Ladies and gentlemen, good day and welcome to DCB Bank Limited conference call. Please stay connected and the call will begin shortly. Participants who have been connected to the DCB Bank conference call, please stay connected and the call will begin shortly. Thank you. Ladies and gentlemen, good day and welcome to DCB Bank Limited Q3 FY 2025 earnings conference call. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Praveen Kutty, MD and CEO of DCB Bank Limited. Thank you, and over to you, sir.
Thank you very much. Good evening, ladies and gentlemen. Thank you for logging in. Let me take you through some of the key highlights of our Q3 results. To set a context, these are very challenging times. Demand is softening. There are headwinds on certain areas, specifically unsecured lending, MFI lending, et cetera. Given this context, I am happy to note that the bank has recorded a growth of 20%+ on customer deposits on a YoY basis, 22% on loans and advances, and 20% on balance sheet as well. We have been, over the last four, five quarters, consistently growing at anywhere between 18%-20% range. This growth is something which we believe will continue in the key segments and products going forward as well. Our yield on advances has shown an uptick.
It was growing in a descending mode till now, but in Q3, we have seen an uptick on the yield on advances. While the cost of funds continue to inch up, contrary to our expectation and what I told you earlier, the NIM has arrested its slide and has changed directions. Against the 20% top-line growth, our NII has grown by 15% YoY. This is after quite a number of quarters that you have seen a double-digit growth in NII. So we are reasonably satisfied with our fee momentum and more so with our core fee momentum, which is continuing its upward trend. Like I mentioned earlier, in the last quarter, the discipline on productivity and cost control is an area where we are focused on. While it is still early days, we believe that we will be able to demonstrate this in the future as well.
I will take you through some key highlights and then keep the field open for questions. Our growth rate of 20% on deposits has been achieved while keeping the top 20 deposits at less than 7%. We are at 6.97%. Our savings account growth has been upwards of 17%. INR 141 crore of core fee income is the highest ever so far. Our capital adequacy is now 16.29% with the advent of Tier 2 capital during the quarter. We have 457 branches, six added in the last quarter. We have been very conscious on improving the productivity and that you can see in the reduction of manpower quarter on quarter as well. Our gross NPA is now 3.11% and net NPA is flat at 1.18%. These are the main highlights. Now I will open up the call for any questions that you may have.
Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking your question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question. The first question is from the line of Hardik Shah from ICICI Securities. Please go ahead.
Yeah. Hi, good evening, sir. This is Jay. Sir, congratulations on a steady and good set of numbers. Few questions, sir. First, it looks like the growth in this quarter from the pie chart that you gave on the data. It looks like that majority of the growth has come from co-lending, and the share has now jumped to 11%. If you can share some more color, and it looks like that the entire is clubbed in retail. So what are those products where we do co-lending? And is the observation right that, most of the growth has come from co-lending?
Okay. Jay, good to hear from you, and you have been very generous. Thank you so much. On co-lending, let me tell you, our growth excluding co-lending has been as good as the previous quarters. But what you said about the growth in co-lending is correct. One of our biggest partners on co-lending has started originating business again after a brief respite. And when our partner started the co-lending program, sorry, the origination of their loans, it also helped us to do co-lending. As far as the second question is concerned, we have a wide variety of partners in co-lending. The various products that we do in no particular order are home loans, school finance. We do unsecured business loans. We do gold loan. We do SME. Have I missed out anything? These are the various types of co-lending products that we do. Commercial vehicles.
We do it across more than seven or eight co-lending partners.
Okay. But this quarter it looks like that, or from this time around, it looks like the majority would have come from gold loan, right? I mean, that is the understanding, the delta.
That is not a factually correct understanding.
Sure.
While co-lending definitely have increased, that is incremental that you see. Usually we grow about 18%-19% the last few quarters. The surge to 22.87% from the normal growth has come from co-lending.
Okay. Secondly, sir, you have two businesses, two types of channels for microfinance. One is your own and then through BC. Is there any clawback through BC? If you can share some more detail, it is like industry practice of having the clawback at around 5% or there is something different here in the MFI business.
First of all, we don't have two channels. We have direct lending through certain MFI institutions, yes, and then we have lending through our business correspondent channel. These are two business that we have. What you said, I don't know what the 5% is, we don't have such a condition.
Okay. But both MFI lending is actually to institution or to borrower, I mean the individual borrowers.
The business correspondent lending is to individuals. The microfinance loans are given to MFI institutions. So they're two different things.
Okay. Understood. Thirdly, on asset quality, sir, non-gold slippages seems to have risen as you mentioned in the PPT also.
Right.
If you can share some more details here. Is it mainly because of the unsecured but that portion is very less for you, so what is causing this kind of a slide increase?
We still have over 704% book on microfinance, and that is going through a similar kind of pain that the industry is going through. We are no different from the industry. There is a hit on that and that I don't know how long that will continue, but that small component which we have is giving a higher impairment.
Okay. Lastly, sir, if you can also elaborate, a few banks have already said that, for unsecured MFI which is relevant for you, they provide maybe by formula either 25% or 50% or some banks actually provide 100% in the same quarter. If you can highlight what is your policy in-
Sir, our general policy, Jay, is internal for that particular reason, so we won't be able to kind of reveal the internal policy. What you will know is that you can see the overall provisioning, how we are vis-à-vis the credit provision that we do. So that's the only way we can respond to this.
Right. Okay, great, sir. I'll come back in the queue. Thank you so much.
Please do. Thanks.
Thank you. Next question is from the line of M.B. Mahesh from Kotak Securities. Please go ahead.
Praveen, just one question. On this quarter, recoveries in a place have been a little bit on the lower side. Credit cost has been a little bit on the higher side. Just some clarity around it.
Yes, that's right. The recovery is on the lower. In absolute sense that has been a bit true, but we have had more than normal slippages happening because of the BC MFI book. Some small unsecured DA books that we had. On that, while it's anticipated, but it's higher than normal.
Sorry, Praveen, that is on the slippage side, but on the recovery end of things?
Recovery has been similar to what has been in the previous quarters. Whereas the incremental slippage which has happened is on the microfinance book. Usually what happens is that when you have slippages happening on a normal book, you get recoveries also within the first one or two months. The pattern is like this, either you recover it in the first two, three months, or you wait for the judicial order for any secured asset which you have to take position. These are the two times when you get bulk of the recoveries coming through. Whereas in unsecured, that first component is, we are seeing a higher, once MFIs move into a slip into NPA, there is no immediate recovery happening from that book.
Yeah. Praveen, second question. With respect to the way you are seeing the industry, with respect to the segment that you are lending towards today, is the business fully recovered? Is it growing? What is happening on the ground?
See the ticket size that we are in, we are seeing that there is enough demand in the market. On gold loan, our interpretation is, and I do not know how true this is. But our interpretation is because of the microfinance slowdown, there has been a surge in gold loan, and that is helping both the natural organic book as well as the poor lending book. For our kind of business, because low base, relatively low base, growing upwards of 20% is not that much of a problem in the chosen segment that we have. There is enough demand for that. That is the way I see it. It will not.
Sorry, Praveen. Sorry. Just to step in here. The question is more so in the sense that, is there a recovery in business for the people on the ground? Just trying to understand that part. We understand the credit demand.
Yeah.
But has the.
There is enough credit demand in the segment. Clearly, there is no slowdown there. You are able to pick and choose.
Perfect. Thanks a lot.
Thank you. Participants, you may press star and one to ask the question. Next question is from the line of Mona Khetan from Dolat Capital. Please go ahead.
Hello.
Hi, Mona. How are you?
Yeah, I am good, sir. Good evening. My question is on, if you look at the mortgage NPAs for the last two quarters, they continue to rise. Within the LAP book, can you give some color? Firstly, the reasons around that, and secondly, some color around the average ticket size and LTV on the LAP book.
Mona, have a look at our slide where we have shown the incremental slippage and recovery for mortgages. Just compare two numbers for me. One is Q2 slippages and Q3 slippages. One is INR 46 crore, that is Q2, and then Q3 is INR 37 crore. So in absolute sense, the slippage is decreasing. Okay?
Okay.
Is it where we want to be? No, definitely not. But are we getting better than the previous quarter? Most likely, yes. I will tell you which page number to look at. Can somebody help me with the page number?
Sure, I will figure that out.
Page number 26. Just have a look at page number 26.
Sure.
You do the math. INR 569 crore- INR 532 crore versus INR 532 crore- INR 486 crore. You are talking about INR 37 crore versus INR 46 crore. It is getting better. Having said that, we will never be happy. We really want to kind of drive that down.
No, but if I look at the overall size, I mean last quarter also, there was a sharp increase, and this quarter also, the NPA has increased by 7%. That is not something we are seeing for industry as a whole. Anything that is more pertinent for you that is causing the higher slippage?
Not really. Okay, let me put it this way. We are not happy with the fresh slippage happening on the mortgage portfolio. But quarter-on-quarter, we are seeing progress happening on that. Our current bucket bounces are looking better. I will take you to the last one of the collection efficiency pages. Have a look at it. It will give you a good indication of how things are. Page number 28. Just kindly go to page number 28 and look at bucket zero collection. That will give you a good indication of how the future is going to look like.
Sure.
So 99% recovery on LAP, 98.9% on home loans. That is the way it is progressing. Specifically when you spoke about LAP, we touched 99% for the first time. While it is only a decimal place movement for the current book, bucket zero book is a large book. I am sure I am preaching to the converted, but even a small decimal place movement there has got an impact, either positive or negative on the future flows. We are pretty much happy with the lower slippage, absolute slippage happening on a larger portfolio, not percentages, and we are reasonably comfortable with the direction in which our bucket zero collection efficiency is moving.
Got it. Is it possible to give some color around the average ticket size and LTV in the LAP book in particular?
See, we are always in the INR 25 lakh, INR 27 lakh loan range. So that is where we are. LTV number is something which I do not know whether we publish. I do not think we publish that. Do we? No, we do not publish the LTV number. But it is conservative. It is very conservative.
Got it. So higher write-offs during this quarter, were they mainly on account of MFI portfolio or CV as well?
No. CV, that story is over. We had a lot of bad NPAs, they remain. Whatever is left in the organic book remains there. The DA book is much better. We do not have too much of CV flows into NPA.
Okay. It is mainly MFI that has caused a higher write-off this quarter.
Yeah. I mean, relatively speaking, but if you look at absolutes, mortgage is something which we are working on in curbing, reducing, while going forward. While directionally we are happy with the slippage. If you would ask, are you happy with the INR 37 crore slippage? No, not really. But INR 37 crore is better than INR 46 crore.
Hmm. And just finally on the margin front. Margins have been trending much lower than what you have been guiding for. So what are the levers to margin hereon?
Theoretically, the levers are your yield advances, yield on investments and your cost of funds and your NPAs. Theoretically, there are only four elements to that. At least directionally, again, I'm talking about direction. Directionally, I'm reasonably happy that the NIM reduction, the descent has stopped, and we have an uptick. We are 3 basis points better. This is coming on the wake of yield advances going to 11.44% as against 11.38% in the previous quarter. What was unexpected for us was that, unexpected is the wrong word to use, but three months back I thought the cost of funds would stabilize. It hasn't. It's increased by 3 basis points. The net result of it is that we are better off by 3 basis points on NIM. 11.44% of interest yield, 11.38% previously. 7.20% of cost of funds, 7.17% previously.
On NPA, you see net NPA is still at 1.18%, so it's like flat. I'm taking it out of the equation currently.
Hmm. If I have to understand, what is your earlier expectations a few quarters back to now? The 20 basis points or 25 basis points lower NIM that we are seeing today, that's driven by, if I could understand, maybe 5 basis points by cost of funds, higher cost of funds. What are the other things that have not stand out as per expectations, which led to the-
The broad-
The number one villain there is cost of funds. Number two is that our interest yield was descending. If you were to see, I will tell you which page number it is. It is 1138 and 1144 is page number 31. Have a look at that. The uptick in yield on advance was a very important factor. It is more than the cost of funds. Cost of funds increased. These are two critical factors. Mona, let us put it another way. Look at this way. Our top-line growth has been 20%. For the first time in three or four quarters NII is double digits. It is actually 15%. For the NIM growth to be represent-- NII growth to be representative of the top-line growth. If you had to grow by 20%, when will the NII grow by 20%?
That story is something which we are targeting. If you read from single digits, you move to 15%. Going forward, our ambition and the work that is happening in the bank is to ensure that even though with a lag, your NII growth reflects the top-line balance sheet growth.
Got it. Thank you so much. Just finally, what is the status on the capital infusion from promoters?
Yeah. I know I have been saying this repeatedly. There are some minor information that we have to provide to Reserve Bank of India on the capital infusion. Once that happens, it could happen anytime, but that is what I said last time also. We are expecting it to happen, frankly, anytime. Hopefully next review you probably will not ask this question, we will not be answering this question.
Sure. Thank you and all the best.
Thank you very much.
Thank you. Next question is from the line of Akshat from SMFS Capital. Please go ahead.
Good evening, sir. Congrats on a strong set of numbers. First question is on cost. Is it just due to headcount reduction or is it actually we are already seeing some productivity benefits coming in? Further, you have changed the cost guidance target and the presentation from 60% CTI or below from 55% earlier. In terms of cost percentage asset at 2.5%-2.6%, from 2.4%-2.5% earlier. Is there some change in strategy on that front?
Thank you for the kind words. On the question, I will tell you how the cost has worked. It is a combination of some two, three things. There has been a productivity increase. There has been a selection and a deselection. We have ensured that the performers are taken care of. The non-performers are groomed. All that work which happened over the nine months period is giving us some benefit. Somewhere where we failed, where we have been all our effort and still not working up, that has resulted in a headcount reduction. Headcount is only one part of it. We are also assiduously working on the other expenses as well. There has been a series of cost measures that have been undertaken by the management team, which hopefully should give a continued discipline on the cost front. Our effort and productivity will continue.
On leaving productivity aside, on the other expenses, there is a discipline that we have put in which should see similar kind of trend line emerging in the future as well.
Yeah. Change in cost guidance questions?
On the changes, what we thought of is we break up the milestone into smaller bite-sized pieces so that we achieve that, we overachieve that, rather than give a number which is far too distant, which we really haven't done for the last few quarters. If you were to see cost-income ratio for one from 64.8, we are now looking at about 62.4. We are trying to bring that down, even though the focus much more is on cost to average assets. Getting it under 260 was a key internal milestone for us. Now we have to get it down to a 255 kind of mode. Not going to be easy, especially with the kind of growth momentum that we are targeting. But then again, it's not an easy job anyways. But there's a lot of work going around towards that.
On the NIM front also, if you have noticed, what you mentioned about cost is true. We have looked at slightly more revised numbers, which we would like to get to. To give you a bit of color on how the DuPont would look like, so that I possibly am kind of making your next question redundant.
Yeah.
A 3.30 kind of NIM and then a 1.1 kind of fee. We are currently at 1.04. We were 1.23 last quarter. But on core fee income alone if you were to see, or not core fee income alone, but there was good performance on core fee income this quarter is still at 1.04. So it's a bit of an ask there to get to 1.1. Get to a 255 kind of number. We are at 259. We are at touching distance. We're not low-hanging fruit, but touching distance. It's doable, 255. And credit cost currently we're at 38, but for times not number every quarter we've been saying we are in the 45- 50 kind of range. So that's how if you were to look at it, 330+ 1.1- 255- 50 into 0.74 if you were to do the math.
It probably will come at 1% ROE.
Right, sir. Thanks for answering that. Another question is on CD ratio. It jumped like roughly 3%. While it is still lower than many of the private banking peers, is there some change in strategy on leverage or is it like some deployment of extra liquidity, like from CRR cut or something else?
No. Simple answer is we got some Tier 2 capital during the quarter and that came in. Because that came in, we looked at cost of funds. We looked at a bit of borrowing. Even though customer deposit, if you see, has also grown handsomely. So we did a bit of a mix to get the cost also into play, which has resulted in the CD ratio going worse. That is not a direction we want to take. We are not particularly happy with that. We always want to grow deposit more than cost, more than loans. We want to bring it back. There is no strategy change in that direction at all. In fact, if anything, it is just reiteration of our strategy that we should get the CD ratio back to lower levels.
Right, sir. If I could just squeeze in one small question. Yield on advances uptick, is it related to co-lending growth or more of a function of increase in LAP versus retail mortgage loans? As in, has it moved substantially from roughly 50-50 demarcation which you had guided earlier. How fast are you planning to ramp up this proportion of business loan, which would probably help offset the impact of anticipated rate cuts at some point this year?
Essentially, you are right. It is because of the change in the mix. Co-lending cannot give you that benefit to that degree. So that is not it. You moved the BL to HL. Sorry, HL to BL. I want to tell you this. That may not be the way it will be continuing in the future and the reason why we are relooking at it and revamping that thought process is because of the advent of PMAY. The current PMAY is hitting the sweet spot of the home loan, which DCB Bank does. INR 25 lakh. There is five year the book stays with you. Upper cap of 11.5% interest rate. If the customer becomes delinquent, then the customer ceases to get the subsidy. The subsidy is spread over five years.
So these are wonderful principles, which just makes it so much of the kind of loans that we want to do. It obviously comes at a low RWA, risk-weighted asset. We may, once the final PMAY guidelines come up, relook at this ratio business. We may even ramp up the home loans, because at 11.5% max, which meets all this criteria, there is an onus for the customer to make the home loan the last loan he or she will default. Probably we will give the home loan once PMAY comes in or affordable home loan the impetus that it deserves. But till then, the BL will continue to dominate over HL.
Thank you very much, sir. Have a great day.
Thank you very much, Rahul.
Thank you. Next question is from the line of Aditya from SiMPL. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. My question is on co-lending. We have stated in the past that we would like to keep this at 8%- 9% of total advances. This quarter, this constitutes now around 11% of advances. Is it just a one-off or there is some change in the strategy of the bank?
No. I am not too sure whether we have said that the co-lending will be exclusive percentage, at least in public. Okay? I do not think we have said that. Having said that, as a bank, there are reasonable caps that we have at a product segment location level, which we do not want to bust because of inherent risk reasons. As far as co-lending is concerned, we are pretty much comfortable with the kind of book growth that we are getting. We are comfortable with the yield that we are getting, the book growth that we are getting. I will tell you some of the philosophy on co-lending. It is very important that we should articulate that.
We want to do co-lending with partners who are either not in the product that we have or not in the segment that we have or not in the location that we have. We make clear who we want to do co-lending with and for what. Right? Tomorrow after getting experience of this unknown product, unknown segment, unknown location, will we go into it? That probably exists. The fact is we keep extremely clear Chinese walls to ensure that we were non-predatory in that level. This comes with low or very little operation cost, hence the cost-income ratio. At the right yield and at the right risk framework, it is a good partnership to get into as long as you have chosen the partners right.
Understood. Sir, as you mentioned that co-lending would give you lower yields but should have a lower OPEX as well. On the return perspective, does this product give us a targeted ROE of 1% or is it lower or is it higher? Any perspective you can share on the same?
Unfortunately, I wish I could, but I can't. No. We don't do product-wise ROE. But obviously, the kind of business that we do has to be accretive in nature. Otherwise, why will you do business? Right. It has to make sense for both set of parties if you're going to do it for scale that business.
Understood. Sir, next question is on cost of funds. Our deposit growth has been pretty good as compared to the industry. Because of which the cost of funds has seen some increase because of liquidity concerns in the system. Do you think cost of funds have peaked now or they could increase further?
Look, last quarter also, I said I expect this to be stabilizing in the next quarter, and that has not proven true. Okay? M It's not because we took a Tier 2 capital, which usually is a slightly higher cost than normal deposits. That contributed, but that's not the only reason. There is a tightening which is there. Maybe, who knows, Q1 could tell us a real story but have been proved wrong last quarter. So frankly, I don't know whether that opinion really matters. Right? So what we are looking for is to ensure that we get the right constituent, the right components. Get retail deposits, small ticket size, as far as possible individuals and small businesses.
Get the constituent right so our LCR norms are well and truly and very comfortably met. But on cost of deposits, one really can't tell. All we can say is that the deposits that we used to book three years back when it gets repriced is fairly at a similar kind of rate. It is not a question of repricing the stock which is creating an increase in cost of funds. But it is undeniable that there is a tightness of deposits in the market, and you know that from the industry published figures as well.
Understood. And sir, our targeted ROA 1%, so there were three levers. One was cost to income and other income. On both of these aspects, we are within touching distance of our targeted range. But on the NIMs part, that is one area where we are pretty far from our targeted range. Going from around 3.2%, 3.3% NIMs to around 3.5%, 3.6% NIMs, how long do you think it will take us to reach that level to achieve our targeted ROA 1%?
This is what I was telling Mona, who asked a question earlier. If you were to look at the last three quarters, the top line was leading. We were around the 18%, 19% consistently. But the NII was lagging, and therefore the bottom line also was lagging, a single-digit growth. Now we are seeing NII growth at 15% YoY. There is a 15% YoY increase on a 20% growth in the top line. You will see the NIM benefit actually coming through when the volume benefit translates in entirety to the NII growth. I am not saying it is a 20%, but let us say it is a 20% top line. And then when the top line grows at 20%, the NII also grows by a similar 20% YoY. That is where you would see us inching closer to the 3.3% kind of NIM that we are targeting.
Having said that, every second decimal point improvement, whether it is cost to average assets or fee, is a fight. There is a lot of work happening on that count to get that moving. Also remember, our credit cost is 0.38%, whereas the guidance is around 0.45%. So we have to cover for that also because the steady-state scenario is that it is around 0.45%, 0.5% kind of number. So we have to cover for that also. The management team is aware of it, is working on it. How well we execute and how fast we execute will tell the story. I think directionally we are going right and what we are watching is how are we moving directionally. Is every quarter directionally better than the previous quarter?
Sure, sir. Thanks for answering my question, sir. I will join back in with you.
Not at all. Thank you so much.
Thank you. Next question is from the line of Nitin Aggarwal from Motilal Oswal. Please go ahead.
Yeah. Hi, good evening, Praveen.
Hi, Nitin. How are you?
Hi, Praveen. Thanks, and congrats on good numbers.
Thank you very much.
One question I have is on margins, which is a key metric for us to achieve 1% or higher ROA.
Right.
How confident are we to improve NIMs to 3.6%, 3.65%, especially as the deposit markets remain tight, liquidity remains in a deficit, and going ahead with potential rate cuts, yields may get further impacted. How do you look to drive this? Any color that if you can provide around the incremental disbursement yields and the book composition in respect to the repo and MCLR linkages. Covering this entire piece, if you can provide some color because this is very key for us to reach 1% ROA.
What we're doing is, I'll tell you first what we are not doing because that's very important. In the chase for higher NIM, we are not going to move out of the risk framework or the business strategy framework that we have put for ourselves. The reason for that is we have seen the bloodletting that the market does. The market, frankly, is red in its tooth and the claw. It kind of bites you back very badly during tough times. That is something which we will not be exploring. So within the risk framework and the business strategy framework, we are reassessing our portfolio because if you were to look at the portfolio, you have all kinds of loan level. We are working out strategies to improve the ROA and ROE for the loan. How do we improve that?
First diagnosis is very easy, right? INR 47,000 crore of loans. Which are the ones which are cutting it? Which are the ones which are not cutting it? We know that. Now, that's the easy part. The difficult part which we have embarked upon is where those loans are not cutting it. How do we ensure that we get additional revenue through a variety of products the bank has? Mostly it will lead to increase in fees, specifically core fee income. You can't negotiate and get a higher rate of interest. But what you can do is you can get a higher revenue. We have started doing that already, and you're seeing some benefit of that in the improvement in the core fee income over the last three, four quarters. I'm not saying all of it is because of the good work that we've done.
It's really an arduous task. It's not easy to go back and cross-sell various products that we have. More than 50% of our INR 47,000 crore book is mortgages. Mortgage for us, it has always been a low engagement product. Now we are unashamedly, shamelessly going back to the customer, finding out ways in which we can offer something he or she wants in the financial market, which would help him or her and also would help us get revenues from the second or third product that we are offering. Tough task, not easy, difficult, but that's how we are planning to improve the ROE at the loan level. It may not increase your NIM, but it definitely will improve your overall revenue from the customer. End of the day, frankly, it doesn't matter to us because stickiness increases the second product.
There are so many other benefits that comes through. A lower cost of fund provider will not be able to take that customer away from us. Theoretically, there are a lot of benefits, but practically how well the team and I implement this will mean how fast we get to the desired ROE.
Right.
Sorry, long answer, but it is very important that we share with you what our thought process is.
No, definitely. This is very helpful. Thank you so much, and wish you all the best.
Thank you very much, Nitin.
Thank you. Next question is from the line of Rishikesh from Robo Capital. Please go ahead.
Hi, Rishikesh. How are you?
Yeah, I am good, sir.
Rishikesh, sorry to interrupt you, but your audio is not clear. Can you come in a better reception area, please?
Am I audible now?
Oh, very much.
Okay, great. My first question.
Rishikesh, sorry to interrupt you, but again, your audio is breaking. May I request you to rejoin the queue, please, or reconnect the line? Okay, sure. Thank you. Next question is from the line of Rakesh Kumar from B&K Securities. Please go ahead. Rakesh, may I request you to unmute your line and go ahead with the question, please? Rakesh Kumar, can you hear us?
Maybe he will come back. You want to go to the next?
Yes, sure. Participants, you may press star and one to ask a question. Next question is from the line of Gaurav Chand from Prabhudas Lilladher. Please go ahead.
Yeah, thank you. Just one question. On the MFI front, what kind of a timeline do you envisage in terms of the pain that could be recognized in the upcoming quarters? Any color on that?
I wish I could tell you an answer. I wish I knew myself. But what we're seeing in the industry when you go to credit bureaus, et cetera, is that every subsequent month looks worse than the previous month. That's a very pessimistic answer. But I wish we see an improvement happening, but right now, the honest answer is we don't know.
And sir, if you could just sort of also give out as to what kind of stress has already been recognized of the overall MFI portfolio. If you could just throw out some numbers, please.
Page number 26 has it. It doesn't have it, is it?
No. That's why I've got 4%.
Actually, it's all mixed up in the others. So you probably get a sense of how that is moving. See, because it is a small portfolio.
Yeah.
It is a small portfolio, so it is getting kind of submerged in that others column. It is not big enough for us to show separately.
Understood. Sir, just wanted your sense on the normalized credit cost. Before COVID, if I had to look at your historical numbers, we were at somewhere between 60- 80 basis points. Now with credit cost normalizing for the system and other banks, what sort of levels could we envisage after this MFI pain is entirely recognized?
Well, having said that, MFI is a small. See, in the overall context of things, for us, it is a very small percentage of PIE. This 16%- 18% credit cost is actually unreal because, and I will tell you why it is unreal. Because we had a large restructured book and the restructured provision was taken for these customers.
Sir, please let me interrupt. I meant 60- 80 basis points pre-COVID.
I'm not too sure whether it's right, but somebody can check this out. My understanding was that. I'll have a look at March 2020 or even March 2019. That will be a good number. Hold on for a minute. Let me see whether you're right. If you're right, then I probably don't have an answer, but I think you're not totally correct. We'll check it out. Can you hold on for about 10 seconds if you can, please?
Yes. Please, sir.
I'll just check for because 2019 is a good time to check. Because March 24, 2020, we already had declared COVID and we had taken incremental provisions, or most banks had, we also did. So 2020 March may not be the right year to look at. We'll have a look at.
Yes
2019 and see where we were.
Yeah, I am looking at the numbers. 2019 was about 64 basis points. That is provisions divided by average loans, and it was 77 basis points in 2018.
Just hold on. We will tell you in a moment. Let me answer the second part of the question. Where do we see this? We see normalized credit cost somewhere between 45- 50 basis points. That is what the model usually supports. The reason why we have been consistently lower, and even in Q3 we are lower, is that we are getting a diminished return benefit on the resurrected book being there. I will have a look at March 2019 and get back to you. Somebody is furiously searching for it. Is it correct? Yeah? Is it correct? It is not correct?
No.
We are just checking.
Sure.
Gaurav?
Yes, sir. I am there.
Let me see if I can provide you an answer right now. Otherwise, I can send you by email after checking. What I will do is we will get to send you a trend line of the annual credit cost of DCB Bank for 2018, 2019, 2023, 2024, and now. Let us have a look at it. Based on that, we can revisit this question, if that is okay with you.
Sure. No problem, sir. I am done from my end. Thank you so much.
If you do not hear from us, please call. I am sure you will hear it. I am happy to take this question. I am happy to come online with you and talk to you, give you the answer for this as well.
Sure. No problem, sir. Appreciate that. Thank you so much.
Thanks.
Thank you. Next question is from the line of Amit from Robo Capital. Please go ahead.
Thanks for the opportunity.
Amit, your voice is sounding nice and clear.
Great. My first question is on the profit and sale of investments. If I look at the last year and for FY 2024, the number was, I think, INR 33 crore. The first nine months, we have booked about INR 100 crore+ . This quarter is also healthy, I think around INR 35 crore, INR 40 crore. What should we forecast that number for FY 2026 and 2027? Broadly, what is the annual run rate there?
Look, I will not be able to comment on that because what we do is we forecast the core fee income. Internally, also, we look at the core fee income and we have a clear plan, a clear goal on whatever is core. Then we look at one-offs which can happen both at the opportunity front and the risk front. That is how we plan our budget for three years go forward. To answer your specific question, it depends upon how the interest rate movement happens. In fact, what I will do is I would request Ajit Singh, who heads Treasury, to kind of give his views also. Hold on.
Amit, actually, it is easier to predict at least for a 12-month horizon for rate of interest. Please note that for sale of investment, a decent portion would come from equities by way of IPO. For that, it is very difficult to make a projection for coming one year. We do not know how equity market will evolve and what kind of IPO will be there and what kind of premiums will be there on that. It is very difficult to, but generally for a rate of interest, we understand that going ahead, interest rate should decline. This is a fair projection. It is a question of time. Like somebody may be predicting for one quarter, it may take two quarter or so. But it is very difficult to predict for equities, actually, how IPO market behaves. So we are not able to give you the precise numbers for that.
It will be a little unfair on our part to give a guidance to the market on that.
Sure. My understanding or my interpretation from outside was that whenever there is a one-off on the cost side, maybe some treasury profits can be booked instead of that one-off so that some run rate can continue. Is that a fair assessment or it's not like that?
Sure. Assessment in the sense that please note that we are typically NIM-centric bank. Although we do book one-off income, we have a calculation on how our yield on existing assets will behave going ahead. Part of income we may be booking, but it's not that everything that is available on the plate we finish it off. This is the way. Interest rate, we believe that there could be decline and DCB Bank may be booking trading income. In the present regulatory environment, only 5% of HTM book is there. One-off like during the first quarter, it's not available. That's what we can book. If we decide to book, we can book. But it would be unfair to give you a projection for the coming financial year for that. Because we don't know how equity will be.
Yeah. Sure. Thanks. I have a second question on, I think I joined the call a little late, so apologies in case this was discussed earlier. There was a write-off of about, I think, INR 80 crores odd.
Yeah.
Can you share some details on that?
Last year, our write-off, if I remember right, was about INR 69.3 odd crore, maybe slightly short of INR 70 crore. This year the write-off was about INR 71 crore. It is in line with the normal write-off which we take. That continues as normal. It is a mix of various products which we have gone through and the residue which remains is written off. But for the front lines it is business as usual. They continue to collect, and we continue to get recognized income on collection of these on a go-forward basis, also in bridge and ramps.
Okay, perfect. I mean, was there a one-off there? Because in December quarter there was a bump there, right? But on an annual basis, you are saying there is no one-off. It is really good annually. Is my understanding correct?
Yeah. No, it is a normal one.
Yeah.
Ravi, you want to comment on that?
I mean, if I look at December, the Q3 numbers, I see INR 84 crore there on slide number 26.
That includes the-
OTS.
It includes write-off, haircut sacrifices, OTS, all put together. We give a complete download on all kind of sacrifices that we have taken during that particular quarter.
Again, out of that, is microfinance contributing large portion out of that? Is there some color available on that?
No. It is a combination of accumulated stuff. Microfinance problem and NPA is a new phenomenon. We don't want to give it up this early. We'll continue our multiple levels of collection strategy including legal, including feet on street, including calling, all the works, so before we write off anything. These are not necessarily NPAs, at least not currently. Maybe two years down the line, possibly some of microfinance also could come in.
Sure. Perfect. Thanks a lot.
Not at all.
Thanks for my time.
Not at all.
Thank you. Next question is from the line of Ravesh from JM Financial. Please go ahead.
Okay. From Ravesh on a big set of results. One thing I wanted to understand-
It is coming little muffled. Can you speak through the handset, please?
Hi. Is this better now?
Much better.
Okay. Thank you. That's a very great set of numbers. What I wanted to understand is that how the average ticket size expansion works in terms of the economics. Understanding is maybe the yields will be lower. There is the cross-sell income higher end. Is the lower cost initially, does it compensate for sacrifice on I mean, how does that work?
Okay. First of all, the higher ticketizing hasn't shown any appreciable material movement. At least not enough material movement to create a dent in the cost or improve the productivity. That has not happened yet. Also, the yield will have a slight impact had it gone higher. So we still are trying. That really hasn't caught fire, so to speak. Right? So why we want to get in that segment is that overdraft product INR 50 lakhs is something which we have an inherent advantage over the type of competition that we deal with, which is mostly NBFCs. So that's why we're going a slightly higher ticket size within the same framework. But to say, "Is it working?" No, it is still very much WIP. We're not particularly happy with the kind of movement that is had.
Therefore, it's definitely not the reason why the cost income is improving or the reason why cross-sell income is improving. The cross-sell income is improving primarily because we're going after the old customers who had not been gone after. We've been reaching out to asset customers. In the branch business, there is much more of transaction digital as well as physically to enable cross-sell. On the asset side, primarily on the mortgage side, we've been kind of pretty dormant about it. I mean, there's one interaction at the beginning, one or two interaction during the tenure, and then whenever the customer closes the account, closes the home loan, that's another interaction. So we're trying to change that, reaching out to these customers, and they have same financial requirements as just about anybody else. So there we are seeing a slight uptick happening on the cross-sell related fee income.
But that is what we have seen now. So if we are able to increase, we are able to double the ticket size. So in that segment, the yields will be lower, right? The yields will be lower there.
Obviously that's an opportunity for us. From INR 27 lakh if we had to go to even INR 45 lakh, that's at least a 60%-70% improvement in productivity. So we still are at it, and theoretically, will it result in a reduction of yield? Maybe, but the net revenue will definitely be positive for the bank rather than negative. Because the price differential between INR 45 lakh and INR 27 lakh or INR 26 lakh is hardly anything.
And sir, how is the sourcing mix in our mortgage business? I mean, entirely in-house or are we dependent on the DSA for a large portion?
We continue to be partly dependent in the big cities. There is a dependence in the smaller towns. We are fairly doing things on our own. The ratios have not changed too much.
Okay. Thanks for this. Thanks a lot.
Not at all.
Thank you. Ladies and gentlemen, that was the last question.
Neil, thank you very much.
Go ahead, sir. Would you like to give any closing comments?
That's it. We're back to the drawing board, back to putting our nose to the wheel. It's a challenging market out there. It's not easy. But we have a task on hand and we're just taking fresh guard and facing the next ball. That's where we are.
Thank you very much. On behalf of DCB Bank Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines. Thank you.
Thank you very much. Bye-bye.