit cost would have been the same.
That's why there is confidence that next quarter also will be. Next few quarters also will be of a similar nature. I do not have to do anything special.
[crosstalk] No, no, sir.
All we have to do— sorry, Jai, fully listen to me. All we have to do is not do any accelerated provision, and the credit cost will remain at the kind of levels that we have. That's why we have a confidence to commit in the public what we think the future credit cost will be. Are we doing anything special to do that? No, we are not doing anything special to do that. Normally, our credit cost will be that. Anyway, we will have a discussion when the next quarter results come in. Remember this conversation. You see what the credit costs are.
Right. Sir, my point is unsecured NPA, you have to provide 100% within four quarters. Right? Within a year.
Correct.
It does not matter if you accelerate, don't accelerate. Within the year, you have to provide if there are slippages.
Right.
Right. Now—
Right.
—this is the first quarter where you have seen slippages rising in the unsecured DA book. You may choose not to provide fully, but within FY 2026, if there are slippages, you will have to provide 100%, right? I think the point is, if the slippages does not stop, then your credit cost cannot remain at 40 basis points.
Assuming—
I'm saying—
Jai, only assuming that there is unlimited quantum of unsecured DA and MFI. It is a very limited amount.
Correct. I take your point.
We have a limited amount. That is why even if the worst-case scenario if we were to estimate, it will be below 45 basis points credit cost is what you are saying. Had we had a 10% or 9% or 8% unsecured DA and MFI book, then what you say probably is true. Since the universe of such loans are small, even in a worst-case scenario, if we were to repeat or even worsen, your credit cost will still be lower than what it otherwise is. Are you with me?
Okay.
Should I explain again?
Yeah. No, that is right. That is fine. That even if the situation remains like this, you are confident that slippages, I mean, credit cost will be business as usual.
Even if increase by 8 basis points again, even if—
Correct.
— becomes 45 basis points, we are still okay.
Yeah. Correct. And sir, do you have any recourse? Because this would be originated through partnership when you have such, let us say, it looks like a very high single digit kind of a slippage is here. Do you have any recourse or not meaningfully?
Okay, we are following things which we do and we have actually done. One is we look at the collection efficiency of the originator. We look at whether the same customer is paying other loans and not the originator. These are things which are in our capability. Added to it is a question of speaking to the originator and telling them where the gaps are. But guess what? The collection focus on this will be very limited because it is a small book. Neither do we have the ambition or the ability to over-focus on that because it is a small book.
Right. Okay. I will take that there is no recourse, right? It is a business as usual thing that we would have entered into.
We will soon see because we have taken 100% provision. You will see write-backs coming through.
Right. No, sir. Actually, I am not worried about the write-off because around INR 175 crore, right? I mean, we have been very miniscule write-off.
No, write- back. Write- back.
Okay. Right.
Whatever provision we have taken, the write- back of the provision.
Okay. Sir, on the fresh stress formation at the bank level and maybe within these products, the quantum is small, maybe 5%-6% of the overall bank. Are you seeing anything trend or you have mentioned that the slippage is even if they were to remain here or increase also, it is under control. I am saying how should one look at the trajectory only? Is this like that the slippage is like in MFI? We have had last three, four quarters cycle, right? Now banks are saying that the slippage is from second quarter onwards should improve materially. What is your sense in this unsecured DA book? How quickly or shortly or longer can that be the cycle? If you have any comment there.
Personal opinion is that the pain in microfinance will continue. It will take at least some two, three quarters. Just because overall at industry level from 6.8% it has come down to 6.2%. 6.2% itself is a big number.
Right.
I do not know. I do not have any very positive view on the microfinance industry at this point in time.
Right. Sure. Okay, sir. Changing track, sir, on your cost of deposit really a good job on the funding cost and this thing. Now you have cut the SA rate, sir, in the month of July also. Any ballpark number of rupees crore saving? Because you have cuts in the multiple buckets and it is very difficult for us to calculate how much interest savings would that be. If you have any ballpark number that basis the current balance this could be the—
Jai, I think you should just compare the periodicity and the quantum of the rate cuts and see its impact on NIM. You can compare with our competition also. When a rate cut of this magnitude happens, how much is the NIM impact for competition? How much is it for us? Then look at it for this quarter, look at it for next quarter, look at it for the quarter later. You will see the efficacy of the management action coming there.
Right. I am not doubting that. I am saying, sir, if you have any rupees crore number for cost of savings, I mean benefit because of the cost of saving cut across card rates.
It is recalculated but how does it matter — NIM is the real indicator, right?
Right. Okay.
I am not even saying cost of fund or cost of deposit. The NIM is the true indicator of how that is behaving. See, look, you take a hit of 30 basis points on yield on advances, right? And 16 basis points has been covered by deposit rate cut. Just think through this. The real impact of the term deposit rate cuts you will get over a 13, 14, 15 month period only. What you are seeing now is only one small part of the iceberg. Because ours is a long-term term deposit. You know that. Our sweet spot in a term deposit is some 15 months or 18 months or somewhere there. This benefit is going to flow through to the b ank all through to quarter two, quarter three of next year. It is a space we are closely monitoring and managing.
If I were to summarize this then, assuming there is no further rate action by RBI, you are fairly confident that NIMs should not deteriorate too much, should be stabilized here, right? At least in the very near term. Is that the message?
No, that's not the message.
Assuming no rate cut, no rate action.
No, that's not the way to look at it, Jai. Because in the first quarter, at different points in time, we have had a rate cut. The full impact of that has not really been taken into account because some rate cut happened in June, some happened in April and I'm giving you hypothetical dates and numbers. It all didn't happen on April 1. So it happened at various points in time. So for you to know, not for me to know, for you to know, it'll take you one more quarter to really get to know what the full impact of the rate cut has been and then with every passing month or day, we see incremental benefit of TD rate cuts coming through.
Correct. Okay. No, I was saying, sir, of course, there will be yield impact, and you have also cut the SA rate, and you have managed, let's say, the balance sheet, IBPC fairly well. So the outcome should be that if there are no more rate action from RBI, ideally the NIM should stabilize. Is that a correct thesis or not necessarily?
I am saying no. That is theoretically not correct because you have not seen the full impact of the rate cuts because some rate cut had a two and half- month impact, some had a one-month impact. So you have not had a three full-month impact because the governor has done a three-tranche rate cut. Are you with me? Not for us—
Yes.
—and for everybody else also, for the industry also. Had all the rate cuts happened on April 1, what you say is true. The rate cuts happened over a period of time with three separate rate cuts. So the full impact of the NIMs, I do not think is seen in the industry yet, but in quarter two, definitely in quarter three, you will get to know the real impact of the rate cut and its impact on the yield and advances.
Right. Understood, sir. Yeah. That is it, sir. Thank you so much for answering all the questions.
Not at all, Jai. Always a pleasure.
Thank you. Next question is from the line of Varun from Bandhan Life. Please go ahead.
Hey, Varun. How are you doing?
I am doing fine. Thank you. Thanks for the opportunity. Just which are the areas in which employee count is falling, and how should we look at it?
The fall in employees primarily on the frontline and the way you should look at it is that I consider them a wrong hire. We shouldn't have had them in the first place. Effectively, these are non-producers, which we take time in understanding. The 45-minute interview or a one-hour interview doesn't allow us to see that. We run with them for three to six months, and then after various interventions, we figure out that that doesn't work. What we've done is we have cut down hard on non-producers and have ensured that there is a revised hiring process that's been put into place which also includes AI based on demographic details. We have enough goods and bads. One good thing about this exercise is we know the profile of the good performer and also equally importantly, the profile of the not so very good performer.
Based on which we have been able to get an employee score which we use for interviews. Now it has resulted in far more delicate cherry-picked employee hiring and greater success in terms of hiring them for frontline. That's the way you should be looking at it. The main cuts have all come in the frontline sales. But we should be seeing an increase happening. We still have growth ambitions, and we can't forever keep cutting and expect to grow. We will increase that. I don't see us being at 10,800 kind of levels going forward. But I remember you were on the call in September 2024 when I said we are at [11,010] people. I don't see us crossing this line either this year or next year. Hold on to that.
So maybe about 600, 700 or more people we can expect to see being hired in the company. They will be across assets and liabilities. Some of them will be for the new branches that we are opening. But the process of selection has improved significantly, and machine learning has certainly helped.
Got it. Secondly, how is our thought process evolving around branch addition? Because last couple of years if I see, the bulk of the growth is coming from existing branch network. So at some point, do we have to go back to branch expansion phase to maintain the growth rate? I mean, how should we look at it here?
See, at least for some time, addition of more people to the existing branches will give us the growth that we want. While we are saying we will be people-centric, we will need to hire people. It makes so much of cost sense and franchise sense to have more feet on street working out of existing branches. Anyway, most of the deposits come from the 10, 12 top cities. You need and most of it is digital. So why you need new branches if you want to go to newer cities? Having said that, we expect another 25- odd branches to come in this year. Ideal number would have been 35 so that we can close the year at 500 branches. But I would tend to think that we will be closing somewhere around 485- 490 branches this year. Is that critical for growth? Perhaps not.
I still believe that more people in existing branches will help us grow. Unless you want to go into a completely new state. If you want to go into an Assam or a Jammu, for instance, and put up new branches there, probably. But otherwise, we are fairly well distributed. Think about this. Field force is what we really require because with ULI coming in and DCB Bank is a part of Unified Lending Interface. Land record systems are digitized in seven states so far. So there is less and less need for paper, and the bank is going more and more towards paperless. You still will require an office space for employees to be and reach out. So it may make sense to have a third floor, fourth floor space where you can have retail asset folks sitting in there and soliciting customers for loans.
For deposits, honestly, you do not require more branches. For fee income, third-party distribution income, we are well represented in the big cities. We do not require. For assets, mortgages, et cetera, we do require, but at the present moment in time, it will be more people in existing branches that will more than happily satisfy upwards of 20% growth demand.
Probably five to 10 branches on a yearly basis is—
To take 20- 25. That would be a more realistic number. Last year we did about 20 branches, if I remember right. We should continue around that. 465 would look like 485- 490.
What would you highlight as your top priorities from next two to three years perspective, and what are the major challenges that you see going forward for DCB Bank?
The number one challenge is to change the mindset. We have been playing this game like an NBFC. It's high time we stop doing that. We have been doing home loans, LAP. We have been doing CASA, TD, somewhere not remembering that these are self-employed customers who have surplus needs, deficit needs, risk protection needs, and trade finance needs. We have kind of labeled them as HL customer, LAP customers. We've been running like a fill it, shut it, forget it business. It's high time we change that. These are customers who have given their life's biggest aspirational asset, which is their self-occupied home, as a collateral to the bank. But when he shuts down his shutters in the night and goes from his kirana store, the surplus balance is not kept with us.
He may need some money at some point in time because of inventory reasons or because there's somebody chasing him. He takes a hand loan or takes it from an NBFC. Why wouldn't he come to us? India is a very episodic country. Some earthquake happens, some fire happens, something happens, accident happen, risk protection, not done through us. Everything that he has is either imported from China by his wholesaler or by himself. The trade finance transaction is not done through us. I think high time that we change the way we did business in our bank to becoming a full service provider, financial solution provider for the self-employed customer, which will cover his surplus needs. You can read it as CASA. His deficit needs, you can read it as overdraft facility. His protection needs, you can call it TPD. His trade finance needs, exactly trade finance.
These customers willy-nilly will bank with us if you were to ask for it. The only problem is organizational, structurally, and mindset-wise, we are still in the nature of thinking customer as a product and not as a full-fledged customer who has normal needs like you and I have. Once we do that, we will be very different bank because we are not concentrated in one state like many other banks. Not a single state we have more than 20% representation in terms of assets. So we are very well diversified, and if we just convert our mindset, that work is happening. That is my single-minded focus. The second is want to eliminate paper. I am frankly allergic to paper. I believe paper is a cause for ops errors, turnaround time issues, [hand-offs] , cost. Paper is a sin and I want to eradicate paper from our bank.
That is my second priority in life. Apart from these two, I do not have any other priorities.
Sure. Thanks for answering my questions.
Thank you. Next question is from the line of M.B. Mahesh from Kotak Securities. Please go ahead.
Hi, Mahesh.
Hi, sir. How are you?
Very good. How are you?
I am doing good, sir. Just kind of running through some numbers, just trying—
Sure.
—to let you know if you are going wrong.
Sure.
After INR 300 crore and, let's say, the incremental slippages that you have done this quarter.
Yeah.
Is it fair to assume that maybe about INR 120 crore extra has come from the gold loan portfolio? The way you have done it is that you have,
See, it's a very difficult question to answer, Mahesh, on the right way, because in gold loan, what happens is, I will give you a classic example. It slips in April, we do nothing. It slips in May, we do nothing. Some of it we recover and then it again slips in. So the April recovery will slip again in May, and then it goes back. So you have a moment happening where up and down moment of gold loan happens. If I were to look at it. Hang on. Can you—
Sorry. No, sorry.
What are gold lending slippages?
Sorry, Praveen, just before you answer that, I am just going to go with your presentation numbers. 4.59% slippages for 1Q and 3.1% excluding gold loan.
Right.
When you work the numbers backward using the loan base as with gold loans and without gold loans—
Yeah.
—the number which comes out is roughly about INR 120 crore of extra slippages as compared to the last quarter. Like for example, last quarter, your slippages was about INR 78 crore in gold loans, and this quarter it's about INR 200 crore in gold loans. The delta in slippages of the INR 215 crore, roughly about half has come from gold loans. Is this number right or not?
Actually, Mahesh, the number is INR 196.34 crore.
Yeah. Okay. I do not have the second decimal. So let's go with this number. So of the INR 215 crore, you said while this unsecured DA mortgages, et cetera, has contributed, the delta contribution of this is roughly about INR 100 crore. Is that a fair way to see this?
Would that be fair? Yeah. One second. I will just recheck this.
[crosstalk] right?
Yeah. INR 190 crore is gold.
INR 190 crore. Yeah. So roughly about INR 95 crore- INR 100 crore incrementally has come from these DA assignments, et cetera.
From the others. From all others.
From the others.
All others.
Okay.
The surprise element for us is the secured DAs.
Which is all part of this INR 100 crore?
It is part of it.
And this entire, most of it, you have provided this quarter?
No. This quarter slippage, we have taken what is required. What we have done is, we have all NPA stock as of March 31st, which are currently NPA, is 100% taken as long as they are unsecured DA or it is MFI.
Perfect. Let's go with the next question then. See, if gold loans is seeing higher slippages, why is disbursements under gold loans also very strong this quarter? What is it that your consumers are demanding gold loans and yet slippage is this high? I understand the credit cost argument.
There is an INR 8 crore increase in your gold loan NPA, right? INR 27 crore becoming INR 35 crore.
No, I am asking. Sorry, sir, I am asking why are you, when you are seeing disbursements in gold loans being so strong for this quarter as well, and you see slippages also higher on the other side, I see consumer segment exceptionally weak today. That is all. I am just trying to correlate what is happening.
There is a slippage in that segment and the repayment happens at the threat of auction, which is why the repayments are coming through and your net NPA is the way currently it is. You with me, Mahesh? Or should I explain again?
No, it is okay. I am just trying to see if the consumer really in a very bad position, and that is why you are seeing this gold loan demand going up. Just trying to correlate that part of it.
You should look at the slippage and the recovery. On a portfolio which is pretty large, there is an INR 8 crore incremental NPA happening.
Sure.
The gold loans net NPA, the gross NPA for gold loans has moved from INR 27 crore to INR 35 crore in the quarter. That is an INR 8 crore increase.
Perfect.
So—
Perfect.
The right answer to your question, and this is a conjecture because I have not thought about it in that way, is that there is high slippage, high recovery happening on gold. Whereas on unsecured DA or on MFI, similar movement back is not happening. A lot of the reason why we will have a problem in the slippages is because of the famous November 12 circular. Is it an inability of that customer? Is it inherent weakness of the customer? I would rather say it is the discipline of the customer because most of our customers come from the big, the Muthoot and the Manappuram and the IIFL, where they are looking at bullet loans, which they repay, supposedly, in 9- 12 months. Then they come here where interest servicing has to happen quite regularly, which is not something that they are quite used to.
It takes time.
Okay. Thank you, sir. This is very useful.
Right.
Thank you. Next question is from the line of Gaurav Kochar from MLP. Please go ahead.
Hi, Gaurav.
Yeah. Hi, sir. Good evening.
So just a few questions. I think just taking a cue from what Mahesh was speaking about. So going by this, the ex-gold slippage is at least we believe should start moderating from Q2 onwards. Bulk of it has come in this quarter. Is it fair to assume, given that the size of the book is pretty small, as you highlighted, that the trajectory of slippages should start normalizing in the coming quarters?
Yeah, we believe so. I mean, we believe two things. One, the slippage ratio by itself has to improve. The second is for the first time in many, many quarters, we saw the recovery as a percentage of the fresh slippage going down to 70%. That's not something which we quite like. So there are two areas where we are currently focused upon in quarter two from a portfolio quality perspective. One is to rein in the fresh slippage. The second is to improve our recovery to fresh slippage percentage also.
Okay, understood. So at least the normalized run rate of INR 350 crore, INR 400 crore that we were seeing, we should revert back to that from next quarter onwards. Is that a fair understanding?
I'm sorry, wait. The INR 350 crore you're referring to is?
Slippage number.
Oh. Right. Okay. Got it.
Second question is with respect to the margin. I understand that the rate transmission on your loan customers could have happened at different point in time in Y2. But so has the cost of deposits. So your deposit free pricing also at least on SA was also done in phases in the. So full benefit of that will also come in the second quarter.
The question is that the delta change that we saw, I mean, you managed in this quarter pretty well, if I go by 9 basis point kind of margin moderation. Going forward in 2Q, we believe, based on our calculation, now correct me if I'm wrong, that the bulk of the benefit of your liability repricing, which is your SA repricing, will come in the second quarter. If there are no further rate cuts in, let's say, the next quarter, is it fair to assume that the delta change that we saw in this quarter on your margins, second quarter we should be better than this?
I'm not going to give you a yes or no answer, but I'm going to give you some numbers.
Okay.
Just think through this.
Sure.
We have about INR 48,000 crore term deposit book. Okay?
Right.
Let's say a INR 14,000- odd crore of savings book. Current account we'll leave out of the discussion because there's no point in discussing.
Sure.
That's been as flat as ever. Okay? So savings account, we have done something, and you've seen that impact happens at the exact time we impact the change.
Yeah.
The term deposit, typically, if you were to look at the bank's sweet spot in terms of highest rate, and that's an indicator of where quite a lot of the deposit concentration could be is somewhere between 15, 18, 24 months. Okay? It changed over a period of time, but it's somewhere in that region. Now, imagine over the next few months, some of those 15 months will get over and will come up for repricing. Every month, something will come up. So just humor me on this.
Instead of INR 48,000 crore, for ease of calculation, let's take INR 45,000 crore. INR 45,000 crore divided by 15 months is INR 3,000 crore. Right? INR 3,000 crore will come up for renewal this month, INR 3,000 crore will come up for renewal next month, INR 3,000 crore. Likewise, for the next 15 months, INR 3,000 crore will come up for renewal. I mean, theoretically speaking. Each of the repricing will be at the new rate as compared to what it was 15 months back. The difference between the 15-month rate 15 months back and the rate currently, you can either guess, or you can go back to the records and find out. That will be a good enough way for you to see how the impact will be, assuming there are no further rate cuts and no further management actions on the cost of deposit.
So that's why I said I don't want to give a yes or no answer, but this is a good way of figuring out. In fact, that's what we also do to estimate and forecast.
Right. I'll try to ask this differently. That of the 100 basis point rate cut that RBI has done, is it fair to assume that more than half of it is passed? Sorry, the 75 basis point rate cut that we have done in this quarter, is it fair to assume that more than half of it is done or less than half of it is done? If you want to put that.
Look, I wouldn't be able to comment, but just look, when were the dates in which the announcement was made? That will give you some sort of indication as to what it'll be. There was a 25 basis points, there was another 25 basis points, and there was a 50 basis points at different points in time. Right? So obviously the full impact of that has not happened in Q1, which obviously everyone knows because June 6th is when the announcement happened. So the full impact, you will see that happening over a period of time.
All right. Shifting to the disbursements in this quarter, if I look at on the mortgages, not just quarter-on-quarter, but I'm looking at YoY numbers. The YoY number was down in mortgages. Right. Is it a conscious sort of a call that because you are trying to do more of LAP within mortgages and perhaps slowing down home loan within that? Is that a conscious strategy? If that is the case, then by when do you expect the absolute number to kind of start seeing growth?
Is it a conscious thought? Yes, it is a conscious thought, but not for the reason that you said.
Okay.
So what we have done actually is that we have up-fronted or we brought forward to quarter one short-term loans a nd fixed rate loans. We try to do more of that.
Okay.
I am not saying we want to do less of mortgage. But the whole idea was, just look at it this way. in April, you do a 15-year mortgage. Then there is a known rate cut of 25 basis points happening and another 50 basis points happening in the—
Right.
—nearby future. Even if it is a semi-fixed loan, two years later, 75 basis points will get reduced. If the same loan, the same demand and supply price is a product of economics, of demand and supply. The customer is willing to pay that money. We thought that after the rate cuts have been passed fully, or after the big rate cuts have been passed fully if we have to take on board that customer, then those customers do not have an impact of the rate cut. So what the customer is willing to pay is what the customer continues to pay. Are you with me?
Yes.
So what effectively, in a very crude way, most of the co-lending and gold were done in April and May, and towards June, more of the mortgages were done. So there is lesser disbursal of mortgages in Q1 of this year as compared to the Q1 of the previous year.
Got it. From here on, it is fair to assume that this will pick up from second quarter onwards?
Yeah. To your other question of LAP versus home loans, steadily we have been improving our. Improving is the wrong word. We have been doing more of LAP loans from a sourcing perspective. It is a large universe. The percentage of a month sourcing to the total book, it will take time for it to convert it into the total book itself. For the last maybe even nine, 10 months, I think three quarters definitely I see an increased LAP percentage on the new sourcing.
Right. That is good to know. Just last question from my side. On the overall 1% ROA guidance that you have given—
Right.
—apart from credit cost moderating to under 40 basis points as you had guided, what are the other levers we see? I think OpEx, you have controlled quite well. It is down to 2.54% on assets this quarter. Is there further juice left? If yes, apart from credit cost, any other line item where you think you need to work on to get to that 1% ROA? By when can we expect the 1% ROA?
I will tell you four parameters, two of which are within arm's length, and one which is a bit of a guesstimate. Let me take you through that.
Sure.
We closed NIM at 2.99% on average assets. That is why the difference, 2.99%.
Right.
I expect that to be 3.2%. Okay?
Okay.
Fee would be, in our opinion, these one-offs will go away at some point in time. Over the full year, probably a 1.1% is a right number to go with.
Right.
You with me so far?
Yes.
Total revenue, 4.3% is a number which we think is realistic. I've taken a lesser fee as compared to quarter one.
Right.
Now, cost to average assets, I think 2.50% is a good number to get. In reality, it will be probably even lesser than that. But let's take 2.50%.
Okay.
If you take 2.50%, then you're at 4.30% minus 2.50%. 1.80%.
1.80%.
1.80%, please reduce 45 basis points. You are at 1.35%. 1.35% into 0.74%, you are thereabouts 1% okay?
Right.
Now—
Got it.
This NIM—o ne moment. Let me complete. I will just close the loop. The only unknown variable with regard to time is the NIM. Okay?
Right.
The rest, I have absolutely no doubt. I think they're near there, thereabouts, some better. Three out of the four parameters, one is very sure of. On the first parameter, as you can see, we are working, and we are working quite hard, and we are getting some results in terms of managing the NIM. I do not want to make more forward-looking statement this, but this is exactly where we want to take it to. If you were in the call last year also, and we promised you that we will bring the cost to average assets below 2.50%. I think that we are seeing that. On provision costs, 45 basis points is a good number to go with. On fee, there are few one-timers I know. There may be even a few one-timers coming forward also. That's still okay.
On an overall, 1.1% I think is well within grasp. It's actually we are ahead of the game right now, but for the full year, 1.1% is there. The question to ask is how well can we control our cost of funds and manage the yield, get the right kind of product mix to ensure that the NIM goes back by about 21 basis points, from 2.99% of today to a 3.20%. Genuinely, is it achievable? I think so.
Right. Perfect. Thank you so much for answering all my questions, and all the very best.
Thank you very much.
Thank you. Next question is from the line of Akshay Badlani from HDFC Securities. Please go ahead.
Yeah.
Hi, Akshay.
Hi. Thank you for taking my question. As you were indicating that we are moving towards more short tenor and fixed book. If you could just help with your EBLR and MCLR and fixed rate mix. How it has changed in the past few quarters.
Okay. I can tell you that hasn't changed much. That I can tell you. We can't reveal what fraction is what. This short tenor , long tenor discussion was primarily a pre-rate cut discussion. Now that all the rate cuts that we know of has happened already, life will go back to the normal stuff. We will still do long tenor loans. In an ideal world, we will be doing a two-year, perhaps a three-year semi-fixed loan. It will be linked to EBLR, and that's the way life will continue because that's the way life has already been there. Also, we are very comfortable with it. This whole doing the short term in April and May was a very tactical kind of thing, so that when it comes to renewal, we will be able to charge what the customer can pay.
It will be pure economics in terms of demand of loan versus supply of loan. That is why we focused on three-month, six-month kind of loans. If you were to look at the disbursal chart, it is there in one of the investor slides. You see that corporate loans, INR 1,200 crore of disbursal has happened. You may wonder, we are not very effusive in terms of corporate. We always said it will be about 10% of the asset book, et cetera. That is what we always said, 10%. But the fact is INR 200 crore in one quarter. Look at the growth. It is a INR 200 crore growth. Corporate book has increased only by INR 200 crore. So what are we doing? We are doing a short tenor kind of thing.
Because when it comes to repricing, you still are able to command a decent pricing but had it been a longer tenor loan, then by law, by nature, you have to pass on 100 basis points if you are on EBLR.
Okay.
It is a very short-term tactical activity. That is not the way we will grow the bank. It will be our normal 50%, 54% of the book will be mortgages. SME will be the way to go. And the only change I am really looking at and driving is to be a complete banker to the customer. That is our opportunity. And if, let us say, some law comes in that you cannot add a new customer, absolutely okay. We should be able to meet our balance sheet growth numbers as well as the P&L number just by focusing within. There is so much of wealth within.
Got it. And just my last question was on around the deposits. Our CASA has dropped to 23% now, and with the rates that we have cut, probably we will see the impact of that going forward. So how confident are we of still accruing that deposit volume that we need for our credit growth, which is 20% or so? So how elastic do you think our deposits are with the rates?
It's not easy. I'm not looking at CASA per se. We have a plan on bringing down the cost of deposit. Let me give you a simple example. One-time treasury gains, there's a chance that it will not be there next year. Let's assume. Let's play a hypothetical game. Let's assume it's not there. Where will that come from? Where will the incremental bottom line come from?
I don't think it will be from cost to income because this year is about cost to income, cost to average assets. Get to 2.50%. That's the stated area. 45 basis points- 55 basis points provision is a stated area. We are there. Then the only game in town is NIM, and the biggest lever we have there is the cost of deposit. I think the bank has matured enough to attract and acquire liabilities without having to be the highest or one of the highest interest rate provider in the industry. We have reached that level of maturity is my belief. I really think that not for this year, but for the coming years, the 2027, 2028 and beyond, we would be clearly demonstrating that you don't need premium pricing to grow 20% on our kind of balance sheet size. That's an availability that we are developing.
You've seen a glimpse of it in the cost of deposit reduction in quarter one. A swallow doesn't make a summer. I am also seeing it. I was closely watching it. If we continue to grow the same way to bring down the COD in a calibrated manner over the next few quarters, then the belief will come well within the system as well as outside the system. Primarily, cost of deposit reduction is a very important factor for us. We're driving it. CASA. CASA is not what CASA used to be. CASA is not a really good indicator of low-cost funds. CA probably is, but SA is not because at the higher end, it's so easy to get large ticket term deposit equivalent lying in SA and boosting up the CASA to a higher level. I think cost of deposit is the truth. CASA, not necessarily the truth.
Got it. Thank you. Thank you so much for answering my question.
Not at all.
Thank you. Next question is from the line of Aditya from Securities Investment Management. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity.
Yeah, not at all.
Yeah. Sir, firstly, while we have rationalized our employee base, the loan growth has been majorly coming from co-lending and assignment. In the last one year, if I look at your loan book, more than 50% of the growth has been contributed by co-lending and assignment. Just wanted to understand, are we really seeing improved productivity? Because you don't need many employees to do your co-lending and assignment book. As you grow your organic book, would OpEx costs now mirror loan growth or they would be lower than advances growth?
That's not necessarily true. In fact, I would like you to relook at that. On a small base, co-lending has increased year-on-year by 1.5x . That I completely agree with you. But our organic growth has been significantly high. What you can do is —which page can he look at?
21.
Page number 21 is a good indicator for you. You can have a look at it and you can compare with what we gave in the corresponding quarter. You will see that there is a significant increase, much more than significant increase in the organic book growth. That's where the benefit is coming from. Co-lending book, it's a good book to have, but that doesn't drive our campaigns. Okay, leave that aside. Our co-lending book at the end of the year will be 15% or less of the total asset book. So 85% will be non-co-lending, normal organic kind of book, and co-lending will be about 15 odd percent.
Understood. Now, sir, one of our steps to improve our NIMs and ROA was to improve the share of working capital and OD loans. But now if I look at your SME book, that has been stagnant for a year and a half. We have talked about the advantages of OD product as the same cannot be offered by competitors, NBFCs. So ideally, the scaling up should have been quite fast in this segment, but that doesn't seem to be happening for us. So if you could just help us understand, what issues are we facing in scaling this SME book, and when do you see it picking up?
Okay. So it's sort of vertical take-off. So effectively, I know we have been speaking about this. We have hired a person who is looking at the SME segment who's also going to look at a segment of INR 3 crore- INR 10 crore because a lot of customers in SME is graduating to a higher exposure level. And we saw that there is a gap where our corporate banking is too big for that customer to come into, and our MSME book is not equipped enough to handle it. So because of the erosion happening, that's a gap which we want to fill in. So that area is going to see an action coming in. We have a full-fledged team, six city locations where INR 3 crore- INR 10 crore of fully secured SME will be handled. So that erosion because of exposure will go away. That's number one.
Number two is that we have changed the structure in the company to ensure that close to 100,000+ mortgage customers are being given an OD facility. Out of the 100,000-odd people, the eligible customers are being given an OD facility. So it may not come in the SME book at all because it's a separate book by itself. So it will come in mortgages itself. So there are different action plans happening. Am I happy with the speed of growth? I'm not very happy with it. That's why if you heard it when I spoke to a previous person, when he asked me what are my three priorities, I could tell them only two. One is to get this moving. It's not easy because anybody you hire from the market or anybody who's in the system are a product of the system, which is a vertical fit.
Which is based on, "I am a LAP RM. I am an HL RM." No one looks at it as an RM for a self-employed. So it's taking time. I don't see that giving us big results right away. But over a five-year timeframe, that will be bigger than the mortgage book that we currently have. It's a huge proposition. It will take its own time. If you were to take a 10-year view of the bank, this would be the game changer for the bank.
Understood. Okay, sir. Just one question on construction finance. We have been seeing strong growth in this book for the last few quarters. If you could just elaborate, what is attracting you to this segment, and what kind of controls are we building here? Because I believe these would be bulky loans as against our focus on more granular loans. How are you trying to balance the risk and return in this segment?
We have built up this capability over a period of time. We are very comfortable with the levels of NPA, the level of DCCO in this particular segment. The construction finance book that we have is primarily looking at a smaller ticket size. Compared to our kind of loans, can I ask you, are you in Bombay or are you elsewhere?
Central Bombay.
Central Bombay, right. The kind of construction finance that we do is similar to a South Bombay home loan.
[inaudible]
Okay. Genuinely. I know you're trying to joke. These are peak exposure about INR 10 crore-INR 12 crore, which is typically what a midtown Bombay single home loan will look like. We have an expertise in it. These are in the periphery. We enter at a stage where there is comfort. One or two cases we have NPAs, we work out of it. But there's an expertise we built over a six, seven-year period. We've been through two credit cycles. We've been through a pandemic with this CF book. Comfortable with it. There is expertise in sourcing and also in remedial management. Our recoveries of NPAs within the CF book has been decent. I'm bullish about it. Would be happy to even get the book to grow by, let's say, 30-odd percent is something which we are reasonably comfortable with.
Wonderful, sir. Just last two questions. First, on the fund infusion by the parent, what is the status? Secondly, sir, PSLC income. We had good amount of PSLC income coming two years back. Do you expect it to come going forward? How is the market for PSLC?
The PSLC for small farmer, marginal farmer is good, but we are not in surplus. It's more a pain area for us than a happy area. On general PSL, the demand is pretty low because most people, there's not too much of money made on it. Even on agri PSL, while it's better than general PSL, but on agri PSL, the rates are not something which can give you substantial fee income. But on small farmer, marginal farmer, definitely there's an opportunity. Do you want to grow your microfinance book at this point in time for that opportunity? Perhaps not. If you were to ask long term, at least in the short term, are we going to get some PSLC income? Don't think so for the rest of the year or even for the next year.
Okay. Sir, fund infusion by the parent, what is the status?
Let me tell you the full story. We had submitted a whole host of papers to Reserve Bank of India, and at that time we had the untimely and unfortunate demise of the key promoter, the key individual behind the promoter company. The promoter company being Aga Khan Fund for Economic Development. The key person behind it was the Aga Khan IV. He passed away last year, then there was succession. The new Aga Khan has come in. So we had to redo the entire process. We completed the full set of activity. Now the ball is in the Reserve Bank of India's court. We are expecting approval to come in. Hopefully before our next conference call of September results we should not only have the approval but also have the monies in hand.
It is a small number, but it is a good symbolic thing to happen because it will be the first time in close to 20-odd years that the promoter is infusing money. Secondly, it probably will take the promoter contribution to above 15%. Both of which are symbolically a big thing.
Awesome. Thanks for answering my questions, sir.
Not at all.
Thank you. Ladies and gentlemen, due to time constraint, we will take this as the last question for the day. I would now like to hand the conference over to Mr. Praveen Kutty for the closing comments.
Thank you very much. Thank you for all those questions. As usual, relevant, thought-provoking. I hope I have been able to provide you with candid answers on all the questions that you asked. If you still have any doubts on questions, feel free to email or reach out to Meenakshi, Ajit, Ravi, or me. Happy to answer. If you want to kind of chew over this and come back, happy to answer any questions that you may have, provided they are not UPSI. With a caveat. Look forward to the next meeting in about three-odd months time. If we meet up in any of the analyst meets, you could come back with any other questions that you probably have on our account. Thank you very much. Look forward to meeting you. Bye-bye.
Thank you, sir. On behalf of DCB Bank, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.