DCB Bank Ltd Q3 FY2024 Concall Summary

Key Takeaways

• NIM missed guidance, but bottoming-out call made: NIM compressed to 3.48% against a 3.65-3.75% guided range, driven by term deposit repricing and a slow product-mix shift. Management expects stabilization and recovery to begin in 4-5 months.
• CASA ratio turned a corner: CASA improved 109 bps QoQ to 26.13%, helped by new retail products, a UPI cashback app, and a dedicated feet-on-street vertical. The bank calls this the start of a consistent upward move.
• Asset quality pain is seasonal and structural, not alarming: Slippages are concentrated in the known moratorium mortgage pool and seasonal agri book; gold loan slippages are fully secured. Upgrades are already exceeding recoveries.
• The growth engine is fully funded and staffed: Headcount rose 9% YoY to capture demand, and capital is sufficient for at least 12 months of 20%+ balance-sheet growth. A \$10 mn promoter capital infusion is awaiting RBI approval.
• What to watch next quarter: Whether the promised NIM stabilization actually materializes, the pace of the LAP mix shift, and any RBI decision on the promoter capital infusion.

Margin Trajectory & NIM Recovery Plan

• The repricing overhang is fading: The NIM miss has two components: new deposits priced at current elevated rates, and older deposits (taken 18-24 months ago) renewing at those same higher rates. Management says this renewal cycle is reaching its ebb.
• NHB refinancing added to the squeeze: A large part of the margin decline came from repricing by refinance agencies like NHB, given the bank's sizable mortgage book.
• The product-mix lever is taking longer to pull: The planned shift from home loans to higher-yielding LAP (targeting a 100 bps yield differential) is taking root slowly; management needs 1-2 more quarters to reach the desired mix.
• Three recovery drivers are in motion: (1) The LAP transition adds incremental yield; (2) controlling slippages reduces interest reversals; (3) a rebalanced scorecard pushes frontline focus toward lower-cost retail CASA.
• Volume will do the heavy lifting soon: Even with only a marginal NIM improvement, the entire benefit of volume growth should start flowing through to interest income after 4-5 months.

Murali M. Natrajan: "I do believe that this should get stabilized and even assuming that the NIM goes up only slightly slowly over the next whatever because the cost of fund issues are getting bottomed out."

Deposit Franchise & CASA Strategy

• CASA improvement is retail-led, not bulk-bought: The majority of savings deposit growth is coming from retail customers, not bulk deposits; otherwise the cost of funds on savings would also rise.
• Product innovation is driving acquisition: New savings products, seamless onboarding via the Zippy platform, and the industry-first "Happy" UPI cashback product are attracting pure retail, small-ticket savings accounts.
• A dedicated CASA vertical is now operational: A separate feet-on-street workforce has been introduced to focus exclusively on CASA growth, while branches have been redirected toward retail CASA rather than HNI CASA.
• Savings rate risk is contained: The headline 8% savings rate applies only to higher-ticket HNI accounts; the average ticket size is ₹1.5-1.75 lakh, on which very little interest is paid, so savings deposit costs have not risen QoQ.

Murali M. Natrajan: "The 8% and all we say it comes only in higher ticket and HNI. Second, the branch focus is on getting ticket price of our average ticket price I think is probably 1.5 lakh or 1.75 lakh where we pay very little interest, not the kind of interest rate that you see at the top."

Asset Quality: Known Pools, Manageable Pain

• Moratorium hangover is maturing, not worsening: 80-90% of moratorium loans exited between April and June. Capitalized interest raised EMIs, which initially shocks customers; it takes 6-9 months for the pool to mature into recoveries and upgrades. Upgrades are already exceeding recoveries, mirroring customer behavior seen during COVID.
• Agri slippages are seasonal and self-correcting: Tractor and KCC portfolio slippages are seasonal in nature and get recovered over time.
• Gold loan slippages are fully secured: The bank does not worry about gold loan slippages as long as there is no fraud; most get paid off before auction. The segment inherently carries higher slippage and payment delays.
• Co-lending book is not a separate risk pool: Slippages on the co-lending book are similar to the own book because it is a common customer segment; there is no material divergence.
• Credit cost is running well below guidance: The bank had guided 45 bps credit cost but is actually operating at 28 bps.

Murali M. Natrajan: "As long as there is no fraud sitting on the gold loan, we don't worry about it. We don't lose one single night's sleep on that slippage."

Loan Growth & Demand Environment

• SME and business loan demand is broad-based: Clear demand exists across geographies for business loans, LAP, and SME credit from the ₹20-25 lakh customer segment. Rejection rates have increased, and consumption-led urban demand is driving loan and overdraft needs.
• Takeover activity is steady: Stable interest rates have kept takeover opportunities flowing; the bank sees no slowdown there.
• Corporate book is a liquidity tool, not a growth driver: Corporate loans will remain around 8-9% of the overall book, consisting mainly of short-term liquidity management loans.
• CV and TReDS are deliberate run-offs: The CV portfolio has been in decline since March 2020 and is not being actively grown. TReDS business was discontinued entirely to divert resources to higher-yielding, longer-tenure secured products.
• Co-lending growth will track the total book: Co-lending is expected to grow at 18-20%, similar to the overall asset book, but with a product mix shift toward higher-rate products that should aid yield improvement.

Praveen Kutty: "we find that there is clear demand coming from that particular segment both on the business loan front and the home loan front and also on the SME front. And across geographies we are seeing heightened demand for the business loan, LAP, SME customer."

Operating Model & Efficiency

• Cost-to-assets is trending down: The ratio has been brought from 2.87% four quarters ago to 2.63%, driven by scaling and management action.
• OPEX ratio target is 2.45-2.5%: The intention is to grow OPEX slower than income, moving directionally toward that range, though the path may not be linear.
• Headcount investment is front-loaded for future volume: The 9% YoY employee increase covers all frontline segments. New RMs take 3-6 months to become productive, so additions are timed to be ready by April-June to deliver volume by October-November.
• The bank sees itself as an NBFC with a banking license: It competes primarily with NBFCs and does not face major resistance when expanding, while carrying all the regulatory responsibilities of a bank like PSL.

Murali M. Natrajan: "many times I feel that we are actually an NBFC with banking license with all the responsibilities of a bank like PSL and so on."

Capital & Promoter Infusion

• Capital is sufficient for near-term growth: The bank has enough capital to grow the book at 20%+ for at least the next 12 months, after which a decision on raising will be taken. Tier I stands at 13.5%.
• Risk-weighted asset consumption is efficient: The bank consumes only 53-55% of loans booked as risk-weighted assets, which management argues is one of the most efficient models in the industry.
• Promoter infusion awaits regulatory nod: A \$10 million capital infusion by the promoter is expected to receive a favorable response from the RBI.

Guidance & Commitments

Key Metrics