DCB Bank Ltd Q3 FY2026 Concall Summary

Key Takeaways

• NIM momentum builds, cost of funds falling: NIM rose to 3.27% as cost of deposits dropped 10 bps QoQ, with further repricing visibility into Q2/Q3 next year.
• Asset quality at multi-year bests: GNPA at 2.72% and slippage ratio at 3.08% are both 18-quarter lows; credit costs at 0.37% sit comfortably below the 0.45% target.
• Jaws widening despite labour code hit: Operating profit grew 19% YoY even after absorbing a INR 26.87 crore one-time labour code charge, as income growth (16%) outpaced expense growth (15%).
• Deposit strategy pivot is working: The bank is shifting 3,000 branch staff away from price-led deposit gathering, and the last three quarters have delivered cost of deposit reduction, growth and granularity simultaneously.
• What to watch next quarter: Whether mortgage growth returns to 18%+ as guided, the pace of NIM expansion from the full CRR and repo cut benefits not yet boxed in, and any early signals from the embryonic SME push.

Margin & Liability Dynamics

• Cost of deposits on a clear downward path: A 10 bps reduction this quarter to 6.86% follows a 16 bps drop in Q2; the difference reflects the savings account rate cut impact already absorbed, leaving term deposit repricing as the primary driver going forward.
• Repo and CRR benefits still to come: The full impact of the 25 bps repo cut in Q3 will flow through in Q4, and the CRR cut benefit is not yet boxed in either, offering near-term tailwinds.
• Borrowings slashed: Borrowings have come down dramatically from INR 8,400 crore to INR 4,700 crore, reducing reliance on higher-cost wholesale funding.
• Term deposit repricing visibility: Long-duration term deposits give clear line of sight on cost reduction through repricing until Q2, possibly Q3 of next year.
• Current account weakness is the missing piece: Lack of CA growth robs the bank of trade fee income and SME book opportunities; a very senior resource has now been appointed specifically to drive current accounts.

Kutty: "So people are finding it a bit difficult. But low-cost liability franchise is absolutely essential for us in the medium to long term. And I'm pretty much happy with the way the last 3 quarters have panned out because we've got all the three things right."

Asset Quality & Credit Costs

• GNPA at 18-quarter low: Gross NPA fell to 2.72%, the lowest in 18 quarters, while net NPA at 1.1% is the lowest in 11 quarters.
• Slippage ratio at multi-year best: The 3.08% slippage ratio is the lowest in 18 quarters, reflecting improved underwriting and the shift toward business loans.
• Credit costs running below target: At 0.37%, credit costs are comfortably inside the 0.45% goal, and management sees no reason for this to reverse given improving asset quality.
• Floating provisions built for ECL: The bank added roughly INR 7.3 crore in floating provisions this quarter, all earmarked for expected ECL implementation.
• ECL transition not a threat: The bank has been running parallel ECL computations for 3-4 years and finds them more or less in line with current provisioning; with improving asset quality, the higher-of-the-two rule means no benefit but also no shock.

Kutty: "I don't see, I mean it doesn't keep you awake in the night. Let me put it that way, Jai, right? It's more or less in line. And with the increasing and improving asset quality, things will only get better, but you will not be able to get a benefit. You'll only, it's the higher of the two."

Loan Book Transformation

• Business loans now dominate incremental sourcing: BL contributes more than 60% of incremental sourcing, helping interest income, bounce rates and NPAs; mortgage has shifted from a 50-50 HL/BL mix to HL now below 50% of the mortgage portfolio.
• Mortgage strategy overhauled on three fronts: The bank has reoriented the HL/BL mix, increased ticket sizes, and shifted sourcing from DSA-originated to own-originated loans, where customers stay far longer and the economics work.
• DSA reduction is deliberate and permanent: DSA-sourced accounts sometimes fail to recover even the cost of valuation and legal before foreclosure, and with zero foreclosure charges, the bank sees own-sourcing as the only viable long-term path.
• Mortgage growth to re-accelerate: Management expects mortgage to return to 18% plus growth, equivalent to or higher than overall bank asset growth, for the whole of next year.
• Co-lending growth normalizing: After growing 108% last year, co-lending growth has moderated to 60-65%; new CLM 1 rules from January 1 will cap the book at 15% or less of total assets, and from FY27 onwards co-lending will grow at the same 18-20% rate as the total book.

Kutty: "In some cases, you don't even recover the cost of valuation and legal and account fulfillment by the time the customer forecloses and goes away. And with the zero foreclosure charges in many cases, there is hardly any recovery possible. So from a long-term perspective, this is the way to go."

Fee Income & Operating Efficiency

• Core fee income driven by deposits, not loans: Third-party distribution fees and processing fees from asset growth are the primary drivers; management notes fee growth is more linked to deposits than to advances.
• Q4 seasonally strong for fees: Third-party distribution and loan growth both tend to be strong in Q4, supporting the fee trajectory.
• Cost-to-income held despite labour code charge: At 61.84%, the cost-to-income ratio absorbed a INR 26.87 crore labour code impact; the quarterly incremental wage bill impact going forward will be marginal at roughly INR 1 crore per quarter.
• Branch efficiency gains are structural: Pre-COVID branch doubling is now delivering visible efficiency benefits; management treats digitalization, going paperless and continuous efficiency improvement as existential, not project-based.
• Trade finance being built as fee diversifier: The bank is building trade finance volume as a third or fourth string in its fee book to reduce dependence on insurance commissions, which face potential regulatory reduction.

Kutty: "for us, improving efficiency, going digital, war on paper, these are not epithets or slogan, they're real thing. These are like, we'll live and die by it."

SME, Merchant OD & New Initiatives

• SME strategy still embryonic: The bank has just placed credit teams in four locations with six more to come; management calls it a long game with impact visible only in 3-4 quarters.
• SME demand is real and competitive: The bank is losing good portfolio customers to competition offering higher exposure or lower cost; leads-to-conversion data shows customers have multiple offers and increased login activity.
• SME book stuck at INR 2,200 crore: Growth is visible only in installment loans, not in cash credit or overdraft, which is where the bank wants to build.
• Merchant OD progress slow: The bank has not yet succeeded on the OD part of merchant relationships; going back to term loan customers and deepening relationships takes time, with real benefit likely 12-18 months away before it becomes large enough to matter.
• Deposit strategy shift is cultural, not tactical: 3,000 branch banking employees are now selling on factors other than price, a departure from 10-15 years of price-led deposit gathering; management is happy with the last three quarters' results across cost, growth and granularity.

Kutty: "It is, as a bank for the last let's say, about 10, 15 years, we've been, the reason to buy has always been price. That's changing. That has changed. So close to 3,000 odd employees in the Branch Banking system are now fighting a battle in the market where the reason for coming to us is not the pricing alone."

Guidance & Commitments

Key Metrics