DCB Bank

DCB Bank delivered robust Q3 FY26 results, with customer advances growing 18.46% Y-o-Y and deposits up 19.54% Y-o-Y. Profit after tax increased 22% Y-o-Y to INR 184.74 crores, despite a one-time^📎 impact of INR 26.87 crores from the new labour code. The bank achieved an ROA of 0.91% and an ROE of 12.73% for the quarter, with operating profit growing 19% Y-o-Y.

Net Interest Margin (NIM) continued its upward trend, reaching 3.27% for the quarter. This was primarily driven by a 10 basis point reduction in the cost of deposits, which now stands at 6.86%. Management expects NIM expansion to continue into Q1 and Q2 of the next fiscal year, barring any significant RBI rate actions, as the benefits of repricing long-duration term deposits materialize, and borrowings reduced from INR 8,400 crores to INR 4,700 crores.

The bank reported its lowest slippage ratio in 18 quarters at 3.08%, and GNPA also reached an 18-quarter low of 2.72%. Net NPA stood at 1.1%, the lowest in 11 quarters. Credit costs remained benign at 0.37%, well below the stated goal of 0.45%, supported by strong recoveries and upgrades which accounted for 86% of fresh flows. The bank aims to achieve Net NPA of 1% or less as soon as possible.

Core fee income was robust at INR 182 crores, driven by third-party distribution, trade finance, and processing fees. Management aims to maintain fee income at approximately 1% of average assets (currently 1.1%) and is actively building trade finance volumes to diversify its fee book. This strategy acknowledges that fee income is less linked to loan growth and more to deposits and other liability-linked activities.

While overall deposits grew strongly, the bank is prioritizing improving its Current Account (CA) deposits, which have been flatlining. Management views CA growth as critical for lowering the cost of deposits and enhancing opportunities in trade finance and the SME segment. A senior resource has been assigned to drive current account growth, indicating its high priority.

Mortgage growth was 12.4% Y-o-Y, with a strategic shift away from DSA-sourced loans towards higher organic sourcing and an increased focus on the Business Loans (BL) segment, which now constitutes over 50% of the mortgage book (down from 54% 4-6 quarters back). The average mortgage ticket size increased by 19% from INR 27 lakhs to INR 32 lakhs. The SME book, currently at INR 2,200 crores, is in an 'embryonic stage' of expansion, with teams being built in new locations, and significant impact expected in 3-4 quarters.

The co-lending book constituted 16% of the total asset book, a slight decrease from 16.22% in Q2. The bank aims to keep this share at 15% or less by March 31, 2026, and expects the co-lending book to grow at the same rate as the total book from FY27 onwards. This segment is largely driven by gold loans, and the bank is comfortable with its current exposure.

The bank continues its focus on efficiency improvements through digitalization and AI, which has allowed it to grow with fewer employees (10,981 vs 11,339 last year). Simultaneously, it plans to increase its physical presence, targeting 500 branches next year. Management emphasized that both continuous efficiency improvement and strategic branch expansion are crucial for achieving growth targets.