DCB Bank — Q4 FY25 earnings call

Call held 1 May 2025

Management summary

DCB Bank reported a strong Q4 and FY25, demonstrating robust balance sheet and loan growth while maintaining asset quality. The bank achieved stabilization in NIM despite rate cuts, driven by strategic deposit cost management and a shift towards higher-yielding organic products. Operational efficiency improved with lower cost to average assets and record core fee income, setting a positive platform for future quarters.

Highlights

  • Balance sheet growth for FY25 was 22%, with deposit growth at 22% and loans growth at 25%.

  • Net Interest Margin (NIM) stabilized at 3.28% in Q4 FY25, a slight decline from 3.29% in the previous quarter.

  • Total fee income for FY25 reached Rs.751 crores, with Q4 core fee income at a record high of Rs.161 crores.

  • Cost to average assets for Q4 FY25 was 2.54%, showing widening jaws (operating income growth higher than operating expense growth).

  • Provision cost for FY25 was lower, with Q4 provision cost at 0.33% on average assets (33 bps credit cost).

  • Slippage ratios in Q4 FY25 were the lowest in the last five quarters, and recovery to slippage ratio was 83%.

  • Gross NPA closed at 2.99% (down from 3.28% at the start of the year) and Net NPA at 1.12%.

  • Capital Adequacy Ratio (CRAR) stood at 16.77% (Tier 1 at 14.30%), supporting a 24.7% advances growth with 23 bps capital utilization.

Key financials

  1. Balance Sheet Growth 22%
  2. Loans Growth 25%
  3. Deposit Growth 22%
  4. NIM 3.3% -0.01%QoQ
  5. Gross NPA 3%
  6. Net NPA 1.1%
  7. PCR 74.5%
  8. Core Fee Income ₹161 Cr
  9. Cost to Average Assets 2.5%
  10. Credit Cost 0.33%
  11. CRAR (Total Capital) 16.8%
  12. Tier 1 CRAR 14.3%

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.

Guidance & targets

Profitability

  • ROA Profitability · next two years · Medium confidence 1%
    So consequently, I targeted ROA of 1%. So NIM was a big piece to help us get to that 1% ROA. So would it be fair to say that that ROA target would also get delayed? Or do we have any other levers in the P&L to offset that?

    — Praveen Kutty, Managing Director and CEO

Provisioning

  • Provision Cost Provisioning · long term · High confidence 45-55 bps
    As a bank, we have always said that our model sustains 45 bps to 55 bps of provision cost.

    — Praveen Kutty, Managing Director and CEO

Operating Efficiency

  • Cost to Average Assets Operating Efficiency · long term · High confidence 2.5%
    The go-to which we have spoken about albeit in a yearly sense is about 2.5%.

    — Praveen Kutty, Managing Director and CEO

  • Cost to Average Asset Ratio Operating Efficiency · near to medium term · Medium confidence 2.4%-2.45%
    Yes. So going ahead on improvement in productivity due to, I mean, technology, especially on mortgage and all processing side, so do we think the cost to average asset ratio, kind of 2.4% or 2.45% is achievable in near to medium term on a sustainable basis?

    — Prashant Kumar, Sunidhi Securities & Finance

Capital

  • Capital Raise Capital · Q2 FY26 · Medium confidence Q2
    I mean, we are looking at quarter 2 for that incremental money to come in.

    — Praveen Kutty, Managing Director and CEO

Credit Growth

  • Co-lending Growth Credit Growth · next year · High confidence not at same level as previous year
    Right. As compared to the current, like next year, the co-lending growth will not be at the same level as the previous year.

    — Praveen Kutty, Managing Director and CEO

Mortgage Business

  • PMAY Integration Mortgage Business · next foreseeable number of years · High confidence integral part of growth plan
    And you'll see that we're promoting it big time. So you'll see PMAY being a very integral part of our growth plan for the next foreseeable number of years.

    — Praveen Kutty, Managing Director and CEO

Risks & concerns

  • Impact of future repo rate cuts on NIM

    medium

    Management stated that while past rate cuts were absorbed, future cuts would limit their ability to reduce savings account rates instantaneously, potentially hurting NIM.

    Management acknowledged

  • Capital dilution at current share price

    medium

    Analyst raised concern about capital raise at current valuations leading to dilution; management stated they would prefer to wait for a better market valuation reflective of the bank's intrinsic strength.

    Analyst acknowledged

  • MFI loan portfolio problems

    low

    Management acknowledged that the MFI loan segment is 'going through its problems' but indicated it's a small portfolio and accelerated provisions have been taken.

    Management acknowledged

  • Uncertainty around RBI co-lending guidelines

    low

    Analyst inquired about the impact of new RBI co-lending guidelines; management preferred to wait for the final guidelines before commenting on their implementation and impact.

    Analyst acknowledged

Areas of evasion (1)

  • specific floating rate book mix

Q&A highlights

2 direct
NIM trajectory and ROA target Direct
So, on the NIM, what I want to tell you is that while there is NIMs compression and to some degree of NIM stabilization, this is not exactly where we want to be. But to get to where we want to get to, I don't think we will be moving away from our strategy of secured assets, granular deposits and granular loans.

Analyst questioned the bank's ability to achieve its 1% ROA target given NIM compression, prompting management to detail levers like fee income and provision costs.

Asked by Akshat Agarwal, SMIFS Institutional Research

Capital raise timing and potential dilution Direct
Perhaps not. We have three consecutive good quarters under our belt. Maybe we will have a few more consistent good quarters under the belt when we go to the market. And we probably will go to the market at a rate which is more reflective of the intrinsic strength of the bank than what it currently is today.

Analyst probed on the timing of capital raise given current valuations and potential dilution, to which management indicated a preference to wait for better market conditions.

Asked by Aditya, Securities Investment Management

Rising cost of deposits despite SA rate cuts Partial
Maybe you should look at it as an opportunistic move rather than a strategic one. You had a 24.7% increase in advances. These advances were coming in with, they are accretive to ROA, even if it meant that it was being funded by higher cost deposits.

Analyst highlighted a discrepancy where deposit costs rose despite SA rate cuts, leading management to explain it as an opportunistic funding choice for accretive advances rather than a long-term strategy.

Asked by Jai Mundhra, ICICI Securities

3 min read 7 chapters

Detailed narrative

Q4 & FY25 Performance Overview

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.

NIM and Cost of Funds Strategy

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.

Capital Adequacy and Future Capital Raise

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.

Fee Income and Provisioning Trends

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 and Loan Book Mix

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.

Technology and Operating Efficiency

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.

PMAY 2.0 and Mortgage Business

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.

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