DCB Bank Ltd Q2 FY2026 Concall Summary

Key Takeaways

• NIM inflection point reached: Cost of deposits fell 16 bps QoQ, and management believes NIM has "turned the corner" barring further rate cuts, with the liability repricing tailwind set to outrun asset yield pressure for several quarters.
• Credit cost conviction: Full-year credit cost guided below 45 bps, tighter than the model's 45-55 bps range, after a 31 bps Q2 and ~45 bps first half.
• Cost discipline is structural, not cyclical: Headcount down 1,118 employees (9% YoY) while advances and deposits grew ~19% YoY; cost-to-average assets fell for the fifth straight quarter and is expected to settle around 2.40-2.42%.
• Mortgage pivot to profitability: The mix shifted from 50-50 HL:LAP to 65-35 in fresh sourcing, with higher yields, lower DSA payout, and more own sourcing, deliberately trading volume for better risk-adjusted returns.
• What to watch next quarter: Whether NIM expansion materialises as guided, the pace of slippage reduction toward the 2% ambition, and any disruption from the co-lending technology interface change in Q4.

Margin & Liability Management

• Cost of deposits turned decisively: A 16 bps QoQ reduction came from savings account rate cuts (instantaneous), term deposit renewals and new deposits at lower rates, CDs maturing and repricing lower, and reduced high-cost borrowing.
• The repricing maths favour the bank: The liability base (₹64,777 cr) is materially larger than the asset base (~₹52,000 cr), so the saving on deposit repricing outweighs the hit from fixed-rate assets converting to floating. Management is "extremely confident" about the next two quarters.
• Yield decline is mechanical, not alarming: The 40 bps yield drop (11.54% to 11.11%) reflects the 100 bps repo rate cut flowing through over six to seven months, MCLR book repricing lower, and fixed-rate loans gradually becoming floating. On new sourcing, rate cut impact is negligible.
• Term deposit duration works in their favour: Average term deposit maturity is 14-15 months, giving the bank a 3-4 quarter runway of renewal repricing benefit. CASA is only ~23%, so the bulk of the liability book reprices on a predictable schedule.
• Cost culture reset: Management now believes they "were giving more than what we need to give for the kind of growth that we need to get," true for both cost of deposits and operating costs. The constraint is now embedded in decision-making.

Praveen Kutty: "I genuinely believe with the hindsight of Q1 and Q2 that we were giving more than what we need to give for the kind of growth that we need to get."

Asset Quality & Credit Cost

• Slippages improving sequentially: Q2 gross slippages improved sharply from Q1. The unsecured DA and small-ticket LAP book continues to bleed but its impact is decreasing each quarter. MFI fresh NPAs are "progressively getting smaller."
• Full-year credit cost guided below 45 bps: The model suggests 45-55 bps, but management is "reasonably confident" of staying under 45 bps after delivering ~45 bps in H1.
• Slippage reduction is the real priority, not PCR: Management is "very, very comfortable" with loss given default in the system and believes the ECL transition may suggest slightly lower provisions than current levels. Fixing the slippage ratio is the operational focus because chasing NPAs is "a complete waste of time."
• Slippage ambition, not guidance: The target is to bring the slippage ratio below 2% from the current ~2.5% (ex-gold), but management explicitly labelled this an ambition, reserving formal guidance only for ROE.
• SME book degrowth was deliberate: The OD/CC and TReDS book shrank because management cut TReDS significantly after bad experiences in Q4 and Q1 on unsecured experiments. The bank "declared war on high cost borrowing and low-cost assets," tightening across cash, interbank balances, and borrowings.

Praveen Kutty: "I want to fix the slippage ratio. It is unnecessary waste of time. You don't collect one EMI when you have, when you can collect 1, and then you go ahead and collect four EMIs when the customer becomes NPA. It is a complete waste of time."

Operating Efficiency

• Headcount down 9% while the balance sheet grew 19%: 1,118 fewer employees YoY, driven by higher productivity demands and greater technology focus. Cost-to-average assets fell for the fifth consecutive quarter.
• Cost-to-income ratio improved 700 bps then 300 bps: From 67.8% in Q1 last year to 59.97% in Q1 this year, and from 64.23% in the September quarter last year to 61% now.
• Cost-to-average assets settling structurally lower: Management is comfortable below 2.5% and "definitely comfortable" below 2.45% as the year progresses, with a settling point around 2.40-2.42%.
• Slippage reduction has an opex payoff: Even if credit cost stays around the same level, lower slippages reduce operational expenditure. The bigger opex levers remain people productivity and new branch efficiency.

Praveen Kutty: "We have grown our advances and deposits by about 19% y-o-y, despite having 1,118 employees less than what we had a year back. That's a 9% reduction of the employee base, while growing 19% on our advances and deposits."

Growth Strategy & Portfolio Choices

• Mortgage book pivoted to profitability over volume: Fresh sourcing mix shifted from 50-50 HL:LAP to 65-35, with LAP carrying far higher yields. DSA payout reduced, own sourcing increased. Ticket sizes moved up and yields tightened considerably.
• Co-lending capped at 15% of advances: Management will ensure the incremental co-lending book stays at or below 15% of the projected March 31 advances book. The Q4 technology interface change (CLM 1) may cause hiccups; if seamless, sourcing will stop in February to stay within the cap.
• Gold loan is the co-lending backbone: The co-lending book is upwards of 90% gold loans. The organic gold loan book stands at ~₹3,000 crores.
• SME built slowly to avoid past mistakes: The approach mirrors the education institution finance book (₹1,000 crores, built patiently). Management expects to "lose some ₹200-300 crores" in the first year testing the 3-10 crore secured SME segment, then build up over a 5-10 year horizon. No big-bang entry.
• "No to singles" campaign targets cross-sell: The bank wants no customer with only a single product, believing this will dramatically cut acquisition cost and credit cost because these are known customers with history. Results expected only in two to three years.
• 18-22% growth band is sustainable: Management sees enough capacity in the system to generate 18-22% growth going forward, consistent with doubling the book in three to three-and-a-half years.

Praveen Kutty: "Our belief is it will dramatically cut down our acquisition cost. It will dramatically reduce our credit cost because these are customers of the bank. We know them. We have a history with them, but we only have one product history of them."

Fee Income & Non-Interest Revenue

• Core fee income at ₹158 crores: The second-best quarter in five quarters, driven by third-party distribution, trade finance, and cards. Q1 had an exceptional treasury fee income component that Q2 did not repeat.
• Fee income not correlated to asset growth: A substantial chunk comes from third-party distribution, trade fee income, card fees, and processing fees, so management does not tie fee income growth to advances growth.

Capital & ROE Pathway

• Promoter capital received post-quarter: Post-issuance promoter shareholding stands at 16.27% as of October 10, 2025. Tier 1 ratio with the new capital is 15.06%.
• Tier 1 capital rose for the second consecutive quarter despite 18-19% growth, even before the promoter infusion.
• No capital raise needed this year or next: Any future raise would be opportunistic, dependent on price movement rather than requirement. Management would only dilute "at a significant portion above book value."
• ECL transition expected to be non-material: Retro calculation done on an approximate basis suggests it "will not cause a ripple."

Praveen Kutty: "I think dilute at a significant portion above the book value would make sense. Why would you do it at book value also?"

Guidance & Commitments

Key Metrics