Ladies and gentlemen, good day and welcome to DCB Bank Limited's Q4 FY 2024 earnings conference call. Joining us on the call today are Mr. Murali Natrajan, Managing Director and CEO; Mr. Praveen Kutty, Designated MD and CEO; Mr. Ravi Kumar, Chief Financial Officer; and Mr. Ajit Kumar Singh, Chief Investor Relations Officer. 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 0 on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Murali Natrajan, MD and CEO. Thank you, and over to you, sir.
Thank you. Welcome to this annual results call and the fourth quarter results call. I also have in the room here our Chief Risk Officer, Mr. Sridhar Seshadri; Mr. Gaurav Mehta, our Head of PR and Marketing; and Mr. Pankaj Sood, who is our Head of Retail Branches. Then, of course, some of the support staff that we have. I just want to highlight a few points, and then we will open up for questions. I hope all of you have received the results, the press release, and also the investor presentation, and had time to go through the same.
What we are quite satisfied with the way things are progressing is that I think we are on a way to keep doubling our balance sheet between three to 3.5 years, which is what we were achieving till March 2020, and we got a little interrupted by the COVID-19 pandemic. Second thing is that deposit growth is ahead of loans growth, which is our intended approach. We have ensured that the top 20 deposits remain within 7%. The overall approach is how do we bring it down below 5%? We have invested some more headcount in our frontline branches. When you invest in resources in the frontline, it takes time to get the productivity up. We are moving in the right direction on gross NPA and net NPA.
Once again, we have demonstrated that our recovery upgrade is very strong, which is also one of the reasons why our credit costs are lower. We haven't had much of a problem, just as we expected on the standard restructured book. The gross NPA slippages, recoveries, all that includes the standard restructured book as well. Again, in terms of provision coverage, things are moving up. We also had a small uptick in NIM. Our intention is to have a NIM of around 365basis point- 375 basis points, which we will be hopefully able to achieve by the mix change and mix of products, both on the deposit side and on the loans side. The headcount increase this year has been about 1,500 odd.
Yes.
Vishal?
Sounds right.
We will continue to invest in our frontline is what our intention is. Overall, we are moving in the right direction, and we believe that with the kind of investment we are doing and the business model that we have, we should continue to grow and improve our profitability. With those words, I would like to take questions.
Thank you very much, sir. We will now begin the question-and-answer session. Anyone who wishes to ask questions may press star and one on their touch-tone phone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Mona Khetan from Dolat Capital. Please go ahead.
Yeah. Hi, sir. Good evening, and congrats on a very good set of numbers. Firstly, on the fee side, if I look at the full year, the traction on fee growth has been fairly strong at 28%. I just want to understand, one, what are the levers, and two, could it continue growing at a faster rate versus assets?
Yeah. I will have Praveen, our CEO designate, answer the question. What I would like to highlight to you is that last year, the PSLB income, when I say last year means FY 2023, our PSLB income was about INR 25 crores.
INR 25?
Before that, our PSLC income was INR 75 crores. This year, we are almost, maybe INR 2 crores, INR 3 crores. Which means that we are still generating PSL assets, but the market has kind of been very weak on the fee. We have been able to make it up with the rest of the activities and initiatives.
I would like to ask my colleague, Praveen Kutty, to talk about the fee and what he expects going forward.
Hi, Mona. If you look at the core fee income, there are five components to it, which primarily comes from insurance distribution, processing fee, trade fee income, and FOREX, and cards, and other charges. Other charge is more for behavior changes. It is not a revenue mechanism, but it adds to the fees anyways. We had a decent insurance distribution fee coming up, which has offset the opportunity loss from a PSLC perspective, and what Murali spoke about earlier.
Right?
23 has become far lesser than a. It is a single-digit number. So, it is virtually gone out of the market. So it has been replaced by insurance distribution income. The higher disbursements which you have seen have resulted in higher processing fee generation. The trade finance and FOREX income looks sustainable and repeatable. We have income coming from our debit card, travel card more, which is also contributing reasonably well. These are the components, and these would be the components going forward also, which will be giving us the fee growth that we are aspiring for.
Sure. Would it be fair to assume that your fee growth will continue to be higher than the overall growth in assets?
I think it will be in line with balance sheet, and that is what we've been maintaining all through. Of course, if our cross-sell percentage improves in the branch banking and all, we could perform better than balance sheet growth.
Also, just wanted to double-check. This PSLC income, does it fall under commission income in your case b ecause for most others, it's not part of the core fee?
No, no, it's not part of our core fee.
Okay. Got it.
At one point in time, it was like a core fee because we were making it every year, although we call it a trading kind of a fee, but it was. But no it doesn't, our answer is no.
Okay. The core fee would be the INR 388 crore for the full year, and the rest of it, and it will fall in the non-core other income part.
Yeah, in non-core also, we are working hard. It is not that we are going to destroy value there. But what we are focusing is the one that moves with the balance sheet or ahead of it, that kind of approach.
Sure. Got it. Secondly, again, when I look at the CASA, the traction this year, though off a low base, has been fairly good and unlike what we are seeing for the rest of industry. Just wanted to understand what is helping in this case and could there be further traction from here? Thank you.
So if you see our deposit growth, it has been near 20% growth. Our CASA growth has been around the 17% mark. From a savings account perspective, we are one of the banks which gives both one of the higher rate of interest as well as perhaps the lowest rate of interest. At the lower end, our rate starts at about 2.25%, and the higher end, it goes all the way up to 8%. So, it gives you a whole spectrum. The rate is not the real reason why you get the incremental savings account going. What keeps it going are certain innovative products. We have launched something called DCB Happy. We spoke about it in the quarter three call also. That has really improved in quarter four in terms of customer savings accounts coming through.
Effectively, you get a cashback on UPI transactions subject to a particular number of transaction, value of transaction, and the amount of balance people keep with us. New products have helped. DCB Bank has now got full capabilities on all kind of tax payment, CBDT and GST. This got rolled out in the last quarter, and the initial take-up adoption rate has been very heartening. What this basically means is that customers does not have to go to another bank for doing this critical transaction because as you are aware, we concentrate mainly on the SME self-employed segment. So having GST into our armory has really helped our savings account grow. We will continue to be savings-focused rather than CASA-focused. So our way to go will be savings account, small ticket savings account would be the way we will be going. And we have also lastly added extra manpower.
Feet on street has been significantly increased to get the CASA new-to-bank customers going. A combination of three, four factors is what is helping our CASA. Again, to sum up, the new innovative products which we are giving. Number two, this whole new set of services that we are able to give to existing customers on the tax front. Number three, increased feet on street. And to a certain set of people who have short-term, large amount of money to be kept without really knowing when they want to utilize it, there is a higher rate which we give in savings account also.
Got it. That is helpful. Thank you so much. I will come back in the queue. And all the best.
Thank you.
Thank you. The next question is from the line of M. B. Mahesh from Kotak Securities. Please go ahead.
Hey, Murali. Thanks a lot. Hope for a good retirement ahead to you. It is good to see you here, sir.
Thank you.
I thought I'd just make that point across. Just to come back on the quarter, sir, a couple of things. One, you have seen yields improving and so has the cost of deposits. If you can just directionally tell us where you are on this journey.
Yeah, I'll ask Praveen to take that question, because if it is a difficult question, I said today it should be done by Praveen. We'll put him in the firing line now.
Hi, Mahesh, good to hear from you.
Good to hear from you.
What's happening is that our NIM increase has happened. We are, for the full year, at 3.65%, and for the quarter, at 3.62%, which is driven by a few factors. You can actually see that. One is the yield on our investment and on our assets have significantly had an uptick in quarter four as compared to the previous quarters. Number two is that from a collection efficiency perspective, our GNPA has come down. This has really helped us in terms of getting the accruals going. There has been a small change in the mix also. In Q3, we had said that we are realigning and would like to do more of LAP within the mortgage umbrella as compared to home loans. That ship is slowly turning, so that also has had an incremental advantage coming through. So these three things from the yield side.
Maybe some element of hybrid fixed-rate loans coming into the floating rate is giving us a positive buoyancy because whatever the EBLR change that will happen, the 2.4%, if you remember, over a six-month period, that pass on happens only at the time of fixed rate loan becoming floating rate. These four factors have helped our yield grow. From a deposit cost perspective, possibly we are seeing the tail end of that particular curve. Over the next one month, half quarters, we could see a stabilization happening based on the historical trend which we see. We had extrapolated that. Probably over another month and a half, we would continue to have repricing of deposits on renewal at a higher rate.
Perfect. If I were to just kind of complete the entire conversation, directionally, margins will be down in the next couple of quarters because some of these one-offs is non-recurring. Is that the way to see it?
Yeah. See, Mahesh, if you remember, last quarter and the previous quarter also, we said that we have taken the benefit of the repricing of the EBLR and the catch-up on cost of fund is happening. We believe that should bottom out in about a quarter or two quarters maximum. Beyond which, we should hopefully get the entire benefit of the volume increase.
Perfect. Second question is, cost growth has now kind of more or less slowed down here. Directionally, revenue line grows faster than cost growth from here onwards?
See, from our incremental cost deposit perspective, we will be focusing-
No, I think he's talking about the cost.
OpEx costs.
Operating costs.
So on OpEx, if you review cost to average assets, we are at 2.69%. Traditionally, what happens is that the increments in employee cost uptick happens in quarter one, so as normal. Then we will see our go-to position is we want to be at a 2.5 kind of percentage cost to average assets over three to four quarters going through. Where will it come from? Primarily, it will come from increased productivity. As you can see, disbursals are going up. There is quite a lot of activity happening on the digital space, which is helping us cut down the operating costs.
For example, Mahesh, one area, collection, we probably have operated with a flat headcount or maybe even slightly reduced headcount in the last six months or so, primarily on account of productivity, improvement in portfolio, and digital intervention. But I don't think our model will be that you will continue to add about 1,000, 1,200 people because we want to keep adding frontline so that we keep building capacity to grow our because there's an opportunity out there.
Perfect. Done. Thanks a lot, sir.
Yeah, thanks, Mahesh, for your help. Thanks.
Thank you. The next question is from the line of Prabal from Ambit Capital. Please go ahead.
Thank you for the opportunity. My first question is on the MFI business. This business saw an uptick this quarter. What is the approach here? How are we thinking about-
I am sorry to interrupt, sir. Your audio is not clear. May we request you to use your handset, please?
Is this better now?
Yes, sir. Please proceed. Thank you.
Okay. Thank you, sir, for the opportunity. My question was on the MFI business that saw an uptick this quarter. What is the approach here, and how should we think about this business going ahead?
So in MFI, we have two types of business. One is lending to MFI companies and lending to end customers through the BC route. The end customer BC route has seen a steady growth. I don't think there's been any major uptick. In MFI lending to BCs, we have seen opportunities emerging because of our understanding of that NBFC MFIs, and we have been able to improve our lending to that particular segment. Other than that, if I was to look back last many years, we probably were the first or second lender to most NBFC MFIs which came into the industry.
Prabal, from a cost also sense, the MFI business that we do is to ensure that we meet all the PSL categories and the subcategories. We are picky and choosy which state we go with and which BC we go with. Currently, the entire book is less than 5% of the book. It's even far less than 5% of the overall book. You would see the growth in line with the overall balance sheet growth.
Got it. When we lend to MFI NBFCs, is the yield commensurate with, say, lending to individual customers in the MFI business, or what's the differential there?
I don't think the lending rate to MFI and lending to individuals, the MFI consumers through the BC route, that's not information that is publicly revealed. I don't think we could answer that question, Prabal.
Okay. The reason I was asking was a 1% increase in, say, MFI shares can have a positive impact of 10 basis points on the overall yield. I wanted to understand if you are going for NBFC lending, then that impact might not be that much.
Prabal, we are in the MFI BC business and MFI business in order to meet the difficult part of our Agri PSL and the SFMFs and things like that, right? As you know, MFI business looks very good for three, four years, and then suddenly it has some problem. We want to have lot more consistent results and not want to deal with that kind of situation. We are very focused on keeping it at about 5%-6% of our exposure. I don't believe that even the new management would be Your point is valid. If you say that if you increase by X, and then you can get a yield, we can increase by multiple times and still get lower. But is that what we want to do is the question. We have other opportunities which are much better, which is where we will focus.
All right. Sir, second question was on the co-lending. One of our partners had to stop disbursement. How are we sort of navigating that? Because the co-lending book had come down from INR 35 billion- INR 32 billion-INR 33 billion.
Prabal, you are right. One of the gold loan co-lending partner, that volume has stopped coming in for reasons which are known. But we have worked close to, say, eight different co-lending partners across different products and customer segments in multiple geographies. What we are doing is, while the dust settles and whatever the right action will be taken over a period of time, the time being in that now, we will wait for that opportunity to come back. There are other partners with whom we are engaged. This particular co-lending guideline came in May 2021, and I think in the year 2021, 2022 itself, we had kick-started the co-lending business. We were one of the early mover, prime mover, in this particular segment, and we have multiple relationships.
There are incrementally originators coming online, and that will continue, and that whole affiliate-driven business is something which will continue. But would it replace volume- for- volume what has stopped in the market? No. In the short term, there would be a reduction in co-lending, but there are many other partners who we are working with, and we should see the co-lending book coming back to the kind of levels that we have seen.
And this happened in March, correct?
4th of March.
4th March. We've hardly had any time to and it happened in a very abrupt manner, so we haven't had much time to kind of think. But we have other tires. Hopefully some of the tires will come through to compensate for some of the volume that comes.
Got it. Sir, and just last one clarification, this uptick in yield, so 11.71%, this is organic in nature. There is no one-off in this.
No. No one-offs. Even last quarter, we never said there are any one-offs or anything. We track one-off problems separately or opportunities. But no, there are no one-offs.
Got it, sir. Thank you, sir, and all the best.
Thanks.
Thank you. We will take the next question from the line of Jai Mundhra from ICICI Securities. Please go ahead.
Yeah. Hi, good evening, sir. Thanks for the opportunity. Sir, first question is on your SA growth strategy. You have a staggered rate, and you offer, as you mentioned in the opening remarks also, that you offer lower and maybe at another spectrum, you offer one of the highest rate in the industry. On a QoQ basis, the SA balances have grown at 2%, despite you offering one of the highest rates. Is that satisfactory or you think there is some one-off and hence, because of this pricing strategy, we should see slightly better outcome or this is more or less in line with your expectations?
No, I think, Jai, we discussed this in our last quarter calls also. Praveen has mentioned to you that we saw rates are very low at the low end and high at the high end, catering to completely two different segments. The reason why we are keeping higher rates on one end is to make sure that the flexibility that is required by some of the HNIs, instead of keeping in term deposit, are keeping in savings. The actual growth is always coming from the low to mid-end because there we are offering innovative products. For example, we launched a product where we give cashback on UPI, both incoming and outgoing, and the information that we have from our frontline team is that product is doing very well and the average ticket sizes have improved better than what had we not offered that thing.
We are monitoring the SA cost very carefully and because we are offering the 8%, I do not think you should think that that is where our SA rates are. We do not publish our SA composite rate. But I can tell you that our SA strategy is actually helping us to reduce the cost of funds and cost of deposits.
Right. I wanted to get a comment on the growth. I know the product is very good. Of course, it should take more load, but the QoQ growth of 2% was slightly, it looked like it could have been done better. That is what I wanted to have a comment on. If this 2% is satisfactory in your view, or you think there is something which is, and hence it can go up. That is the question.
Hi, Jai. Praveen here. I will answer that. In this year, what has happened is that there has been a tightening on liquidity in most part of the year. There are two things which we are very cognizant of. Our CD ratio has remained flat at sub- 83 levels. All right? And we have grown deposits by almost 20%. Third thing which you need to keep in mind is that our top 20 has decreased to 6.57%. At one point in time, it was over 7% . Effectively, what is happening is there is a granularization of the book, and that is what is growing. In an environment where the retail term deposit rates are attractive, there is a propensity in the market for savings account customers to move their money into retail term deposits in the same bank.
Some amount of cannibalization happens, and we are very comfortable with it. Now, how we are countering it is that we have built up our, a lot of the increase in people, which Murali spoke about earlier, has come in the frontline deposit mobilization unit, which is solely focused on getting CASA going. Number two is that we have partnership with some relevant fintechs, which is contributing pretty well in terms of good profile, new to bank savings account customers. This is a partnership we have with Niyo, and you probably would have seen advertisements in some of the media as you probably see. I talked about street on street. We talked about partnerships. The third element which comes into play on the savings account piece is from new accounts that we are providing. There is a very large cross-sell machinery which is at work.
If you see, 54% today of our asset book is mortgages. Right? So there is a very active cross-sell happening to these customers where we are getting incremental savings and most of them are SMEs, so they open their personal savings account with us. That activity has come up to a different level. So three verticals are working on this, and we expect in line with the balance sheet growth of savings account to happen during the course of time.
Right. Thanks, Praveen. My second question is, if you look at slide, I think one that gives the yield on advances on a YoY basis. The increase in yield on advances in FY 2023, where most of the rate action happened, that is somewhere around 35 basis points. From FY 2024, where at least the policy rates were very stable, our yield on advances has risen even further at more than 50 basis points. Of course, I can understand some lead lag, but what is driving this better rise in yield on advances in a year where there is no policy action? Of course, part of that could be explained by some of the lower net NPA that we had. If there is anything, if you can add a little bit.
Jai, it perhaps is not correct to assume that the entire advances book is comprising of EBLR, and therefore a benchmark rate change alone will change the rate of the existing portfolio. You continue to have fixed rate loans and you continue to have marginal cost, lending rate loans, plus you have EBLR loans also. Some of these EBLR linked loans are fixed in nature for a certain period of time, afterwards it becomes floating as well. There is a composition of the asset book which is there in most banks, in our bank also. That's one point we have to keep in mind. Right?
As and when this hybrid part fixed EBLR linked loans come into the floating rates scenario, then the repo rate increase of 2.4%, which all of us knew of, between September 2022 and March 2023, kicks in some form or the other, depending on when those particular loans are brought. That's one part of it. The second part of the yield increase is coming from improved sourcing yield. The third part of this is coming from better mix. If you remember, last quarter also we spoke about this, that we are kind of shifting, at that point in time, 52% mortgage, now 54% mortgage, more into LAP than from home loan. Going into the home loan was a part of the COVID safeguard fortification strategy. Now COVID is done and dusted, so now we are going back to the pre-COVID levels of higher BL, higher business loan.
There is an increase happening on that count also. Lastly, the point which you just now mentioned, less slippage, more recovery, more upgrade, not just recovery, more upgrade, which means the customer continues to bank with you. The NPA customer continues to bank with you. You get the benefit of the X number of months of interest accrual, which you de-recognized, plus incremental revenue also come because the customer is post NPA regular with us. All these factors contribute to what is resulting in the change in the yield. A long answer for a short question.
No, that's very helpful. You said that there are few products wherein the starting rate is fixed, but over the tenure it will turn into a floating rate product for the customer. Is that the understanding?
Yes, that's right.
This would be what? Business loan or mortgages? I mean, because
Could be something else also. It's available across various products. Most floating rate loans have the part hybrid floating facility available.
It will necessarily turn into floating rate, right? Because the customer may not want that, because if it is subject to customer discretion, then he will not-
At the beginning, the customer can choose a fully fixed rate loan or a fully variable rate loan or a hybrid loan. But fully fixed is only in commercial vehicles and tractors and also very less.
The hybrid, at some point of time, necessarily will turn floating, right?
Yes.
Thank you, sir. Last question, sir, is a small observation. If I total the disbursement this year and last year, there is more or less similar disbursement. But there is a drop in the repayment, the calculated repayment. That seems to be driving, or at least contributing to the loan growth. Is there anything within the loan product which is keeping the repayment rate lower? Or that is a kind of a general thing that year to year repayment rate may differ, or there is something structurally within the product segment that repayment rate seems to be declining. Thank you.
Essentially, quarter four 2023 had a reasonably high composition of TReDS which forms a part of SME. TReDS are typically qualified A loan, average qualified A loan, which gets turned around. It is a liquidity management tool for the bank. As and when there is a short-term opportunity available, you go into TReDS. If it is not, you go into longer term loans. That is why if you are looking at the page number 22, there is a INR 838 crore disbursal coming under the SME that has now reduced to INR 500 crore. Reduced every quarter and now reduced to INR 500 crore. Effectively what is happening is the longer-term loans is coming into play now.
Right. Thank you and all the very best.
Thank you. Thank you very much.
Thank you. We will take the next question from the line of Rohan Mandora from Equirus Capital. Please go ahead.
Good afternoon, sir, and thanks for the opportunity. I just wanted to understand, the frontline people that we are adding with this regular liability accretion incrementally. As an external entity, if we have to track how effective they have been in terms of generating liabilities over the next one, two years, sir, what are the metrics that we should track? Obviously, total deposits per branch or per employee can be one metric. But anything else that you can indicate would be a better metric other than this?
I think total deposits per total business per employee and total deposits per branch is, I think, effective because when our product team and our frontline team make continuous comparison on through-the-door acquisition capability and productivity of various banks. It's not very difficult too, because you conduct a lot of interviews and you know what kind of scorecard they are operating in various different banks. So we know where we are and where they are at. Of course, there are some differences here and there, but we know that. So I think that is the best metric overall to keep tracking.
Sure. And sir, in terms of the KRAs that these people would have who are focused on liabilities, would that be different from a normal branch employee or they would have all the KRAs on asset as well as liability that a branch employee would have?
They're all part of the branch.
Okay. Just trying to understand in terms of the focus, has there been any change in the KRA with respect to the liability accretion this year versus last year?
No, there are some employees who do multi-product, except like mortgage, we have a separate team. For loans, generally we have a separate team. The branch team always does deposits, CASA, term deposits, fee, and gold loans. Of course, within this, there are employees who only do deposits and do nothing else. So because depending upon their, the scorecard would be different for them. So there are all types like that. Therefore, it depending upon, for example, a person who is paid INR 6 lakhs or INR 10 lakhs could be having a slightly different scorecard from somebody who is an entry point kind of an employee.
Sure. And sir, any guidances for slippages next year?
If you look at the model, we essentially work on a model of NIM of 3.65%-3.75%. Fee, tending towards 1% of average assets. And the credit cost, typically around the 28 basis points-30 basis points mark. What you see now at 16 basis points, I think it is not a sustainable kind of credit cost number. It typically will range somewhere around the 28 basis points-30 basis points kind of mark on an ongoing basis. But having said that, we have about INR 1,300 crore of NPA pool to work on, and most of them matured from a legal perspective. So, SARFAESI orders in many cases have come through or are in the process of coming through. There is also a large amount of, all are secured. In fact, that is one thing about the bank, and most of it is secured by self-occupied residential property.
Effectively, the moment orders come in, customers find a way of reprioritizing their payment towards keeping their house than to some other activity. That's how most of our credit cost reduction is coming from. But on an ongoing basis, I think the model, you should assume a 0.3% kind of model number to go with.
Yeah. The approach is that we are running a very capital-efficient model. So our risk weight asset conversion is very low, as you can see. And it has been low over the years because that is how we find the model is. And given the current capital situation, I think we probably will look at our capital. And we haven't proposed an enabling resolution. On Tier two, the bank has always had an approach of being slightly opportunistic, and as and when there is an opportunity to pick up some Tier two, I think the team will work on that.
Sure. And sir, on the previous participant conversation that we were having on the fixed/floating rate, the hybrid loans. I just want to understand, what would be the proportion of total loan mix right now that would turn floating in the due course of time?
We don't disclose that information on that. But if we disclose it, we'll disclose it for the entire set of investors.
Sure. Sir. Thanks.
Thank you. We will take the next question from the line of Krishnan ASV from HDFC Securities. Please go ahead.
Yeah. Hi. First of many thanks, and thanks for taking this question. First of all, wanted to congratulate, first of all, on an extremely rewarding tenure. I know it tested you right in the beginning for the first few years. I think it has been wonderful to watch you at the helm. I think a lot of credit to you and the way your team has run DCB Bank over the last few years. So wish you all the very best, Murali.
Thank you. That is really very kind of you. Thank you very much.
I just have one query. Given the kind of regulatory environment where the RBI has been fairly stringent on looking at partnerships between banks on, and anything that they do on the digital side, you have a partner, which is not just helping you digitally acquire NTB customers, but also in the field, where it is super FOREX cards, which has not been very kindly taken to by the RBI in the past. Just wanted to understand what kind of safeguards do you have in place to make sure that you don't fall foul, or DCB Bank does not fall foul of the RBI laws. Because no matter how conservative lenders are or how they push the envelope at times, it seems that the RBI is scrutinizing a lot of these relationships with a very fine comb.
Just want to understand what is it that makes you feel comfortable that you're on the right side of regulations here? Is the bank currently being investigated or scrutinized for this relationship at all?
Who is being scrutinized for this?
He is asking whether we are being scrutinized. Krishnan answered that. This may sound like a repeat of the master circular, the master direction, but that's the question you asked, so here's the answer. How does it work? The video KYC-based customer identification process is done by the bank. The audit of that particular process happens concurrently, and that is done by the bank. Once the customer is onboarded, it's a savings account customer, just like any other digitally acquired customer of the bank. When these customers either use the card domestic or forget the card. Use the account domestically or internationally, the AML flags which are in the system come into play. We are reasonably confident about our AML flags which are there in the system.
And we look for anomalies, including one to many, many to one, usage of the card abroad with the app showing that the customer is in another country. A whole host of things is something which we do. We are not wholly predicated on one partnership for our program. Why we are part of this particular partnership is because there's a space which we want to be in, and if done right, can considerably help the bank. So effectively, it's about how strong your customer identification and onboarding process is. It's fully in-house. Second is about how well you manage the transactions of the customer, and is as per what we believe the customer is capable of. Third is the technology angle to ensure that the transactions which happen internationally matches with the GPS, et cetera, of that particular customer, in the same place.
And fourth, I almost forgot to tell you that, if this information is, the data is exclusively with DCB Bank and not with a partner. The partner does not have visibility to any of the information. It's tunneled through. So these are various things that we have done, and the last piece is from what the letter of the master directions are concerned with in this regard of both co-partnerships as well as digital account opening and partnerships. It meets the conditions that we have currently. But what you said is right. There is a heightened scrutiny of the regulator, not only on this area but in multiple areas. And our belief is that we will always play conservative than go by the philosophy of being aggressive. For us, we internally say that anything gray is black.
Understood. That's helpful. Okay, so this is extremely useful to know and quite comforting as well. The other bit was, very often lenders don't walk into this or say, let's assume that lenders don't walk into this with their eyes open. Sometimes they think they are doing the right thing and they are going by the letter and the spirit of the regulations. But still, the RBI seems a little super vigilant and a bit stringent on making sure that digitally, whatever is happening digitally is completely above board. Just to reiterate, the earlier query, is DCB Bank currently being probed or investigated on this? I'm sorry I'm having to repeat this.
Yeah. So, let me take that. First of all, I want to say that we can't comment on what is the regulator's approach and what they are planning to do and how they are doing. We can't comment on that. When you talk about digital lending, I am not aware of any digital lending that we are part of. I think we have examined several fintechs and probably didn't feel comfortable in terms of their approach and what are the regulations and so on. The digital thing that Praveen was referring to was on the deposit side on Niyo, and as far as we can see, we seem to be following all the guidelines, but the regulators have the right to keep raising the bar on these and we have to make sure that we follow. You are using the word investigative and things like that.
I am not aware of any investigation and so on. But you know that in the risk-based supervision, at any point in time, any of the regulated entity can be called upon for any information and so on, and that is a new way of how the regulations are being applied and managed. So that is my response to your question.
Great. This is very helpful. Thank you, Murali . As I said, wish you the very best ahead. Thank you.
Thank you very much. Yeah.
Thank you. We will take the next question from the line of Rakesh Kumar from B&K Securities. Please go ahead.
Yeah. Hi. Thank you, sir. Thanks for the opportunity. And all the best, Murali, sir, for the future endeavors and future ventures.
Thank you. Thank you so much.
Yeah. Sir, just I had a question similar to what previous participant had on this floating EBLR, T-bill, MIBOR or maybe repo. So if we can get the breakup of EBLR, MCLR and fixed rate loan breakup in this quarter, March- end and December quarter, that would be really of great help.
Yeah. We are not presenting those details. I don't think we have ever presented those details. The way we approach is there is a mix of products that is there on the deposit side, there's a mix of products on the and we know that in the model it yields about anywhere from 365 basis points- 375 basis points. Of course, if we have in any one quarter some more NPA or we end up having some repricing issue, even for that matter, let's say we have borrowed money from NHB or SIDBI, and they happen to fall due for some repricing and that quarter gets impacted. So these are all so many nuances that go on. The other one that happens is we obviously meet all the PSL norms.
If, for example, there is a shortage there and we have to subscribe to RIDF bonds, which come at a very low rate, that also has an impact on NIM. Overall, I think we would like you to go by saying that the bank is targeting a NIM between 3.65%- 3.75%. The sales team may decide that, look, we are spending a lot of money on acquiring these customers, therefore we need to offer a six-month fixed rate or a one-year fixed rate so that we have some more stability. Those kind of decisions are taken in ALCO on a very ongoing, dynamic basis. Right? I don't think we are ready to present that number to you.
Okay. No problem. No problem, sir. Sir, just wanted to reconfirm that as per the RBI guideline on the EBLR, all the floating rate, all the floating MSME loans should be on EBLR. What part of MSME loan or maybe any other loan that you are offering at the fixed rate at the initial time and then converting it to the floating rate later?
Going back to the same, your first previous question. No. Which is what we are saying, that we don't offer that information, and that information may differ from month- to- month, quarter- to-q uarter, depending upon various meetings of ALCO, our balance sheet, our liquidity position, the way we are generating our deposit profile, and so on. Suffice to say that we have offered for smaller customers the flexibility of taking fixed rate levels. Those fixed rate also might change. Six months fixed rate, one year fixed rate, maximum two-year fixed rate, those kind of things.
Okay. Got it, sir. Thank you, sir. Thank you.
Thank you. The next question is from the line of Dixit Doshi from Whitestone Financial Advisors Private Limited. Please go ahead.
Yeah. Thanks for the opportunity. My question is related to the cost to income and also the growth. You mentioned that we are on a course of doubling up our balance sheet over the next three and a half years. For that kind of growth, what kind of branch addition we are looking at? Or is it the branch addition will not be as significant and it will be more like swiping our existing branch network, which can help our cost to income in that way?
See, we are a pure retail SME bank. Our corporate loan book is about less than 10%. When we started this journey 15 years ago, I remember the corporate book was about INR 1,500 crores on a balance sheet of some INR 3,000, I mean, loan book of some INR 3,000 odd crores. If you have lot of big-ticket loans, your cost-income ratio will be lower. Please compare our cost-income ratio of 63%, 64% to more pure play banks that you may be aware of, who are into lot more retail on the loan side. So cost-income ratio will continue to be high in that model. What you should focus on, in my opinion, is look at cost to average asset.
At one point in time when we were adding people, I think our cost to average asset was even 3.3% or something, which has now come down to 2.69%. As Praveen mentioned, we are working towards bringing it down to a steady 2.5%. If that results in reduction in cost-income ratio, so that's whatever would that be. We don't look at cost-income ratio, we look at cost to average assets. That is point one. Second thing is our model is such that there is so much opportunity. If we add headroom, we probably will add 10,000 more resources, and still we will be able to generate business. But we are spacing it out. I think we have stated in the past that number of branch addition would be 15- 20 per year.
And if the new management team finds sooner success in implementing branches, they may even step it up to 30, 40 or whatever that number is. I think we are fully capable of making those branches, and we are not some regional bank or something like that. We can put up a branch in Odisha, make it a success. We can put up a branch in Madhya Pradesh, we can make it a success. We can put up a branch in Bombay and yet not succeed even where we are very good, because we have not got it right on, say, for example, some people or something. We are pretty good. We have a lot of products. We can make it work. That's the way the model is.
In terms of ROA, where do we target over the next, say, two, three years?
The intention, as we have stated in our presentation also, we are moving towards greater than 1% ROA and greater than 14% ROE. You may see some banks which are having an ROA of 1.5%, but they have a 20% capital adequacy at Tier one. We have 14.65%, and we are giving 0.9. You may want to normalize and see where that. Because if you have a lot of capital, you can definitely get more ROA. We are trying to be more capital efficient. This quarter, the ROE has been 13.48%. I think steady state, we have clearly a 0.9% ROA and about 12% ROE. I think the team will be working towards getting this up through improvement in productivity of the existing resources and the growth, and not messing up any of the other parameters like credit cost and so on.
Thank you, sir. Ladies and gentlemen, we will take that as the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
Thank you. That would be my last call. I am happy to tell you this is my 61st quarter where I have been interacting with you, I just realized. Thank you very much for your support, encouragement, and it has been a pleasure interacting with you all these years. I wish the new management, Praveen and his team, all the very best, and look forward to catching up with you at some other forum. Thank you very much.
Thank you. Thank you, members of the management. Ladies and gentlemen, on behalf of DCB Bank Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.
Thank you.