DCBBANKNSEQ2 FY'23November 10, 2022

DCB Bank Limited

9,120words
145turns
14analyst exchanges
8executives
Management on call
Murali M. Natrajan
MANAGING DIRECTOR & CHIEF EXECUTIVE OFFICER, DCB BANK LIMITED
Satish Gundewar
CHIEF FINANCIAL OFFICER, DCB BANK LIMITED
Ajit Kumar Singh
HEAD, TREASURY & CHIEF INVESTOR RELATIONS OFFICER, DCB BANK LIMITED
Praveen A. Kutty
HEAD, RETAIL BANKING, DCB BANK LIMITED
R. Venkattesh
HEAD, HR TECHNOLOGY & OPERATIONS, DCB BANK LIMITED
S. Sridhar
CHIEF RISK OFFICER, DCB BANK LIMITED
Meghana Rao
HEAD, BRANCH OPERATIONS, DCB BANK LIMITED
Praveen Kutty
Head Retail Banking.
Key numbers — 40 extracted
rs,
he balance sheet between three to four years. When I analyze our performance over the last few years, what I see is that the first year when we started this journey around 2008, 2009, we had to kind o
22%
of stabilize the balance sheet. From 2010 to 2020, we grew at a CAGR of the loan book at about 22% for 10 years. Then we had about two years of COVID where we have grown at an annual rate of 7% od
7%
22% for 10 years. Then we had about two years of COVID where we have grown at an annual rate of 7% odd. Now when you look at the growth in comparison to last year, we are at 18% already. And we
18%
an annual rate of 7% odd. Now when you look at the growth in comparison to last year, we are at 18% already. And we are confident, the kind of investments that we are doing in the front line and th
13%
sating for some of the shortfall in that. So, balance sheet on a year-on-year basis have grown at 13%. Deposits have grown at 16%. We are doing quite well on CASA; it has grown by 35% and we are almo
16%
fall in that. So, balance sheet on a year-on-year basis have grown at 13%. Deposits have grown at 16%. We are doing quite well on CASA; it has grown by 35% and we are almost close to 30% on CASA ra
35%
s have grown at 13%. Deposits have grown at 16%. We are doing quite well on CASA; it has grown by 35% and we are almost close to 30% on CASA ratio. Loan book like I said the growth is 18%. Our net in
30%
ave grown at 16%. We are doing quite well on CASA; it has grown by 35% and we are almost close to 30% on CASA ratio. Loan book like I said the growth is 18%. Our net interest income has gone up by 27
27%
0% on CASA ratio. Loan book like I said the growth is 18%. Our net interest income has gone up by 27%. NIM is at 3.88. However, I would like to again guide that our approach is 365 to 375 basis point
375 basis point
gone up by 27%. NIM is at 3.88. However, I would like to again guide that our approach is 365 to 375 basis points. The deposit rates are going up. And there is a limit beyond which you can't keep passing on the
49%
building, and you can see the disbursal volumes in our Investor Presentation, which has grown by 49% over the previous year same thing and quarter-on-quarter it has also grown. Again, the growth is
55%
lready talked about the provision. Cost-income ratio is high at 64, but our target is to go below 55%. It will take us some three to four quarters, but we are on track because we are building the vol
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Guidance — 20 items
Murali M. Natrajan
opening
“From 2010 to 2020, we grew at a CAGR of the loan book at about 22% for 10 years.”
Murali M. Natrajan
opening
“So, however, on a year-on-year basis, I don't expect the cost to increase the way it has increased this year, over last year, in the next year.”
Murali M. Natrajan
opening
“Cost-income ratio is high at 64, but our target is to go below 55%.”
Murali M. Natrajan
opening
“And as the lower volume builds up, we don't expect the same level of investments in frontline is required for us next year.”
Murali M. Natrajan
opening
“Both gross NPA and net NPA has come down and we expect to continue to improve this and coverage ratio has also gone well about 70%.”
Murali M. Natrajan
opening
“Again, our target is to reach 14% And then, ROA, our target is to cross 1% on a steady state manner, which is what we are working towards.”
Murali M. Natrajan
qa
“So, I don't expect this kind of slippages from corporate, at the same time we are working on resolution process and we are hopeful that in the coming few months we should get some recoveries on this.”
Murali M. Natrajan
qa
“We expect so… see, I would not read too much into gold loan slippages I explained that in the previous call also.”
Mona Khetan
qa
“Because of this kind of regulation and you are having a material gold book, is it fair to say that our slippage number as well as recovery numbers sort of going forward will remain elevated?”
Murali M. Natrajan
qa
“So, I would expect elevated NPA especially in gold at least for some period of time.”
Risks & concerns — 9 flagged
So, I will say that, at the moment, I don't see too much challenge on that.
— Murali M. Natrajan
Again, I'm seeing improvement in that, but we could do better, but I don't see any concern in the portfolio, post-COVID, things are stabilizing quite well, and even the recovery, upgrades are quite encouraging in SME as well.
— Murali M. Natrajan
So, slowly we are seeing the impact of this in our P&L and we hope to improve it further.
— Murali M. Natrajan
Lastly, on the margin per se, if we see, still we have got the benefit of decline in the cost of funds and cost of deposits during this year and we expect yield on advances which has increased because of the repricing, but still there should be some more repricing happening in the next two quarters.
— Bunty Chawla
This is the most difficult question for me to answer, because there are so many moving parts of this, from meeting the agri target to deposit rates to refinance that we get from NHB, the rate moves on that, to pricing on our CASA to the product mix, to NPA movement, there are so many pieces.
— Murali M. Natrajan
However, based on the segmentation of the customers, we do have the right to reduce our credit risk premium or increase the credit risk premium in case we find it is a risky customer or the customer has got good track record and so on.
— Murali M. Natrajan
So, so far, we have not faced too much of a challenge, but quarter-on-quarter, there may be some increase in wholesale deposits, because we have to balance these things, because maybe momentum building on retail deposits maybe taking some 45-days, 60-days extra, in the meantime, you take a wholesale deposit, non-callable deposit, make up for the liquidity and then build up your retail deposit.
— Murali M. Natrajan
Our projection indicates that at about 15%, 16% growth rate, we will be self-funded, because for Rs.100 of loan, we are only consuming about Rs.60 as the risk weighted asset.
— Murali M. Natrajan
It's a very difficult topic to engage at this point in time.
— Murali M. Natrajan
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Q&A — 14 exchanges
Q
I think four accounts are in corporate. All these accounts are very old accounts. One account has been with us before I joined the bank and one account has been there since 2010. These accounts depend on repayment from quasi-government, government agencies, there are delays. In the meantime, they've had some challenges and these accounts although I would not say they were strong but they have been doing okay with us for the last many years. But some banks have taken that to NCLT, and therefore obviously, till the NCLT process is resolved, we can't get our payment. So, I don't expect this kind
Mona Khetan
What would be the quantum for all these accounts together? You can see that our corporate NPA has grown by about Rs.100 crores, so, that is the quantum. The Rs.350 crores or so of slippage would sort of be the normalized number in the interim? We expect so… see, I would not read too much into gold loan slippages I explained that in the previous call also. Because, we give OD product and customers are expected by the regulation that came on November 14, 2021 in the OD product, including SME kind of OD product that every day they have to be servicing the previous 90-days. So, customers do slip i
Q
This was on slide # 26 where we are giving the trends on GNPA across last five quarters. So, the kind of improvement that we have seen in the mortgage GNPAs in last five quarters, we are not seeing similar trends in SME, MSME. So, just wanted to understand, is it because of the customer profile like there's a difference between the two or how should we read into the movement in the GNPA number in the two segments?
Murali M. Natrajan
SME, MSME, a lot of the portfolio is working capital and many of them are getting used to this every day, 90-days, keeping their accounts in order. So, the slippages there are mostly because of not being able to keep their interest serviced on every day, 90-day basis, which is the November 12th circular. Again, I'm seeing improvement in that, but we could do better, but I don't see any concern in the portfolio, post-COVID, things are stabilizing quite well, and even the recovery, upgrades are quite encouraging in SME as well. So, it would be fair to understand the new slippages happening and u
Q
Two questions. So, one was on the core fee income part, which has increased sharply to Rs.77 crores from Rs.65 crores in last four, five quarters. So, sir what is driving that, and one should assume this is the new sustainable range going forward?
Murali M. Natrajan
Processing fee, third party-income distribution, again, I've been guiding you guys that we are working with our frontline to improve our fee income, cross sell and so on. So, slowly we are seeing the impact of this in our P&L and we hope to improve it further. Secondly, on the credit cost guidance, when we look at the slippages even the ex-gold loan portfolio is still at more than 4%. And when we are guiding at sub-50 bps point of credit cost, what is the LGDs are you factoring? I've given you a general guidance on LGD terms. Secured portfolio LGDs are unlikely to cross, especially mortgages u
Q
Continuing with the gross NPA movement on the slide 26, historically, what we have observed that we generally don't believe in write-offs or sacrifices kind of a thing, and run rate also was approximately Rs.2-3 crores per quarter, but this quarter, it's slightly higher, Rs.41 crores approximately. So, any strategy change or any outlook change on that part? And also, if you can share this Rs.41 crores belonging to any specific segment or something like that?
Murali M. Natrajan
The Rs.41 crores belongs to various products, and I do believe the average ticket size on that would not be more than maybe 20, 25 lakhs, which is similar, fully provided. So, there is no strategy or anything like that. So, we just look at some of these loans, we review it, and we see what is the timeframe that is required for recoverability, and then based on our discussions with the collections unit and all, we take a call, maybe this needs to be written off. So, we don't pursue write-off as a way to reduce our NPA, you know that and so that's what it is. So, this quarter, we have reviewed i
Q
You just alluded in your opening remarks at some stage you will be more responsible, all lenders, I'm assuming will have to exercise some responsibility in how much more to exercise the pricing power on the asset side? This is something I think I have been trying to kind of get grapple with across the system. Does EBLR allow you that kind of elbow room or does it need a separate dialogue with the RBI or is it usually just in the nature of business as usual, that whenever customers come up for annual resets, etc., this is something at the bank's discretion that you could move the spread around?
Murali M. Natrajan
Neither EBLR nor MCLR gives you any way not to pass on the benefit or the increase. It's a very straightforward formula-driven method. It is audited by statutory auditors, and it is also audited on a yearly basis by the regulator. So, absolutely, you cannot make any of the thing. I've seen some banks reduce MCLR or increase MCLR in the multiples of five and stuff like that. But if you look at our MCLR, you'll see that it is like 14 basis points and 27 basis points, because we do it absolutely exactly whatever comes, we are either passing it on or reducing as the case may be. However, based on
Q
I think we have changed our disclosures. So, this was relating to deposits. So, Q4 FY'22, the wholesale term number or the share was about 9% Could you quantify that for Q1, Q2 percentage or absolute either? The data was in the presentation. So, it was taken from there.
Murali M. Natrajan
It maybe in the same range, 10% or 11% like that, that's all No, just wanted to understand as to how has been the movement of retail TDs over the last quarter? Retail TDs movement is okay, but like I mentioned to you that the deposit market is somewhat tight and competitive. Therefore, we have to keep reviewing it almost on a weekly twice the basis to make sure that we are right out there to get the momentum on the deposits going including our RNP CASA. RNP CASA is not that problematic. I think it is moving very well for us. But given our ambition for loan growth, we have to be out there to ma
Q
My first question is understanding on the restructured book, if I recall the last presentation where we guided that the restructured book under moratorium will come down below 700 and now we are guiding that by March '23 it will be 400. So, can you bifurcate the book between moratorium and non-moratorium under the restructured category, and how that overall movement will be?
Murali M. Natrajan
I've said that by March, we will be at 400. Last time I said by September it will be 700. So, the moratorium is every year month. So, from 700, it's moved down to 400 on a monthly basis, that is as simple as that. The rest of it is always bill book. So, how do we see the movement of overall restructured book by March '23? The restructured book will remain as restructured. It's a standard restructure. There is no provision in RBI to say that it is not a restructured anymore. Unless the customer comes and pays off the full money or it goes to NPA, anyway will stay as a restructured book. Even th
Q
My first question is on competition. So, from next year, the account aggregator system will I think become operative. And in addition to that, we already co-lending. So, just want to know, whether these three coming together will put any impact on our NIMs and competition will increase much more than in the past?
Murali M. Natrajan
It's a very difficult topic to engage at this point in time. Even we haven't fully understood the implications of how this account aggregator will pan out and what would be the impact and how many would participate. I think the customers all have to say yes to it, right, each of them. So, there's a lot of open items in this. So, I don't believe that we can bottom out our discussion here. So, you have to give us some more time to understand this. Second last question is do we lend on the basis of informal income, or all our loans are based on the formal documented income? Let's just take exampl
Q
AIB book, we have seen good disbursement. So, what has led to this? And also the incremental disbursements are not actually reflecting in the loan book growth in absolute terms.
Murali M. Natrajan
Which book you are saying? The Agri Inclusive Book, (AIB)? So, what is your question, that it is not reflected in what? The loan book growth in absolute terms. So, how much of this is actually repayment and how much -? AIB must have grown at least 18%, 19? So, I'm not sure where you're looking at on this. If we look at the quarterly number, so how much of this is actually normal prepayments and how much of this would be takeovers or -? In AIB we have number of products. AIB has got tractors, AIB has got KCC, AIB also have retail products like mortgages, SME, and AIB has microfinance through BC
Q
So, my question again was on yield. So, we see yield has gone by around 15, 20 basis points on a sequential basis. So, just wanted to understand how much card rate increase which we must have done already on the loan side and what will be the reset which is happening?
Murali M. Natrajan
I didn't understand your question. What is the question? Our entire book is largely floating in nature, whether linked to MCLR or EBLR. How much card rate increases we have already taken say from April till now and what will be the reset period because this increase of 15, 20 basis points sequentially looks much lower for a floating rate book actually. So, that is what I was trying to understand. See, the MCLR is passed on four times a year, correct. But it is reviewed every month and then as per sanctioned term, they are passed on in a particular day, November, then February, then May, and th
Q
Just wanted to ask, what would be our guidance on the slippages part and we've seen a slight uptick from March, what would be the reason for that?
Murali M. Natrajan
On the slippages, given that we are coming out of COVID, given that we have a self-employed book, given that a lot of the customers are improving, stabilizing, so we do have a situation where customer who has got upgraded let's say last year December may have slipped and then again getting upgrade, because they're all stabilizing their business. So, I do expect similar situation, but I don't expect every quarter some corporate slippages to be like this, because it's more like once in a while kind of stuff. Gold loan slippages still like I explained, would continue to be high because of the OD
Q
Sorry, I joined a bit late. Pardon me if this question is already answered. So, I was just having a basic question like slippages still stay elevated, but recoveries and upgrades save the day for us. So, could you provide some color on what accounts are slipping and what accounts are getting recovered or upgraded?
Murali M. Natrajan
Upgrades and recoveries are not an accident, it requires effort, and it also is reflective of the portfolio quality. So, it is not some luck that we have had on upgrades and recovery. So, I would like to correct you on that right away. So, it's a part of the portfolio quality and the resilience of the portfolio that is indicated, and we have almost 1,000 in-house collection team who work with these customers, these are all secured portfolio, and we are constantly in touch with these customers to make sure that they are upgraded. The upgrades are higher than recoveries, that tells you that we w
Q
My question was on the branch expansion we're looking to do. What do we target over the next two years in terms of the branch network? Is it mainly in the tier-two, three towns or how do we look at it?
Murali M. Natrajan
So, the bulk of the deposit still in my opinion comes in the top 60, 80 locations in India. So, to some extent, we have to open branches in the top 60, 80 locations. As you know, if you open 100 branches, 25 of them have to be opened in unbanked location. That's a very tough business to break even in two, two and a half years’ time and sometimes it takes even four years in these unbanked locations. Our intention is to grow our branch network between 25 to 35 branches, and I think we are on track this year also on that. So, basically we can expect a branch expansion increase? Sorry? We can see
Saturday
Q
Thank you very much for attending this call. I know this is Saturday, and it's already 7:30, but I appreciate your patience, and appreciate your participation, and look forward to talking to you next quarter.
Management
Speaking time
Murali M. Natrajan
65
Moderator
16
Sharaj Singh
15
Bajrang Bafna
8
Darpin Shah
7
Rohan Mandora
6
Gaurav Jani
6
Pallavi Deshpande
5
Mona Khetan
4
Krishnan ASV
4
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Opening remarks
Murali M. Natrajan
Thank you. Good evening, all of you. I am speaking to you from the boardroom of our corporate office. I have here in the boardroom. Mr. R Venkattesh, who Heads our HR, Technology and Operations, then we have Mr. Praveen Kutty, who is the Head of our Retail Banking; then we have S. Sridhar, who's the CRO of our Bank, then we have Satish Gundewar, who's the CFO, then we have Ajit Singh, Head of Treasury and Investor Relations, then we have Meghana Rao, who's Head of Operations, and then also some of our key staff. We've had a very good quarter once again, and we are on track, I would say to double the balance sheet between three to four years. When I analyze our performance over the last few years, what I see is that the first year when we started this journey around 2008, 2009, we had to kind of stabilize the balance sheet. From 2010 to 2020, we grew at a CAGR of the loan book at about 22% for 10 years. Then we had about two years of COVID where we have grown at an annual rate of 7% odd
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