Ladies and gentlemen, good day and welcome to the DCB Bank Limited Q2 FY 2024 Earnings Conference Call. Joining us on the call today are Mr. Murali M. Natrajan, Managing Director 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 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. Murali M. Natrajan. Thank you, and over to you, sir.
Thank you very much for joining this call. We also have Sridhar Seshadri, our Chief Risk Officer, R. Venkattesh, our HR, Operations, and IT Head, and then we have Praveen Kutty, who is our Head of Retail Banking and Agri Banking. Let me just give you a few points and then we will open up for questions. Our advances growth was about 19%, and deposits growth was 23%. The market conditions were tough, so the cost of funds went up, and were not easy to grow CASA balances. That had some impact on our NIM, and we expect this to stabilize over the next two quarters. We will explain in detail a little bit more. Collection efficiency continues to be strong.
While there were slippages in mortgages, primarily coming from customers who have just now come out of moratorium, and there are no more moratorium left, everything is built as of now. Our collection upgrades and recoveries have started picking up. For example, if you see in page 25, last quarter was INR 211 crore of upgrade and recoveries. This quarter is INR 289 crore, which is 73% of the slippages. We expect this number to continue to build, and we think that we should be able to reach similar level to what we were able to do last year in about maybe two quarters or so. If I look at slippages without considering gold, it is at about 2.69%, which is lower than last quarter slippages.
We think that step by step, as we intensify our collections on customers in the restructured pool, we should be able to contain the new slippages, essentially coming from mortgages. That is one. In terms of loan growth, in terms of disbursement, again, disbursement has picked up, and we expect this number to improve in the coming quarters. We started growing our headcount again. Last quarter, you may have seen a lower number on headcount. This quarter is an increase in headcount, and we are building this capacity so that in the coming year, we can achieve higher than 20% growth rate on a year-on-year basis. Our intention is to double the balance sheet in 3+ years. That still is how we are proceeding.
In terms of cost to average assets, that is declining with growth, and we expect that to keep coming down as we continue to grow our portfolio. Those are some of the things that I wanted to mention. Top 20 deposits is just about 7%, and we continue to be very granular in our loan portfolio. 85% of our loan book continues to be at INR 3 crore or below. Credit cost is at 28 basis points, and our capital adequacy remains strong to support our growth ambition. I open up for 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 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 questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. To ask questions, please press star and one. The first question is from the line of Darpin Shah from Haitong Securities India. Please go ahead.
Yeah, hi, and thanks for the opportunity. When you explain about the slippages being lower ex-gold, but if I see the NPAs segment-wise, there has been a rise for most of the segments, whether it is corporate, which you mentioned, sorry, whether it is for mortgages or even the SME segment, and even in the other segment, excluding gold. If you can just throw some light there as well, and second question is on other income. I'll ask that later.
Yeah. Mortgages, all portfolio has come out of moratorium. All portfolio is built. If you see our collection efficiency, including restructured, we are in pretty good shape in terms of restructured. What happens, Darpin, in customers who have come out of moratorium is that it takes about, like I think I explained last quarter also, it takes about three, four months for them to come into the rhythm of paying on a regular basis. As you know, even if they miss once, they miss three payments, and then even if they are making one payment, it remains as a NPA, and it takes time for them to kind of bring back to normalcy. You will see that usually our upgrades are higher than recoveries. That suggests that we are able to get the customer back into regular paying customers through upgrades more than we do on recoveries.
From that point of view, I think we should expect the recoveries to pick up and we have demonstrated that this quarter also because it is already at 73%. Last year, we were demonstrating about anywhere from 98%- 100%, and we expect that because we have adequate capacity in collections to achieve that. SME and all, even if some two accounts slips into NPA, that might show as a uplift. Again, these are cases where we have full security, customers who have missed, for example, that normal 12 circular of not servicing three interests slip into it and then they come and repay and then come back to normalcy. On corporate, it is a very small slippage of some addition to some existing NPA, so I don't think there has been any challenge on that. That is how the things look.
Gold loan, it is at INR 22 crore. We don't worry about gold loan too much. Like I said, we have full security, and we have been able to demonstrate that we can reduce gold loan NPAs at any point in time as the customer comes and settles the loans with us.
Okay. Just to add on, if you can throw light on to when we will see that slippages coming below 2%, ex-gold, like we were pre-COVID or slightly prior to that as well.
I think we have to give ourselves another two quarters at least, I feel. The reason for that is that all these small customers who had gone into restructured moratorium, some part of them take time to come back to the rhythm of repaying their loans. We are on top of it. The good news is that we used to actually have a separate team reminding customers in the moratorium. Now that they are not in the moratorium, we have kind of brought them into regular collections, which is also helping because now we can be a lot more confident in asking the money to come the customer than many when they were in moratorium, for example.
We have collected a lot of money while they were in the moratorium also, to make sure that they do not get into a habit of losing touch with payment schedules and so on. But some of them prefer to stay in the moratorium. But overall, I do not see any issues with the portfolio, and our recovery upgrade performance on some of these customers who have come out of moratorium or restructured also indicates that we have a pretty good handle on the situation.
Okay. My second question is related to margins. In your initial comment, you mentioned about cost of deposits stabilizing over the next two quarters. If you can throw some light there, how much deposits have already been repriced? What is coming next, or what will be coming in next couple of quarters? How do you see that shaping up?
Let me talk about margin and cost of deposits. We are tracking cost of deposit on a daily basis, and we have a good understanding on how the deposit pricing is moving. The deposit repricing of the existing term deposits and all should complete in about two quarters, Praveen?
Another two quarters.
In another two quarters, it should get completed. While that is happening, Darpin, what is happening also is that we have different types of portfolio, right? For example, tractor and gold loan will be in the fixed category. That will not see any improvement in yield except for new loans that we originate. The portfolio cannot be repriced there in some of those. Like for example, CV is about INR 250 or INR 200 odd crore and some tractor, which can't be repriced. Then we have a portfolio which is essentially mortgage, LAP, and home loans, where we give a small period of fixed and then we make it variable. This helps us to kind of make sure that the customer retention is intact, at least in the initial stages.
Many of those portfolios are coming up for repricing in the coming months and start to pick up even more in the next year. MCLR portfolio, which is a declining portfolio, also has a fixed schedule of every quarter passing on the increase. Net-net, what seems to be happening is that we just have to bear with the cost of one increase for about two quarters, and then the entire benefit of volume, we start to gain that post, say about one and a half, two quarters, if I look at our month on basis. That's how our indications are, and we are pretty confident that unless there is some major issue in market in terms of liquidity and cost of ongoing haywire, we seem to be in that path at the moment.
Okay. Just related to it, how much was the margin impact because of slippages during the quarter? That will be specific for my end then.
We don't have that, but some recoveries happen, some slippage happens. I don't think I have that stuff, but I don't think it is a very material number.
Okay.
Because of the recovery upgrades as well. In recovery, you will see the slippages. Say, for example, in slippages, I sacrifice three months interest, as an example, I am just saying. But if I recover some old NPA, which is six to seven months, I might actually gain interest of six, seven months. So it is like a lot of plus and minus in that.
Okay. Thank you, sir.
Thank you.
Thank you.
The next question is from the line of Jai Mundhra from ICICI Securities. Please go ahead.
Yeah. Hi, good evening, sir. I have couple of questions.
Yeah.
Sir, first.
Can you raise your voice, please?
Sure.
Yeah.
First, on your savings rate. At the second of the quarter, we had increased the SA rate from INR 10 lakhs to INR 2 crore bucket to 8%, versus I think slightly below 7%. A, of course, this is maybe at the top end of the industry offering. Other banks that offer such kind of a rate, they have very high yielding microfinance portfolio or some other unsecured portfolio, whereas our blended yields are around 11.5%. You add some blended cost on top of this 8%, regulatory cost, et cetera. Then the incremental margins that would come out of this liability would be much margin dilutive, I mean, broad mathematics. A, what led to this kind of a pricing strategy? B, what could be the proportion in this bucket?
This has come at the second of the quarter, so ideally, the full impact should come in third quarter. A, why this change? Of course, other banks also have such pricing, but they have a very high proportion or a significant proportion of MFI unsecured loan. Your thoughts there.
Yeah. First of all, bulk of our savings account balances come at the lower end of the pricing band. Okay? Let's say, for example, we have 100 RMs in the front line. Not more than 15 RMs can actually be really facing up to high-ticket HNI kind of customers. The rest of the guys all get ticket size of INR 1.5 lakhs, INR 2 lakhs, INR 2.5 lakhs, INR 3 lakhs, like that. So the pricing on the savings account for many of these customers are in the aspirational zone as opposed to actually them earning. But it is slightly better than, say, for example, a public sector bank and all, so we are able to attract customers. Besides that, we also offer some cashback kind of opportunities in some of the products, so that also attracts customers.
Even after pricing it at 8%, I don't believe that that is our price that we pay in overall SA balances. That is point one. Second point I want to mention is, many times the customer retention strategy is that you have to offer slightly higher rate in savings because the customer, instead of giving it at the term deposit, wants to have the flexibility of keeping it at the savings account. So those are the customers that are attracted on that high-ticket, high pricing. And frankly, the customer is paying us less than the term deposit in this particular case because he will actually get all the band pricing, so it will probably come at less than 8%. So I would like to argue that for retention of those customers, we are actually paying less than term deposit rates. So that is our approach on those things.
Okay. But, sir, this could be a significantly margin dilutive strategy, right? Because even if this is-
Jai Mundhra, you compare what is the cost of fund increase on a marginal basis on the last quarter, that is, the quarter that has combined, for all the banks. I mean, we have done the comparison. Our cost of fund has gone up by 16 basis points, right? You can check that. And check with all other banks who may actually be showing different, maybe lower rate in the car or something, and how their cost of funds have gone up. Then we can obviously have a discussion on that.
No, no. So for this quarter, sir, the impact would have been only for three to four days, right? Other banks have seen cost of funds increase by 30- 40 basis points. We are much better off.
Even 80 basis points.
Yeah. So we are much better off, but I think the full impact will come only in third quarter, right?
Not because of the savings rate. Like I said, savings rate at 8% is more of a retention strategy of customers who are getting cannibalized on the term deposit because some other bank is offering that kind of flexibility to them at a savings rate. So better that we actually retain them by this, where we actually end up paying less than 8% because of the various rates that appear in the band.
Okay. Are you seeing very healthy inflows because of this and retention? I mean, fair to say that?
You don't want to lose some of the customer. Like I said, the customers who are acquired by us are all in the smaller band. All the branches, I mean, it's very difficult to get customers at INR 2 crore, INR 3 crore, INR 5 crore, no. It's not easy. Because there are a lot of opportunities for those customers. So bulk of our customers come in with smaller balances, in fact.
Okay. Understood. Second question is, sir, on your disbursement trend and loan growth, right? So loan growth has been very healthy at 18%- 19% year-over-year. But if I look at our disbursement in the last three quarters, that has been negative year-over-year. The growth has been negative year-over-year.
What is negative year-over-year?
The disbursement growth is negative. I mean, there is a year-over-year decline in the disbursement amount.
The answer to that is very simple. We had a product called TReDS, and we have toned down that product substantially because there is a huge amount of competition that we are facing from public sector who are possibly offering far lower rate than us. If you back off the TReDS out of it, year-over-year, quarter-on-quarter, our growth will be quite intact on that. And that was a low-yielding one, so we really don't worry about it. Part of it has got shifted to better-yielding short-term corporate loans.
Right. Okay. Then, sir, on your gold loan strategy as a product. This has been a key focus product. But if I see the portfolio is reducing in percentage terms, and I think in absolute terms also. At the same time, slippages, at least in the last few quarters, have risen, right? Maybe the net slippages would be minuscule because you would end up recovering everything. But the proportion is reducing and the slippage is rising. So what wrong is happening in this product? What is its marketplace?
Nothing wrong is happening in the product. Gold loan slippages are sometimes can also be seasonal. Sometimes it can be that some inefficiency in the branches in terms of following up on the gold can cause slippages. As long as we ensure that there is no fraud or any poor valuation kind of thing in the gold loan origination, we really don't worry from a timing point of view, NPA is a problem, but other than that, we don't worry. As of now, we are focusing a lot also on gold co-lending and other co-lending and diverting some of our branch resources to getting deposits because you would appreciate that last quarter has been tough for the entire market on deposits, and we have grown deposit by 23%, and we want to keep a healthy growth of deposits.
When we do gold loan co-lending with different entities, we don't incur operating costs, and the margin is also very healthy. So part of the capacity has been diverted to getting more deposits. Gold loan is something that we will continue to push as we improve our deposit momentum.
But sir, the proportion in overall loans is reducing for gold loan, at least from the present.
Co-lending has been doing well, no?
For co-lending gold does not come in the gold, right? Is that the understanding?
No, no. There is co-lending gold and co-lending other products. Co-lending gold is not reflected in our gold loan portfolio. It is separately shown as co-lending.
Okay. Our own sourcing of gold loan, why is it not growing? I mean, considering we have-
We have put some of the capacity for deposits in many of our branches because we want to make sure that our retail deposit momentum is strong. That kind of balance we have done to make sure that without giving them additional capacity, make sure that they focus on gold. We change the scorecard here and there to make sure that the deposit momentum is strong.
Right. Understood. Last question, sir.
Also you see the fee momentum because some of the branches are performing quite well on core fee income, which you would have noticed in our presentation.
Yes. Noted, sir. Last question, sir, on your [inaudible] . In the last 2, 3, 4 quarters, that ratio is improving.
Yeah.
And we are steadily making an improvement there towards our goal of 2.2%- 2.5%. That trajectory should be maintained, right? I mean, is the fair way to look at it. This quarter the staffs have increased, but ideally, that trajectory should sustain improvement. That is the broader question.
Yeah. The way we have been looking at our projections for the next three years, making certain assumptions, we will continue to invest in front line. As you know, in quarter one, all the cost of salary increase and all comes in, whereas there is no balance sheet to support. So usually our first quarter cost would be higher without the corresponding balance sheet, the growth. At the time, you may see some here and there increase in cost to average asset. On a long-term trend basis, year-on-year, we expect cost to average assets to come down while we are continuing to invest in increase of frontline staff for us to continue to grow, and our intention is to increase the growth to above 20%.
Right. And sir, if I may ask, I have one last question. So, A, any status update on the MD & CEO appointment. And secondly, there was an RBI notification which said that a bank has to have more than one full-time director. So, your timeline on the appointment of another full-time director also. Thank you.
Whatever RBI guidelines, we will comply with it. So we have to engage with NRC and board to make that happen. I think the guideline has just come about four to five days ago, a few days ago. So we are on top of it. As far as the MD & CEO appointment is concerned, the application has already been put into RBI, and we will wait for RBI to revert to us.
Thank you, sir. Thank you, and all the very best.
Yeah, thanks.
Thank you. The next question is from the line of Mona Khetan from Dolat Capital. Please go ahead.
Yeah. Hi, sir. Good evening. Firstly, you mentioned when you are opening in one of the comments about the mortgage book first coming at a fixed rate and then repricing at higher levels. Could you just explain what exactly happens in this product, and is the entire portfolio in the same format?
I did not catch your question. What is same format?
On the mortgage portfolio, you mentioned that you first give these loans at a fixed rate, the mortgage loans.
No, the small ticket loans.
Yeah.
Yeah. Small ticket loans, see, we incur legal costs, we incur valuation costs. Some of the small ticket customers, at least for a small period of time, prefer a fixed EMI. These small ticket customers, our yield is higher than our average yield that you see in our portfolio, depending upon their credit risk profile, because we have certain bands depending upon the type of product and location, et cetera. We have a pricing grid which we administer on that. When you originate these loans, they are all fixed for a small period of time, and then they come for repricing. We see that whatever loans we have booked in the last year or so, all that is now coming up for repricing month on month.
That starts to build up further next year because our new originations have also started improving since the last many months. All that will start to come for repricing in the calendar year of next year itself. That is what I mentioned.
Sure. Just-
That is only in the small ticket loans. For slightly bigger ticket loan and all, it is fully variable right from day one.
Got it. This fixed rate is typically for a year, then it moves to the floating.
Customer preference. It can be six months, it can be one year. It depends on the customer's preference.
Got it. If I have to understand of your mortgage book, how much of the portfolio is this kind?
Because our mortgage book is very old now. It is INR 18,000 crore. We have been doing mortgage for, I do not have that number readily. All we monitor is how much is coming up for repricing and what is the impact of that on basis points. In our projection, we keep adding those changes.
In the next six months, for example, how much could be coming up for repricing of the mortgage book?
I do not have that, but I think it keeps building up because we started booking more loans if you see in the last 12 months, right? It starts to build up much more by February, March of next year.
Okay, got it. Secondly, on the restructured book. I understand some of the flow-through is happening over the last two quarters. So two things here. One, do you expect this to continue? Secondly, when these loans become an NPA, is the interest reversal typically more than three months because they were restructured and were not paying, or is it typically the similar three months format?
Usually it is only three months, but when we upgrade some of these loans, it could be more than three months because two things happen. If a customer goes into NPA and we have to, let us say, initiate all the legal process and all, the legal process and everything takes about anywhere from three to six months to kind of fructify, maybe even seven months to fructify. But in the meantime, if you are able to negotiate with the customer and get him to upgrade his account, settle, et cetera, then you actually gain all the months' interest that he has not paid.
Sure. Got it. Just finally, on your ROAs, what would be the guidance and what could be the drivers year on for the ROAs? Thank you.
I think two to three drivers are there, but not in any particular order. We are slightly, I would say, delayed on that because of the sudden cost of funds increase that we had to grapple with in the last three months. But we see that situation stabilizing in about two quarters or so. First of all, the growth would help us to improve the, what you call, cost to average assets, for example, would improve and we get the balance sheet. In line with balance sheet, our fee income also is expected to grow. That is one.
Secondly, although it is difficult to grow CASA, what we have done is, we have kind of shifted some of the capacity, like I mentioned to Jai Mundhra, to CASA and term deposits, because we want to make sure that we don't allow the cost of funds to get too much out of control despite the market conditions. We don't believe that our credit cost should go out of whack. I used to give a guidance of 45- 50 basis points. But from the current portfolio, it looks like it can even be 35- 38 basis points. That is how it looks from whatever reading that we have of our portfolio.
Lastly, we are also changing some of the product mix, and this is important for us to know, is that prior to COVID, we used to do lot more business loans and our proportion of home loan was maybe 20%- 25%. During COVID, we shifted our focus to home loans. Again, the same segment. Segment remains the same as self-employed. Slowly now we are shifting it back because now we are pretty confident of the current market situation, our own portfolio. We are shifting this direction to more business loans. That also should help us to give us a few basis points on the NIM. These are the actions that we are taking to get to ROA of 1% and 14%.
Sure, sir. Thank you, and all the best.
Yeah, thanks.
Thank you. The next question is from the line of Sameer Bhise from JM Financial. Please go ahead.
Yeah, hi. Thanks for the opportunity. Just on the restructured portfolio, as you said that none of the current restructured accounts are under moratorium now. How does one expect the upgrade trajectory here?
If you look at our slippages, more slippages are coming out from the restructured and much less from the overall non-restructured book.
Yeah.
However, from upgrade and recoveries, there is no challenge in any of the slippages. Recent slippages, which has happened because of customers coming out of moratorium in, say, for example, early calendar year this year and maybe April, June, et cetera, whosoever slipped out of it will take about six months at least to mature into either a settlement or an upgrade or a recovery action. We expect, and we have demonstrated. Again, if you see our absolute recovery and upgrade this quarter, I think it is about INR 295 crore. If you look at March quarter, we probably were at about INR 300 some crore. I think it is on page 25, if I am not mistaken.
Yeah, page 25. Against INR 306 crore, we are at INR 289 crore. We have demonstrated ability to do upgrade and recovery on this pool, so I expect this number to continue to improve.
Of the balance.
We don't use any collection agency and all. All our collections are in-house. Even a lot of lawyers we have in-house. We feel that we have pretty decent handle on this.
And of the balance pool of restructured loans, how much would be mortgages?
I think much of the pool is either home loan or the LAP and a very small part will be commercial vehicle. Other than that, we do not have anything.
So.
That is the other thing. We never restructured any unsecured loan at all. We probably would have restructured maybe five loans. We never restructured BC loans. The only loan that we restructured was customers who have good track record with us and who are having temporary difficulties, which was mostly in mortgages, home loan, and commercial vehicles.
So 80%-20% split across mortgage and CV would be a-
No, CV will be much less than that. Much less than that. Our CV portfolio itself is very small, as you can see.
Okay. Thank you, and all the best. That is all from my side.
Thank you. The next question is from the line of Gaurav Jani from Prabhudas Lilladher. Please go ahead.
Thank you. First question is, probably I missed the comment, the fee income looks a bit bumped up this quarter. Is it because of PSLC? If you could quantify the same.
PSLC, two years ago, we earned INR 80 crore of PSLC. Right? Last year, I think PSLC was some INR 20 odd crore. Right? This year, I think PSLC will be maybe INR 3 crore- INR 4 crore. We have taken a hit of INR 80 crore on our chest on the PSLC. PSLC, which looked like every year it will improve, for whatever, that's a separate discussion, for whatever reason. We have been continuing to generate good quality PSL and all, but the demand supplying has been a challenge on this particular thing. It's not PSLC income. It's a lot of work done on third party fee income. If you recall, we have told you in the past, maybe few quarters ago that we have a separate team which is training the front line in all the branches, giving them training.
The analytics team giving them support on the kind of customers they should contact. All that is happening, and we hope to continue to build the momentum on this.
Sir, I also appreciate this. Just want to clarify that there are no one-offs out here, right? Could we assume a 90%- 95% sort of a run rate to be done in normal?
There is no one-off on this at all, and we hope to grow fee income in line with our balance sheet growth year-on-year.
Understood. Secondly, coming to the funding profile, if you could just quantify the LCR. The reason I am asking is this is because, over the last one and a half year, we increased our share of wholesale deposits. A sub-question to that is, what will be the funding cost difference?
From where are you getting the information that we have increased the sale of the wholesale deposits?
Sir, the interbank deposits have gone up from 9% to 13.3%. That is the number.
We have the following categories. First of all, top 20 deposits you see has been below 7%. This quarter, it has just slightly increased to 7.06% or something like that. That is number one. We have number of customers in the cooperative bank category, small cooperative bank category, who give us non-callable deposits. That has been our core customer for probably 10 odd years. At the same time, you see, we have continued to grow our retail term deposits as well. From a profile of security and LCR, I think we are in a pretty good shape, except that market has not been very easy for us to grow our CASA balances, and we are putting that effort by shifting more capacity into CASA.
Sir, just a sub-question to that. In terms of funding cost, the interbank deposits and retail term deposits, the cost of funding would be similar?
For what and what?
For retail term deposits and interbank deposits.
No, there are bulk deposits and retail deposits. That's the way the interest rate works. Those are all items published in our website, and you can have a look at that. We probably are one of the banks which publish all the rates, including bulk and everything, in a very transparent manner. I am looking at the deposit rates across the city. Of course, each bank has to choose which is the bucket in which they want to have, what's it called, their peak rates, which is their sweet spot. We keep choosing that depending upon our asset profile.
Understood, sir. That is it from my end.
Yeah.
Thank you. The next question is from the line of Prabal from Ambit Capital. Please go ahead.
Am I audible?
Maybe slightly louder, if possible. Go ahead.
Is this better, sir? Yes. Okay. Thank you.
Yeah. Okay. Go ahead.
Sir, my first question is on PCR provision coverage ratio. That has come down from 68% in March to 64% now. How are you thinking about this ratio? Because our net slippages continue to be greater than 1%.
Our intention is to take it up to 70%, okay, over time. When I look at different categories of loans, where we see the recovery is taking time. First of all, okay, let me just backtrack. Let us say RBI has certain IRAC norms on what kind of provision has to be done on secured, unsecured, et cetera. Our provision is ahead of that RBI norms, and it has been like that for many, many years. If they say X percentage will be provided in a particular time, our provision would be higher than that. Our provision is always higher than what is required by RBI guidelines. I am very confident about that. That is point number one. Point number two, we also have something called specific provision for certain assets.
Wherever we see in terms of some large ticket, especially, let's say, corporate NPAs and all, we see that the recovery efforts are taking time. We have an overlay of provision on that to make sure that we appropriately kind of represent our risk on that to our board and our audit committee. As an example, corporate bank will have far higher coverage ratio for the NPA that is there of INR 248 crore. Whereas in mortgages, we don't believe that we are going to lose money on mortgages or home loans. So even if our coverage is, say, for example, 35% or 40%, we feel that it is far higher. It doesn't mean that we'll stop making provision of that. That aging provision will continue to happen with that.
Got it. Let's say till the time net slippage is normalized, and parallelly, if we try to raise our coverage to 70%, there could be a possibility that credit cost might overshoot 50- 60 basis point guidance that we typically used to.
I never given 50- 60 basis point guideline. I don't know from where you are getting. Just now I gave a guideline that we think that it probably will be 35, 30- 40 basis points. I don't think pre-COVID and post-COVID, my guidelines are being in the range of 40- 45 basis points only. I don't think we have any 50- 60 basis points. Even pre-COVID, barring maybe some aberration in commercial vehicle and all, I don't think we've had any issues on that. That is point one. Point two is please also look at page number 29. Okay? For restructured advances, we have a separate provision of about INR 194 crore. There is another contingency provision of another INR 43 crore, right? So that INR 43 crore, for example, is not counted in net NPA. It's a contingency provision that is there.
While floating provision is counted in. I think our provision coverage obviously can be better, but I think we are very strongly provided at this point in time.
Got it. Can I second question
Why it may not exceed this? Because our recoveries and upgrade also, we expect it to improve. If you do not recover and upgrade, then obviously the credit cost will go up.
Understood. Sir, my second question is that our agri and inclusive banking seems to be growing at a faster clip, 30%- 31% year-over-year. Is this going to be the focus area going forward as well?
Agri inclusive banking has been a focus area for us. If you look at our strategy document and what we have been mentioning, retail, SME, MSME, and agri inclusive banking has been our focus area for past many years. Corporate has not been something that we wanted to grow, but we keep it only for liquidity reasons. There are multiple products in agri inclusive banking, like ACC, tractors, mortgages, MFI and so on. We have separate teams working on each of this. Given that we have almost 190 odd branches in AIB, we believe that we should do very well in AIB.
The yields on the AIB portfolio, is it better compared to, let's say, overall yields of 11.5%?
It depends on product to product. In certain cases, yields are also higher and even credit cost could be higher.
Understood. Sir, you mentioned that to improve our yields, we might start focusing more on business loans. Is this the LAP, loan against property that you were speaking of?
Yeah. We started this journey, with the loan against property, which we used to call as business loan many, many years ago. We used to be at almost 85% of our business used to be in LAP and 15%. Towards the end of 2019 and early 2020, given the market conditions, we changed some mix. What we are seeing is now that we have much more, what is it called, data points and the thing post-COVID, we want to kind of focus a little bit more on BL, which will add a few more basis points to our yield and NIM. That's our intention. We know this business backwards, so shifting some of the capacities or adding some of the capacities into business loans is not something that we would have difficulty in doing.
Okay. Within mortgages, the share of LAP could increase compared to home loans because now we are more comfortable around the BLs.
Yeah. In a step-by-step manner, like over a period of next one year or so, we will keep increasing the share of it, so that we get better yield. Nothing wrong with home loans, and it also comes at a lower risk weight. But now that we have a stronger understanding of post-COVID issues and all, we are kind of shifting some focus into loan against property.
Perfect. Thank you so much, sir, and all the best.
Thank you. The next question is from the line of Manish Agarwalla from PhillipCapital. Please go ahead.
Yeah, hi. Thanks for the opportunity, sir. I have a question about the quarterly repayment rate. If I do a back of the envelope calculations, your quarterly repayment rates have been coming down, despite the fact that a lot of loans have come out of the moratorium. What can be the reason around this?
What is quarterly repayment rate?
You give the disbursement number, and you give the loan number. If I just do a reverse calculation to see what is the quarterly repayments. It used to be, say, 10%- 11% every quarter, and right now the number has come down to 7.5%.
First of all, I am not sure what that number indicates or something because we have a full handle on the repayment of each and every thing. You can see our collection efficiency has been pretty good. I do not think we have any quarterly repayment issues. Let me put it this way. If you are building a portfolio of installment loans, which is what most of our loans are in mortgages, it is what it is. What happens then is, when the new loan proportion keeps increasing, you should expect smaller repayment in the early stage from those loans because that is how it would be. I do not see any major issue with our quarterly repayment, and we are confident that the kind of capacities and the dispersal targets that we are pursuing, we should be able to pursue 20% kind of growth rate.
I got your point. The point I was trying to understand is that, as a strategy, are we renegotiating the rate in order to stop balance transfers?
Hold on. There is a separate team, and I haven't seen any major problems in our monthly pre-closures. The pre-closures are in similar range as it was in last quarter or previous quarter. Usually, pre-closure rates increase in a declining rate environment. We have not seen pre-closure out of our ordinary kind of whatever modeling that we have done. We don't have any concern on that. But having said that, the mortgage team has a separate team which discusses with the customer, and it actually done without causing any pain to the customer because we don't want them to complain to ombudsman and think that we are trying to hold back their loan and so on and so forth.
They are very trained kind of frontline people who try to understand what is the reason that they are going, and we have some model by which they decide what kind of price break that has to be given to the customer for retaining the customer. That activity has been going on for quite some time, and there's a separate team that works on it. In our call center, I don't know, Praveen, whereas they have the call center.
Call center.
Yeah. Call center. Yeah.
Okay. There was one more related to this. As we pass the rates ends, are we increasing just a tenure significantly or how it is working?
Up to a point, it is always a tenure increase. In some rare outliers and all, we may increase the installment. But generally, in mortgage business, since I have been part of for the last several years, you just simply increase the tenure. As the interest rate comes down, the tenure comes down. Simple.
Got it. Finally, sir, your thoughts on CV and microfinance. When do we expect CV business to start growing again? There has been some-
Microfinance, we have signed up couple of more BC partners, and unfortunately, some of our BC partners got acquired by some banks and so on. Therefore, we suddenly were without some BC partner. But we have kind of rebuilt that BC partner, and we are looking for more high-quality BC business associates. So that is all in progress. So I think in the coming months, we should do better than how we have done in the last few months on this thing. As far as CV is concerned, we feel that we will continue to just do cross-sell to our existing customers on CV and concentrate more on business loan and home loan, which we seem to be having a pretty decent understanding and handle. And we expect that to contribute almost 60% in the coming years.
Okay, sir. Thanks for answering my question and all the best.
Thanks.
Thank you. The next question is from the line of M.B. Mahesh from Kotak Securities. Please go ahead.
Good day. Just one clarification on the slide 35, other income line. You can see one line item of the fee income line, which has gone up on the commission exchange. But there is a corresponding drop in others.
Page 35?
Yeah. There's that breakup of the non-interest income. You can see commission, exchange, and brokerages have gone up.
It is INR 97 crore versus INR 77 crore.
Right. But the overall non-interest income is unchanged.
Just hold on a second. Can I look at it first? Just hold on a second. We have to come back to you on that. There is some re-class, but nothing. You are looking at this INR 75 crore versus INR 97 crore, you are saying, no?
Correct. The total non-interest income is INR 107 crore. Commission has done exceptionally well, but others has not done. Just trying to explain what explained that.
Other income.
Mahesh, I'll come back to you. I think it has got to do with the changes in the IRDAI regulations, right?
IRDAI. Okay.
Yeah. In terms of how-
But usually that line item will have recovery from written off.
No.
In case you-
Written off recoveries have been very minuscule for us. I don't think this quarter they've had any major recoveries on that. I don't think that is the item, but I think some IRDAI regulation change is what is reflecting some part of it here.
Okay. Because that explains a big drop in the QoQ change that seems to be one line item which is of an aberration here in this quarter.
Yeah. So that is basically something to do with the IRDAI regulation. I don't think there is anything else on that. The actual amount of business that we are doing on third party also has gathered steam, and we are hoping that we will build further momentum on this because we are really putting in a lot of effort from the corporate office to train and get everyone to focus on the products that we are distributing for two or three of these companies.
Okay. Perfect, sir. This is good. Thanks.
Yeah.
Thank you. The next question is from the line of Darshil from Crown Capital. Please go ahead.
Okay.
Hello, am I audible?
Yes, please.
Hello, am I audible, sir?
Yeah. Yes, you are audible. Please go ahead.
Yeah. Just I think most of my questions have been answered. Just wanted to know that our outlook that we mentioned in the presentation of ROA 1%, that we would target to do it by what time period?
Okay. What we know from whatever we have been able to achieve post-COVID is, 80-90 basis points and 11.5% to 11.75% is consistently possible in that. Unfortunately, last quarter and when this year has started, we have had some cost of fund increase and some of it is still to be passed on to the customer based on the portfolio profile, which I explained. Right? So that all should, hopefully, in the next couple of quarters, we should be able to do that.
Today, we are thinking about it is that, keep growing at least 20% per annum, and we know that the kind of capacities that we have built, we should be able to achieve that, perhaps more, but at least 20% is something in the four products that we are concentrating on, without messing around with any of the liquidity profile and so on. The other focus is, I know difficult times on CASA, but we are thinking that this is the time when we have to put more effort on CASA to help not let the cost of fund go out of control. That is second point. Third is, we believe that our credit cost is actually improving from our previous projection that we have set based on our understanding of the portfolio. And we think that recoveries, upgrades should continue to pick up pace.
All in all, most of the parameter and cost average assets also will steadily come down. All in all the parameters are moving in the right direction and we want to target at least in the next three to four quarters of consistently delivering 1% and 14% and this is the plan that we have. I also mentioned to you about some of the product mix change that we are hoping to do, which has already started.
Okay, sir. Just sorry for clarification, for 20% growth you mean in our loans given, right, sir?
We believe the capacity that we have created, we should be able to achieve it. Our intention is to double it in three to thre and a half years and we seem to be on track so far.
Oh, perfect. Perfect, sir. Thank you so much. All the best.
Thank you. The next question is from the line of Rakesh Kumar from B&K Securities. Please go ahead.
Yeah. Hi. Thank you, sir.
Hi, Rakesh.
Yeah. Thank you, sir. Just, sir, one question, with respect to the provisions that we are holding on the NPA and non-NPA book. That number as a proportion has been coming down. Just to understand that, is it that, like, sort of comfort that we are deriving from the nature of the characteristics of the loans or there is any other reason that we are-
Main reason is when an NPA moves from resurface to, sorry, when an account moves from resurface to NPA, the provision also moves with that. We have recovery and upgrade, we do not need to keep that provision. We have to make provision only for the newer NPA. Right? From a coverage point of view, I also mentioned that over time, we want to take it up to 70% and in that, at the moment, even that INR 43 crore that we have separate as a contingency provision is not considered. I also mentioned to you that from a provision point of view, our provision policy is ahead of the minimum IRAC norms that is prescribed by RBI. From a provision point of view, I do not have any concern on our portfolio.
Understood, sir. Just from a modeling perspective, just to see that what provision that we hold at the end of, say, 2024 or 2025. So this provision as a, like for non-NPA provision for the performing advances, which is 140 basis now. So where should this number go to?
I can't predict that for you. These are all the provisions that created, if you remember, during COVID times, right? During those times, the whole focus was on strengthening your provisions, because it was not very easy to predict how things are going to be moving. Now we have a lot more, I know there are still uncertainties and all, but COVID type of big challenges is not there. Therefore, these provisions will continue to come down but we'll continue to make provision on the NPA portfolio or any other portfolio which we think could be in stress.
Understood. Thank you. Thank you, sir. Thank you and all the best .
Thank you. The next question is from the line of Saik iran Pulavarthi, who's an individual investor. Please go ahead.
Hi, Saik iran.
Hi, sir. Just one question. Hi there, how are you?
Very good.
Am I audible?
Sure. Yeah, you are.
Yeah. Sir, just one question from my side. I think you will be completing 50 years pretty soon. If you have to look back in the journey, how do you, what I can say, evaluate what has gone right, what has gone wrong? Or probably where you are leading this bank, how do you look at this in terms of the platform for someone to come and take it over? Just your thoughts that will be really helpful. Thank you.
Why don't you call me separately and we discuss, because I'm not sure this is a forum where we can and if I share some personal views, then I don't believe that that'll be appropriate for this audience.
No, sir. It's nothing personal, sir, but just as an MD & CEO of the bank because you would have certain thoughts and everything, right? Just thought of checking up. That's all. If you're comfortable, that's all.
No, I'm comfortable, but on a one-on-one basis as opposed to in a group.
Got it. One more question, sir, if I have to see since last two years, you had significantly added capacity in terms of the number of employees and then branches. How do you evaluate the productivity of these, what I think the employees, and whether some more productivity is expected going forward, sir?
Praveen, would you like to answer it? Praveen is a person who adds a lot of capacity, so he's the best person to answer this.
Hi, Sai. Good to hear from you.
Hi, sir.
Let me tell you what we're doing is two, three things. At a very broad level, there is the feet-on-street leg productivity increase that we're doing. At a partnership level, we are increasing the footprint, which allows us to get the desired assets at the rate required through affiliates and partnerships, both on the deposit front as well as on the loans front. The third leg, slow but emerging, is the digital do-it-yourself leg. Three levels to which we are adding onto our top line and also the income. On the feet on street, we have mentorship program, where we ensure that early success is got by our employees because that's a very good indicator which will arrest attrition.
The single biggest problem that we have with new hires, feet on street, et cetera, they're extremely mobile and they get job at the drop of a hat and they keep hopping around all the time. The best way to arrest that is to ensure that they become successful early in their career. Otherwise, it becomes a revolving door. Are we successful at it? We can be better at that, but we are much better than what we were before. There is progress happening on that front. Whilst on the productivity front, we are also seeing improvement in terms of partnership. I'll give you two examples very quickly. One is on co-lending, which we do on the asset side, and the other is where we do partnerships with, let's say, Niyo, for example.
It's basically a use your card abroad proposition through this partnership which we get underlying savings account. That's how we are looking at productivity clearly. To sum it up, feet-on-street improvement, more partnerships, more judicious partnerships and the DIY digital platform.
Great. Thanks a lot, sir. Thank you.
Okay.
Thank you. The next question is from the line of Chintan Shah from ICICI Securities. Please go ahead.
Yeah. Thank you for the opportunity. Most of my questions have been answered. Sir, just one data keeping question on the provisions break up for the current quarter, if you could just help with that.
Yeah, the provision break up, right? Yeah. Hold on a second.
Hi, Chintan. The provision breakdown is the NPA provision is about INR 25 crore. The standard provision is INR 7 crore. We have floating of INR 4 crore, and the others is about INR 3.7 crore. So that totals up to about INR 39.7 crore for the quarter.
Sure. And, sir, just one on the OpEx. So, sir, we have been saying that the branch we have significantly added or build the capacity and now it is time for expansion. Going ahead, any ballpark number on what kind of expansion where would we see them end up? So kind of the branch expansion and the branch and headcount would be relatively quite slower as compared to the loan growth, yeah. Is that a fair assumption to make?
Good. I mean, I've said this even in the past. For the market opportunity that we see and for the kind of understanding that we have of this segment, and also the fact that we have so many years of experience on this, if we had more headroom in our cost-income ratio, we would add lot more people because that is the kind of expansion we have. But we have to pace it out because, on a near-term basis also, you can't sacrifice too much of operating profit and so on. So this opportunity is there to add a lot of frontline employees. And like Praveen mentioned, because of attrition, we also have to make sure that we don't lose capacity and keep adding resources. So I don't think we are going to slow down adding our number of employees on a year-on-year basis.
Of course, as we have crossed, say for example, 10,000, if we add 1,000 that will look like a 10%, but if we have a 6,000, we add 1,000 it will be like a 16,000. So from a percentage point of view it will keep coming down, but we'll keep steadily adding frontline in order for us to continue this growth momentum. However, cost to average assets we expect step by step to come down because of growth and productivity.
Sure sir. Just one-
In terms of branches, I do not think we will add more than 25- 30 branches per year. I think we are quite happy with that addition.
Yeah. Sure, sir. Thank you for that. Just one last thing on the margins part again. So sir, as you told most of the CASA which comes is in the lower pricing band and the rates which we have increased despite that there will not be much rise in the CASA cost. So if you could just share the number of blended cost of CASA, if possible, if you could just share that number for this quarter and the previous quarter as well. If you could help with that.
Which number are you talking about? I am not getting it.
Savings account blended cost.
Overall cost of savings account, blended cost of savings account.
We don't present that number. We are giving you the cost of deposit, which also includes. But the reason why we pursue savings account, although sectors have been a little low because of the market condition, is because it is much more beneficial for us to pursue savings account than term deposit, despite the various bands of cost. Because most of it comes from the lower band of deposit, I mean, lower band of average balance.
Sure, sir. And sir, just one last thing. Your follow-up on this. If you could just help with any broad margin guidance on this, and where should we expect the margins to settle and any trajectory?
Our business model is at 365-375 basis points. There are near-term challenges, which I mentioned at the start. Then there is a balance of portfolio that needs to get repriced over a period of time in the contracted timeframe, which is starting to build up, which will help improve the margin. But some of it will get taken over by cost of fund. What we believe is that over the next quarters, we still have to deal with this cost of fund, which is coming through repricing, renewals and so on. But post which, volume growth should give us the full benefit of interest income growth is what our thought process is.
Sure, sir. This is very helpful. Thank you for answering all my questions. Yeah. Thanks.
Okay. Thanks very much.
Thank you very much. That was the last question. I would now like to hand the conference back to the management team for closing comments.
Thank you very much for dialing in. Look forward to talking to you next quarter. Thank you.
Thank you very much. On behalf of DCB Bank Limited, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.