DCB Bank

DCB Bank reported strong growth in Q3 FY25, with customer deposits increasing over 20% year-on-year, loans and advances up 22%, and the overall balance sheet growing 20%. The bank achieved its highest-ever core fee income of ₹141 crores. Despite a challenging environment, the Net Interest Margin (NIM) slide was arrested, showing a 15% year-on-year growth, supported by an uptick in yield on advances to 11.44% from 11.38% in the previous quarter.

Asset quality remained relatively stable with Gross NPA at 3.11% and Net NPA at 1.18%. Mortgage slippages showed an improvement, decreasing to ₹37 crores in Q3 from ₹46 crores in Q2. However, management acknowledged significant headwinds in unsecured and microfinance (MFI) lending, noting that their over 4% MFI book is experiencing industry-wide pain with no clear timeline for recovery, contributing to higher NPAs in this segment.

The bank's yield on advances improved to 11.44%, but the cost of funds continued to inch up to 7.20%, contrary to previous expectations. Management is focused on improving productivity and cost control, aiming to bring the cost to income ratio below 62.4% (revised from an earlier 55%) and the cost to average assets to 255 (from an internal milestone of 260). The normalized credit cost is targeted at 45-55 bps, compared to the current 38 bps.

Co-lending contributed to the incremental growth, with its share in advances increasing to 11%. The bank engages with over seven partners across various products including home loans, school finance, unsecured business loans, gold loans, SME, and commercial vehicles. Management emphasized a strategy of doing co-lending in product and location segments where the bank does not have a presence, aiming for low operational costs and accretive returns within a defined risk framework.

Capital adequacy stands at a healthy 16.29%, bolstered by the recent infusion of Tier-2 capital. The deposit franchise showed strength with savings account growth upward of 17% and the top 20 deposits accounting for a low 6.97% of total deposits. Despite a recent jump in the CD ratio, management reiterated its strategy to bring the CD ratio back to lower levels by growing deposits more than loans, indicating a focus on strengthening the liability side.

Management described the market as challenging but expressed determination to improve profitability and efficiency. Key strategic areas include enhancing cross-sell income, particularly from existing mortgage customers, and improving ROE at the loan level. They aim for NII growth to eventually reflect the top-line balance sheet growth of 20% and are targeting a 1% ROA, acknowledging the arduous task ahead.