DCB Bank — Q3 FY26 earnings call

Call held 23 Jan 2026

Management summary

DCB Bank reported strong Q3 FY26 results with robust growth in advances (18.46% Y-o-Y) and deposits (19.54% Y-o-Y). Profit after tax increased 22% despite a one-time charge of INR 26.87 crores. Asset quality showed significant improvement with slippage, GNPA, and NNPA reaching multi-quarter lows, while NIM expanded to 3.27% due to reduced cost of deposits. The bank reiterated its growth and profitability guidance for future years.

Highlights

  • Customer advances grew 18.46% Y-o-Y.

  • Customer deposits grew 19.54% Y-o-Y.

  • Profit after tax grew 22% Y-o-Y to INR 184.74 crores, despite a one-time impact of INR 26.87 crores.

  • NIM clocked 3.27% for the quarter, with cost of deposit dropping 10 bps to 6.86%.

  • Slippage ratio at 3.08% and GNPA at 2.72% were the lowest in 18 quarters, and Net NPA at 1.1% was the lowest in 11 quarters.

  • Operating profit grew 19% Y-o-Y, with income growing 16% and expenses (including one-time) growing 15%.

Concerns

  • One-time impact of INR 26.87 crores on PAT due to new labour code.

  • SME book stuck at INR 2,200 crores for some time.

  • Merchant OD product is still in its infancy with not much progress yet.

Key financials

  1. Customer Advances Growth 18.5%
  2. Customer Deposits Growth 19.5%
  3. Profit After Tax Growth 22%
  4. NIM 3.3%
  5. Cost of Deposit 6.9% -0.1%QoQ
  6. Core Fee Income ₹182 Cr
  7. Cost to Income Ratio 61.8%
  8. Operating Profit Growth 19%
  9. Credit Costs 37%
  10. Slippage Ratio 3.1%
  11. GNPA 2.7%
  12. Net NPA 1.1%
  13. Quarterly Profit ₹184.74 Cr
  14. ROA 0.91%
  15. ROE 12.7%
  16. Hypothetical PAT (excl. one-off) ₹205 Cr
  17. Hypothetical ROA (excl. one-off) 1%
  18. Hypothetical ROE (excl. one-off) 14.1%
  19. Employees 10,981
  20. Borrowings ₹4,700 Cr
  21. Mortgage Growth 12.4%
  22. Mortgage Share of Book 51%
  23. Co-lending Share of Book 16%
  24. Average Mortgage Ticket Size ₹32 lakh
  25. Top 20 Granularity 6.6%
  26. SME Book ₹2,200 Cr

What they filed

Q1 FY27: revenue up 9.4%, net profit up 35.7% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue1,568 1,671 1,742 1,814 1,823 +16%1,861 +11%1,907 +9%1,984 +9%
Net profit155 151 177 157 184 +19%185 +23%206 +16%213 +36%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Capital allocation

high confidence
  • Liquidity Liquidity disclosed Management stated no urgency for capital raising currently but acknowledged it would be required for future growth, aiming to increase book value by INR 5 every quarter.
    We have both as a timeline based as well as event based. We are pretty much clear of how much we want to take and at what rate we want to take it. So right now, there is no urgency for capital. But for future growth, we require it. And the belief is that if you're able to increase your book value by INR 5 every quarter for the last n number of quarters.

Guidance & targets

Growth

  • Overall Growth Growth · year-on-year · High confidence 18% to 20%
    As far as the future goes, we continue to remain confident about our guidance of 18% to 20% growth year-on-year

    — Praveen Kutty

  • Mortgage Growth Growth · next full year · Medium confidence 18% plus
    I would tend to think that mortgage will come back to a 18% plus growth, similar to the bank growth in the next full year.

    — Praveen Kutty

Profitability

  • ROE Profitability · '26-'27 · High confidence 13.5%
    and the 13.5% ROE in '26-'27

    — Praveen Kutty

  • ROE Profitability · '27-'28 · High confidence 14.5%
    and 14.5% ROE for '27-'28. That remains unchanged.

    — Praveen Kutty

Asset Quality

  • Net NPA Asset Quality · as soon as possible · High confidence 1% or less
    As a Bank, we want to get to 1% or less NNPA as soon as possible.

    — Praveen Kutty

Fee Income

  • Fee of Average Assets Fee Income · go-forward basis · High confidence 1%
    I think a fee of 1% of the average assets is something which we should be getting through. Currently, let me tell you that we are at 1.1%, but on a go-forward basis, 1% seems very, very achievable on a consistent basis.

    — Praveen Kutty

Co-lending

  • Co-lending Share of Total Asset Book Co-lending · March 31 · High confidence 15% or lesser
    I publicly said that we'll, our co-lending book as of March 31 will be 15% or lesser of the total asset book.

    — Praveen Kutty

Branches

  • Total Branches Branches · next year · Medium confidence 500
    We will be increasing our branches. Next year, we should be touching the 500 branches mark.

    — Praveen Kutty

What to watch in Q4 FY26

NIM Trajectory

Q1, Q2
Current 3.27%
Target Continued upward movement

Why it matters

Key profitability driver, impacted by rate cycle and cost of deposits.

NIM, the upward movement of NIM should continue definitely till Q1, Q2, unless some repo rate action is done by RBI in the coming, in the near future.

Risks & concerns

  • Lagged impact of repo rate cuts on NIM

    medium

    The 25 bps repo rate cut in Q3 will have its full impact on yield on advances in Q4, potentially affecting NIM.

    Management acknowledged

  • Competition in SME segment

    medium

    Real competition exists in the SME segment, leading to multiple offers for customers and conservative conversion rates.

    Management acknowledged

  • Potential regulatory actions on fee income (insurance commissions)

    medium

    Management is diversifying fee income sources (trade finance, processing fees) to mitigate reliance on third-party distribution.

    Analyst acknowledged

  • One-time impact of new labour code

    low

    INR 26.87 crores impact on PAT in Q3 FY26, with marginal incremental impact going forward.

    Management acknowledged

Q&A highlights

7 direct
Sustainability of Fee Income Growth Direct
Mostly, the core fee income has come from a very decent third-party distribution fee income, which we got. The asset growth has been good. So the processing fee by definition looks very good. Traditionally, Q4 is a good quarter for both third-party distribution and also for loan growth. So in the short term, I see that coming through.

Analyst questioned if the 15% Q-o-Q fee growth was sustainable, and management clarified its drivers and future targets.

Asked by Akshat Agrawal

NIM Trajectory and Impact of Rate Cuts Partial
The full impact of the 50 bps rate cut which happened in the previous quarter is taken in Q3, the full impact. So what you're seeing is a lagged impact. For the 25 basis points repo rate cut, which you saw, which has happened in Q3, the impact you will see happening in Q4.

Analyst probed on NIM compression and the lagged effect of rate cuts, which management explained would impact Q4.

Asked by Aditya

Asset Quality Provisions and ECL Implementation Direct
So we're very clear. It's not meant for ECL. It's just that, you see our recoveries and upgrades as a percentage of our fresh flow, it is 86%. That's like we have never touched that before.

Analyst asked about floating provisions, and management clarified they were not for ECL and highlighted strong recovery rates.

Asked by Akshat Agrawal

SME Book Growth and Strategy Direct
Yes, we are in an embryonic stage, right, where we just put in the people in various locations. We found the credit folks, we're setting up the team, right? Now it is working in four locations. There are another six more locations where it has to come in. So you'll see the impact of it happening in about, I don't know, 3, 4 quarters' time, it's a meaningful impact, I mean.

Analyst questioned the slow growth of the SME book, and management explained it's a long-term build-out strategy with future impact.

Asked by Jai Mundhra

Mortgage Portfolio Rebalancing (HL/BL mix) Direct
See, it used to be 50-50. Now it is less than 50-50, like HL is less than 50%, number one. Number two, if you were to look at our investor presentation maybe about 4 quarters back or maybe 6 quarters back, that mortgage used to be 54%. Now it has come down to 51%, okay?

Analyst asked about the flat mortgage growth and the mix, and management detailed the strategic shift towards Business Loans (BL) and organic sourcing.

Asked by Jai Mundhra

Capital Raising Timeline Direct
So right now, there is no urgency for capital. But for future growth, we require it. And the belief is that if you're able to increase your book value by INR 5 every quarter for the last n number of quarters.

Analyst inquired about capital raising, and management provided a clear stance on current urgency and future needs tied to growth.

Asked by Jai Mundhra

Current Account (CA) Deposit Growth Initiatives Direct
So it's very, very high on my priority list and my team's priority list. That we haven't got an action going is another matter, but it's a real high priority. It's got multiple impact on the bank.

Analyst highlighted shrinking CA deposits, and management acknowledged it as a high priority with strategic importance for cost of funds and other business areas.

Asked by Nitin Aggarwal

Efficiency vs. Branch Expansion for Growth Direct
I think it's both. We will, I don't know whether we'll ever stop improving the efficiency. That's a continuous thing. No way. I mean there's no finish line there. So, we will still, I mean, for us, improving efficiency, going digital, war on paper, these are not epithets or slogan, they're real thing.

Analyst asked about the drivers of future growth, and management confirmed a dual strategy of continuous efficiency improvement alongside planned branch expansion.

Asked by Dixit Doshi

3 min read 8 chapters

Detailed narrative

Strong Financial Performance & Profitability

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.

NIM Expansion Driven by Cost of Deposits

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.

Significant Improvement in Asset Quality

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.

Fee Income Growth & Diversification

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.

Deposit Franchise & CASA Growth

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.

Strategic Shift in Mortgage & SME Lending

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.

Co-lending Portfolio Management

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.

Efficiency and Branch Expansion

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.

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