DCB Bank

DCB Bank reported a strong Q4 and FY25, with the balance sheet growing 22% for the year. This growth was supported by a healthy 22% increase in deposits and a 25% rise in loans. The bank's savings account growth stood at 19%, and the top 20 ratio declined to 6.61%. Overall, the management expressed satisfaction with the growth momentum and improvement in portfolio quality.

Net Interest Margin (NIM) stabilized at 3.28% in Q4 FY25, a marginal decline from 3.29% in the prior quarter. Management attributed this stability to proactive measures like reducing savings account rates and bulk term deposit rates. They are also consistently tweaking fresh sourcing towards higher-yielding products, aiming for NIM convergence with top-line growth, though acknowledging future rate cuts could limit further instantaneous cost reductions.

The bank's total Capital Adequacy Ratio (CRAR) was 16.77%, with Tier 1 CRAR at 14.30%. Despite a 24.7% advances growth, capital utilization was only 23 bps, demonstrating efficient capital management. While a capital raise is planned, management indicated they are 'looking at quarter 2' and prefer to wait for market conditions that better reflect the bank's intrinsic strength to avoid dilution to existing shareholders.

DCB Bank achieved a total fee income of Rs.751 crores for FY25, with Q4 core fee income reaching a record Rs.161 crores. This consistent growth in core fee income is seen as a key lever for profitability. Provision cost for the year was lower, with Q4 provision cost at 0.33% on average assets (33 bps credit cost), well below their model's sustained range of 45-55 bps, despite acknowledged issues in the MFI segment.

Asset quality showed improvement, with Gross NPA closing at 2.99% (down from 3.28% at the start of the year) and Net NPA at 1.12%. Slippage ratios in Q4 were the lowest in five quarters, and the recovery to slippage ratio was 83%. The bank is strategically shifting its loan mix from home loans to higher-yielding LAP (Loan Against Property) and business loans, which offer 150-250 basis points higher yield, while maintaining a conservative risk profile.

The bank's cost to average assets for Q4 was 2.54%, nearing its target of 2.5%. Management highlighted significant investments in technology, including core banking system upgrades, paperless account opening, and digital MFI lending. These efforts, combined with RPA usage, have led to a reduction in the absolute number of employees over the last three quarters, contributing to improved productivity and operating leverage.

DCB Bank views the PMAY 2.0 scheme as a very integral part of its growth plan for the coming years. Management noted that PMAY loans offer a max interest rate of 11.5%, align with their current yield on advances, ensure customer stickiness for at least five years, and provide substantive subsidies. This segment, with a max loan size of 25 lakh, is considered a 'sweet spot' for the bank, leveraging its expertise in assessing new-to-credit customers.