DCB Bank Limited (DCBBANK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to DCB Bank Q3 FY '21 Results Conference Call. Joining us on the call today are Mr. Murali M. Natrajan, MD and CEO DCB Bank Limited; and Mr. Bharat Sampat, CFO, DCB Bank Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Murali M. Natrajan. Thank you, and over to you, sir.

Thank you. Good evening, all of you, and thank you for dialing into this call. I know it is late evening on Saturday. We hope to finish this call in about an hour or so. And I have some opening comments. And after that, we can start the questions. The first point that I want to mention is that this is a quarter which was -- did not even have 1 month of any moratorium, so to speak, right, because the previous quarter had August as a moratorium. I want to give some perspective. When we are dealing with a self-employed segment, which is like medium to small ticket kind of segment, even in pre-COVID times, it is normal to have about 2% of the opening book as a slippage. If you see our performance in the last few years, you will find that anywhere between 2 to 2.25, maybe a quarter was an exception or something, but generally, that is a kind of slippage that is expected. And then, of course, we did quite well on recovery. We used to have at least 50%, 60% of those recovered, primarily because we are dealing with secured business. Our loss given default has been quite under control in all these years. And it has not been such a big problem to manage this segment, and we have developed a reasonable level of expertise on that. Now talk about COVID. March to December, first of all, March to August was moratorium. And then August to December, we have to honor the Supreme Court decision. So March to December, bank have not declared any NPA. So in a COVID-hit situation to expect that there will be no slippage, even the normal 2%, I think one needs to put it in perspective as to underlying portfolio usual slippages is about to happen. For 10 months, there has been nothing at all. This is the first time this year something, and hopefully, by March quarter, if this -- honorable Supreme court issue sorted out, then things become a lot more normal. Now actually, the slippage is not that big a concern as the inability to proceed on the recovery actions. If you don't make it an NPA, then you can't proceed for various actions for recovery. Now normally, if an account goes into NPA, by third or fourth month, you are able to kind of get some way forward on the customer, some settlement, some recovery plan, some sale, whatever. And then within 6, 9 months, you are able to resolve majority of the cases. Now in this current situation, we find ourselves in a situation where we have to use -- we cannot use too much of legal thing. You have to use a negotiation with the customer to kind of recover. And despite that, we've been able to recover about INR 30 crores of NPA, and that doesn't even include the gold auction. I mean the gold NPA recovery has been negligible in this particular quarter. So you got to put it in that perspective. Barring any nasty or unforeseen surprises, we believe that we have reasonable understanding of the portfolio where it is proceeding. We have given you a very informative numbers in terms of collection efficiencies. So things are improving, no doubt. But customers who have been deeply impacted by COVID are taking longer to come back to some level of business performance such that they can repay the loans. Of course, there are intervention tools. We ECLGS. We have COVID relief for the personal loans. We have MSME restructure. There again, we find different, different responses. I have gone through many customer responses. Some customers who are nondelinquent as on February 29, and let's say, they have not paid us any money since August, when you offer them these relief, they have already planned to close the business, sell the property and give you the money. Now they are not interested in this -- any of these interventions because they feel that they're just going to sell the property and pay off the loans and the bank will have to wait maybe 1 or 2 months to make that happen. There are situations where customers feel that if they hang on for another 3, 4 months, they don't need any extra money from the bank, why should they take that relief. Sometimes when a customer is given a new payment schedule, and he finds that the amount of money that he has to pay at the back end is higher than what he has to pay now, they think that maybe they have to bring some capital and reduce their debt and then ask for restructure. So many times, you have cases which have to be tailor-made to the situation. So it takes time to address that. Of course, the sooner the uncertainty over the Supreme Court, the thing happens, the faster banks can start their recovery process. So that is where we see ourselves. We are doing very well in terms of gold loans. The mortgage sales is picking up. We are doing well on KCC and tractors. We are being cautious on corporate as usual. And in MSME/SME working capital, we are worried because we don't want to acquire customers who are under stress somewhere and then we end up acquiring. So therefore, we have to be very cautious about who we acquire. So we are being very measured in approaching new business in that area. So that is how we are. And we are quite confident that by March, April, we should be able to step up our new sales further so that we can have a decent growth of loan book in the following year. However, I was just telling my colleague that we see ourselves actually playing 2 matches simultaneously. The first match we are playing is India versus Australia, third test, where we have to bat 130 overs to achieve a draw, which is like dealing with the stress portfolio. And next match that we are playing -- and simultaneously, we are playing both makes. The next match we are playing is -- the fourth match of India, where we have to bat 100 overs plus to win the match, which is our growth thing. We have confidence, we have the resources, we have the capability, and we are confident. And barring any glitches here and there, we feel confident of dealing with the situation. It can't be -- please don't expect that there will be some uniform things that happen. There could be surprises. We don't like to give any surprises to the market. We hope there are no surprises. But given the current uncertainties in the market, while we put our best foot forward every day, sometimes it may not be possible to predict certain things. However, as of now, we are on top of it. Our 700-plus collection team is going out there. We don't have any outsourced collection. Everything is in-house. Going out there, assisting customers in every way possible to try and find a solution for stress account. And we are not leaving a stone unturned to help the customer and address the issue. As and when the other recovery methods, mostly the legal methods starts to open up, we hope that we can achieve higher recovery percentage. So that is where we are. I thought I'll just give you my perspective on this, and we are ready for questions.

[Operator Instructions] The first question is from the line of Sharma Kunal from Perfect Research.

Sir I have 3 questions. So I'm listing down together. First, sir, in banking, with a growing size and the scale, the bigger bank benefits from the lower cost of funds and better brand of deposit mobilization. What competitive advantage do we have against the bigger banks? Second, banks like Kotak kept saving accounts rate quite high and then kept on reducing saving rates. However, customers didn't shift and due to which they have a very good CASA ratio at a good cost. Even IDFC Bank is pursuing a similar strategy. So any reason why we are not trying the same? And lastly, can you please share some color on earlier plan of moving to 14% ROE and higher? What's the revised time line and our strategy for it?

Yes. So when I joined the bank in 2009, people asked me what is your competitive advantage. We were at INR 3,000 crore loan book at that time, we are now at about INR 25,000 crore book. So I really don't know how to answer that question. We are experts in catering to self-employed segment. And we do small ticket loans. We do it quite well. And we have been at it for the last several years. And we don't seem to have any difficulty in acquiring these customers. At times, we face challenges because maybe a small bank, maybe an NBFC, give them a lower rate. We have an anti-attrition team, which takes care of that particular part of the portfolio. And as far as we are concerned, we have been maintaining decent NIMs of upwards of 3.65%, 3.7%. At one point in time, our NIM used to be even higher than 4%. So we have not had any particular challenge in maintaining that kind of margin for us. So we focus on small ticket, self-employed customers secure lending. And we don't see too much competition from any large bank area. Once in a while, we do see an HDFC bank or some other. But generally, it used to be an NBFC, but we don't participate in that NBFC space because that is a slightly riskier space. We have chosen our risk appetite and we act according to that risk appetite. That is all I can say for your first question. On CASA, as respect to savings account rates and so on, what exactly is the cost incurred by these various banks for getting that type of deposit, they only will know by paying 7%, whether it is the right way to get savings account. We don't have that strategy. We don't apologize for not copying that strategy. Once I was speaking to a CEO of a bank, they have this program of 6%, 7% on savings account. They spend INR 100 crores on the advertising budget itself. Now that may suit their balance sheet and their P&L and their approach, it doesn't have to be the saying that we have to copy and do it. Our approach is very simple. We want to get small ticket retail term deposits. Our target size for deposit is about 1.5 lakhs, 2 lakhs. The cost of acquiring that is quite reasonable. The cost of maintaining that is also very reasonable. Our competitive advantage is that we normally pay anywhere between 20 to 30 basis points, sometimes 40 basis points, higher rate than competition. Yet we are not one of the highest, and we are able to get that deposit. And those deposit customers are cross-sold CASA. We find that to be quite okay. At some point in time, we used to offer higher rates for greater than INR 1 crore deposit, and we used to pursue that, but we found that we get only higher ticket deposits size and they are very fickle deposit, which just runs away the moment some rate is changed. I don't agree with you that the moment rate is changed, customers don't go. Small customers may not go, but big ticket customers definitely switch. And small customers to acquire, you don't need to offer any rate. If you want to get a INR 50,000, INR 70,000 savings account, you don't need to offer any rate for that, at least that is what we have seen. As far as ROE is concerned, the next 12 months or 4 quarters, we'll go in dealing with the COVID-related challenges. We will -- we are working towards a 2.2% cost-to-income -- cost-to-average asset metric. Our NIM, barring maybe 1 or 2 quarters of dealing with some NPA or stress book should be in the range of 3.65 to 3.7. We are working towards 110 basis points of fee. On a steady state, I think our cost to -- credit cost should be about 50, 55 basis points. That is how we plan to have a much higher ROA. That is about 110, 120 kind ROA. And that will lead us to deliver 14% ROE. I do think that we need about 4 to 6 quarters to kind of reach that level.

The next question is from the line of Rohan Mandora from Equirus Securities.

Sir, in the opening remarks, you alluded to the fact that there are a few cases where they are looking to exit the business and sell the property. So sir, just on the process part, like wanted to understand as a bank, how will we capture the cash flows on the sale of property to ensure that the loans are repaid? That is one. Second, if you can talk about why the ECLGS offtake has been relatively lower for us? So what is the behavior of the customer? Why are they not taking the ECLGS disbursements?

Yes. So the property is mortgage to us. Customer cannot sell the property without our NOC. That is how the whole world operates. If he sells the property, the property cannot be registered because the original documents are lying with us. So the money has to come to us for him to take back the original document. That is how mortgage work. There has to be a society NOC, I mean a lot of complications are there. There are 1 or 2 cases where customers have tried to sell their property without us, and they are facing fraud charges and other things. So it's very dangerous to sell the mortgage property for the buyer and the seller.

So sir, the money from the buyer will come directly to DCB or it will get routed via the customer?

It has to come to DCB. That is how it works. That is how all the mortgage works across the world, across India. That's a basic of the business.

Sure, sir. And sir, on the ECLGS uptake?

So one banker called me, one senior banker called me and said that, look, we disbursed so much of ECLGS, and many of those customers who have taken ECLGS not only use the ECLGS, now they are becoming delinquent. And along with ECLGS, they are becoming NPA. We wanted to conserve the bullet and till August since it was lockdown and businesses are not picking up, we didn't see any sense in just rolling out the ECLGS and giving the money. Plus, our customers, they're individual customers. First, government gave ECLGS to non-individual customers, then based on representation from banks like us, they opened it up for individuals. Then individuals approval came much later in the cycle, right? From there on, the first stop for us was to get the sanction done in their digital system. We have about INR 2,000-odd crores of digital system. Last quarter, we were at about INR 300 crores. This quarter, we are at about INR 600 crores. We have another 6 months to disburse the loan, which is the March quarter and June quarter. And we are proceeding in a very systematic manner on this. There are customers who don't want this money, and there are customers who want desperately the money. The guys who want desperately money, we want to be cautious how they're going to use the money, are the -- is that business coming up or not? Because just by giving the money just because it is guaranteed doesn't make sense if the customer is not going to help the customer in any way. So this whole process is being created, and we have created a grid, whereby we are evaluating the customer and disbursing the money. And we are confident that the pace will continue to pick up.

Sure. And sir, in the LAP business, the collection efficiency in the month of December gone down marginally vis-à-vis is November. So anything -- any specific observation that you have or is it just business...

Your question is right. It has gone down marginally.

Yes. So sir, any specific trend, which is leading to this? Or is that business as usual, some volatility on a monthly basis?

Yes, that's what I mean. That it is marginal. So these are all very, what's it called, irrelevant to actually focus on because like maybe a few customers or maybe there was some holiday in some place, something like that. So it doesn't really matter.

[Operator Instructions] The next question is from the line of Darpin Shah from Haitong Securities.

The first question is how much proposals we have further received for restructuring, which can be expected in Q4?

Darpin, I don't have the MIs on how much proposal is there on restructure. Our guidance is up to maybe 3%, 5% of our business could get restructured.

In total?

In total -- no, I mean, in a sense, because of the COVID-related stuff. And what is happening is that as far as corporate is concerned, since we are not a big bank on corporate, we cannot possibly tell you as to who's coming up or restructure there. Only when we receive some intimation from other banks, we will know. As of now, we don't seem to have any problem. More researcher requests are coming from loan against property customers and CV, less from home loans as of now. SME/MSME working capital also is -- requests are less from that point of view. And there are customers who are waiting for their business to pick up before deciding how they want to go. So that is the other question, like you are ready with your solution, but the customer is not ready to immediately accept it. So all those things are happening. So I think the whole team is working on it. So let's see how this quarter goes on that.

Okay. One small clarification. In the press release, you have mentioned that assets to the tune of INR 160-odd crores, and I know where work is in progress is there for restructuring. So have you already included this INR 160 crores in the pro forma NPAs?

Yes. Yes.

So in case this goes through, the pro forma NPAs would have been lower by, say, 60, 70 basis points, so it would have been 3%.

Typically, this work-in-progress item would be that we are telling the customer that you give me at least 2 installment or 1 installment to show me your this thing or the customer documentation is spending or the customer is saying that I'm going to bring in some capital and reduce my -- so the multiple discussions must be happening. I can't structure it into any 1 bucket. But we know that we are like tracking these customers quite closely. There is a full tracker that is there, which we're tracking it closely. This INR 159 crores is already included in that INR 448 crores.

Okay. And one last one...

So it is included so is [ INR 30 crores ] included.

Okay. Okay. Fair. Sir, one last question, if you can provide some qualitative color on SMA book?

Which book, sorry?

SMA.

SMA book.

We have given you all the collection efficiency and everything. We don't have such a corporate big book to give you SMA kind of the thing. We have never given SMA -- and I have never seen that being out of range in any way. So probably we'll consider the next quarter what we can do on that. [indiscernible] it is right now.

The next question is from the line of Mahesh M.B. from Kotak Securities.

Sir, just two questions from my side. First question to Bharat, if you can just give us the breakup of provisions and also on the pro forma numbers on the gross and net NPAs that you've used? The increase is about a little over INR 450 crores. Does that also include the COVID provisions that you have in your books for this INR 500 crores? Is that net of when you're bringing your net NPA numbers? So first question.

Okay. So I'll break up -- you mean the breakup of P&L part, right? Balance sheet part is already given in the press release.

Yes, that is there.

Yes. So for INR 148 crores, the breakup is COVID-related INR 86.1 crores, which is there in the notes to accounts. NPA aging additional provision on NPA accounts, INR 20 crores. Floating and standardized, floating in accordance with our policies, the floating provision has now reached INR 105 crores. We have made INR 3 crores there, and RBI mandate is standard asset INR 1 crore. So INR 4 crores over there. MSME and COVID restructuring together INR 22 crores. And we have a process of internally reviewing standard accounts and making provisions where we feel that we may need specific provision for a particular account before it slips. So that is INR 16 crores.

And the second question.

Second question on COVID related, what we have put as pro forma Supreme Court provided what I say forbearance. The netting off is to the extent of provision related to that. And that is 80?

Yes.

INR 86 crores has been netted off.

114.

INR 114 crores, sorry, INR 86 crores plus INR 22 crores, INR 114 has been netted off. Yes.

So just clarifying this. Your provisions in the specially say INR 519 crores...

Sorry? Versus INR 519 crores you are saying?

Yes. Was the final entity?

I'll tell you, which one so...

In the 229, it is there.

It is included in the 229.

Sorry, what is included now?

COVID-19-related stress provision, which is there. There we have given it a footnote, include the provision of INR 114 crores for loans not classified as NPA. That is 114 crore INR, which we have taken in pro forma.

Mahesh, this is INR 448 crores is the gross number, that includes the INR 30 crores, the INR 56 crore. We thought we'd just give you some color of this INR 448 crores. That's why we put all these numbers. To give you an example, if you go through our March presentation, we have said INR 89 crores is -- we have taken benefit of COVID and did not declare it as NPA in March and took some provision on that. You can see our March results presentation. Now ballpark, look at those accounts tells us only INR 39 crore are still in trouble, INR 50 crores are below INR 90 crores DPD already out of that. We've been able to collect over the last Q1, as an example, I'm saying. Right? And the other point I want to make is, if you look at our gross NPA, without this Supreme Court, which is I think INR 502 crores, the net of that is only INR 150 crores, right? Now doing a secured business, where our loss given default is usually not more than 20%, 25%, we are very adequately provided on our base NPA. I would like to argue like that, very strongly provided on the base NPA. There can't be any downside on that. If at all, there could be some upside is what we believe.

Sir, adding one question on this. Sir, because you have LAP and mortgage as our primary vehicle for lending, you think that these prices are holding up in the market when you start selling these assets? And do you think that the credit -- the LTV to be sitting out there adequately covers that we probably will end up with lower provisioning on the credit cost?

What are the questions?

Is LTV still adequate considering the market stress? And would we realize -- I mean, would the provision be consequently sufficient or more?

Okay. I want to split this into 2 parts. First, let me answer the LTV part of it. Below INR 2 crores or below INR 1.5 crore type of property, we don't see that much of value drop in the property. And we have taken a lot of examples of people's personal dealings on property as well as some of the other customers and all. We haven't seen much of a challenge. The challenge comes only when customer thinks that he should get more. Actually, there are offers available and the customer agrees, we can -- we don't have any risk in our principal and majority, majority of the cases. So I would argue that big ticket have a problem on LTV, perhaps, but not on the small ticket, definitely not in the INR 1.5 crore or below area. And certainly, not in the INR 40 lakhs, INR 50 lakhs. Of course, we have made some big error in our valuation itself while lending. That is a different challenge, but that's more like an operational risk and that is never a systematic. It is usually an isolated kind of issue. That is point one. So from that point, we don't think we have any challenge in the way we are providing for these stress book or NPA. At the same time, what I want to mention -- I mention to you is that we have independent directors, and we have a statutory auditor, they also see, nobody has dealt with COVID type of pandemic. There are no models to rely on say whether we are good, adequate and so on. Everyone is actually feeling their way through this whole thing. Of course, if you provide some 33% or so, something as an example, one may feel, yes, it is quite adequate. So I think this process will be iterative. We'll keep reviewing the portfolio. We'll keep doing the analytics and seeing what it is because if there are delays in recovery because of the Supreme Court not deciding yet, those things may actually result in needing higher provision until you actually recover. So at the moment, I feel confident that we are providing well, but we will keep evaluating our provision every quarter.

The next question is from the line of Rakesh Kumar from Systematix Group.

Hello. Can you hear me, sir?

Yes.

Yes. So first question is with respect to unclassified gross NPA number, where we have provisioned close to around 24.8%. So is that enough in your opinion?

Which number are you referring to?

I'm referring to pro forma gross NPA number minus reported gross NPA number, on which we have a provision of around 25%. So in your opinion, is that good enough at this point in time?

Okay. So supposing, this was not seen as adequate major statutory auditor nor independent auditors would have approved these accounts, okay? So it's not just management. There is a challenge process that would have gone through and all. Second point I want to mention to you is that given that we do secured lending, usually, we have not seen our loss given default beyond 25%, 30%. Having said that, we will continue to evaluate our portfolio to see whether we need adequate provision. As a management team, we have always been wanting to do more than adequate provisions rather than do provision at the lower levels. So we will evaluate every quarter and see what it is. Just because we are making provision doesn't mean that we think that is more swift. And that's not the way to see it because more provision means it is actually strengthening. If we keep continuing to do the recovery, obviously, it is going to be reverse. So in times like this, we generally like to behave more like a -- from a foreign bank background, foreign banks say, you always take more provision than necessary and then keep working through the recovery process aggressively and then get it reversed. But at the moment, we consider this to be adequate.

Apart from INR 114 crores, which is the numerator, for denominator of INR 448 crores, we have given some more details in point 15 of press release. You please have a look at that also. It will help you get a better picture over the adequacy.

Second question, sir, considering the collection efficiency number for the segments that we have reported, there is a gap of almost 5% to 10%. So restructured number analysis of around 5% and they're on provision at the rate of 10%. Is that number looking perfect in your sense? So because the 5% number goes up, then I think INR 240 crores minus INR 114 crores number, which is 10% on the restructured number would have to be increased.

Yes. So nothing -- in pandemic neither we have experienced in the past, nothing is perfect. We have to keep feeling our way through this. We have to keep doing analytics. We have to keep doing collections. We have to keep reviewing feedback. So I can't give you a perfect answer on it. All I want to tell you is that our operating profit, our operating profit, even at the current balance sheet, if you keep the balance sheet static also, we would be at the level of INR 700 crores to INR 800 crores per year at the current margin and the current cost income ratio, et cetera. That is quite a lot of margin of safety for us to make any additional provision that may be required, okay? So that you please keep that in mind because we are dealing with secured portfolio. Our unsecured business per book would be less than 20% in the entire book -- entire balance sheet, rest is all customer's self-occupied property that we have. Therefore, there is a huge level of safety in that. Customer won't just give up his property, and we just can't be in a situation where we are going to have a loss like that. So that is for number one. Number two, at the moment, based on whatever information we have in the last 3, 4 months, plus all the information we have collected over the last several months during COVID, we believe our restructure would be up to 5%. Now whether it becomes 5.5% or 4.5%, only time will tell, but at the moment, it looks like that.

Sir, can I ask one last question?

Yes.

On this MFI book, what is the proportion under FLDG? And how much protection, what is the degree of protection under FLD?

We have a reasonable level of protection under that. We have not executed that protection for the simple reason that those loans are also covered under Supreme Court interim order. It will be unfair for us to -- all these BCs are our partners. And they are making those efforts to collect the money. It will be very unfair on us to just break the partnership or invoke the FLDG, then how do we collect those -- these things. So it is better to allow them to collect as much as they can. And for the balance, we will use the FLDG because we are in a long-term relationship with all these BCs.

The next question is from the line of Sri Karthik from Investec.

Would you attribute your slightly moderate improvement to collection efficiency for the conservative disbursement in the credit guarantee fee?

No. No. No. ECLGS is divided into different segments by us. Customers who have serviced all their installments, customers who have paid in part, customers who are struggling to pay enough of installments like that, we have divided this into different customer segments. Customers who are -- the majority of the customers' sanctions are for really good customers. What we find in the market is customers are saying, look, you can give me this money, but my business has not grown big enough for me to take this money, what would I do with this INR 5 lakh, INR 10 lakh and all. So we have given some price break. For example, we have some of the good customers. We have had approval from ALCO to give a price break of almost 50,100 basis points and give them the option of debt consolidation. So the point is there are customers who don't want the money and there are customers who desperately need the money. And we have to balance this to make sure that we give it in a very systematic manner. There are banks who have called us and said that this seems like a sensible approach because they seem to have disbursed all the money, and they are now having no other intervention tool if the customer is going down south. So we have acted cautiously on this. And anyway, till August or September, this tool was not available for individuals in a manner of speaking. So things are proceeding well. We have already done INR 300 crores in this quarter. We hope to do similar numbers in the coming quarters.

But I was actually wondering, looks like from a collection efficiency perspective, there's about a 10% gap versus what we were earlier now. So how -- I understand 5% could be restructured, what about the rest?

What is that 10%? Actually, it is -- if you look at February numbers, for home loan, it is 4%, and for business loan, it is 7%. And for CV, that is 9%. From what it was in February level, there is going to be some slippage in all loan book. There are customers who have not been able to come back to any decent level of business since after lockdown. There are customers who are possibly thinking that there will be some relief coming from Supreme Court. Therefore, they are not servicing all their loans. If you look at another data that we have presented for you, 93.3% of home loans have at least paid 3 MIs or more, right? Similarly, if you look at business loans, 93% have paid at least 3 MIs or more. So this number is actually increasing. If you look at customers who have not even paid 1 installment, it used to be 10%, 11% about last quarter. We are at about 1.55% for business loan. So it's an improving situation. That is what I would like to say.

And just last bit for me. In terms of our odds restructuring or any changes to our business model, have you utilized this last few quarters to make any major changes?

We constantly make changes to our credit policy because we have an analytical team. We have collection input. We have a credit policy team, and we have sale. We keep growing the portfolio. We use that to look at different segments and micro segments, and we keep making changes. From the time COVID happened, we have made a number of changes, I don't know which one is major and which one is minor, but these are all sensible changes that we have made in our business model. And we have tightened it all the way down in, say, for example, May, June. But based on what experience we have had in September, October, we have relaxed a lot of the guidelines as we see better data coming through from the field. So this is a constant work that we do in our bank.

The next question is from the line of Mona Khetan from Dolat Capital.

P Just a few quick clarifications. So you've given INR 687 crore of restructured book and then INR 159 crores of notional slippages as part of the slippages. So -- which could potentially be restructured? So I'm assuming there's no overlap between these 2, right?

No.

No.

Okay. And some color on your restructured book, where is it coming from, is it largely CV? Or does it also constitute LAP as well as home loans here?

Loan against property, self-employed home loans, commercial vehicle, MSME/SME, these are the 4 major contributors to this book. Some bit here and there would be there of other portfolio, but largely coming from these 4.

Sure. And how much would be the interest reversal taken during the quarter?

For restructured, whatever interest a customer has not paid, you have to reverse that interest. However, on this INR 448 crores, we have not taken any interest reversals. We have taken it all in the provision.

Okay. Got it. And lastly, while you did highlight on the recovery front, I just wanted to get some additional perspective. You're largely in the self-employed segment. And clearly, that segment has been the most impacted. So -- and recoveries historically has been one of our fortes. So could the recovery rates come down over the medium-term because of the given environment?

Even in this situation, we have been able to recover INR 30 crores. Normally, we recover INR 60 crores, INR 65 crores per quarter, including gold loan recoveries, which we do a auction every month, every 2 months, we used to do auction. And actually, it's a threat of auction. The moment you do threat of auction, customer comes and settle and pays off, most of them, we hardly ever sell those jewelry. So as you know, the cords, the surface process all has faced some delays because of the current situation, plus we are being very empathetic to customers, and we don't apologize for that because customers have gone through a lot of crisis. The last thing we want to do is create some major issue where the bank will be on the back foot in terms of -- so we don't use any aggressive technique for collection. We try to negotiate, work through with the customer rather than take any major legal action. All loans, all collections are done by announced people. We don't have any external collections. So I believe that till such time, the matter gets resolved in Supreme Court, recovery rates may not be better than INR 30 crores, INR 35 crores per quarter. That is how I see.

That next question is from the line of Jai Mundhra from B&K Securities.

So I'm not asking for guidance, but just to understand, in your opening remarks, you had said that normally, we would have 2% to 2.25% kind of a slippages. So assuming the 5% restructuring happens, so in a way, the borderline stress cases are clubbed into restructuring. And maybe fourth quarter is where you may also see some slippages of the borderline cases. So from '22 perspective, outside of the restructured book, should we be back to 2%, 2.5% slippages outside of the restructuring book? Will that be logical conclusion?

I'm not sure that can be a conclusion. The reason for that is, think of March where we came into standstill. And the standstill somewhat got removed in September, which means that some of it would start to hit us now. Now I'm not sure after the stress, another 2% will happen or not, but however only time can tell. At the moment, our focus is on using the intervention tools given by the government and RBI to try and address the pain points in the portfolio for the customer, and then see how that pans out in the thing. The other point I want to say is that customers who have been able to pay their installment all through or immediately starting the, say, with -- once the moratorium is over, should be very strong portfolio. So therefore, I don't see much of an issue on that. Our job on that would be to protect that portfolio because we don't want some other bank to do a [indiscernible] on that portfolio and take it away because that's a very good portfolio for us.

Right. Okay. So actually, when I said 2% or 2.25%, that was outside the restructured book. Even so in a way, as you said, the portfolio which comes out into '22, should be of much better resilience.

We hope so. I mean, that is our -- that is what our thought process is right now.

Okay, sure, sir. And second on restructuring, sir, last interaction, I mean, in the last quarter, we had said 3% to 5%. And after that quarter, all agencies and most of the banks have lowered their restructuring guidance. And even DCB Bank, at this point of time, we have only seen INR 200 crores of additional restructuring requests. So just wanted to check, sir, why have you still been on the higher end of the range, just to understand that.

All banks declare their moratorium at 95%, 97%. And then you saw what was the report sent by RBI in terms of private bank moratorium. I hope you've seen that report.

Yes.

So we have been reporting our moratorium the most correct way, in my opinion. Similarly, I don't know what the other banks' portfolio is, I'm only talking about my portfolio as to what the self-employed segment is, what they are going through. If a customer has got only 60%, 70% of the sales back since the lockdown, it is unreasonable to expect him to do 100% of his loan servicing. If you do that, he will become NPA, and then we won't be able to recover it. It is better to err on the side of caution, so given that restructure option, and they can always exit the restructure anytime they want. And so far, our collection team doesn't seem to think that restructured book would perform so badly that we'll have to -- so at least that experience has not been that bad. We don't restructure just to save NPA. We restructure because we need to give that customer a chance to bring the business back to some level of normalcy. So I can't comment about other banks. You can comment. You can look at what they commented on moratorium and what they are telling now and then you can decide for yourself.

Sure, sir. And the last thing, sir, on your term, so apart from the -- I mean, so I'm not second guessing RBI, but what helps the bank or has there been a formal recommendation, which has gone from Board side to RBI or -- because other banks which are also having the succession planning, they have also done similar things. So I may have doubt, but [indiscernible].

Ask your question directly. What is your question?

So question is, I mean, has the Board sent your re-renewable thing?

Yes. So regarding succession planning, there is always a formal process of succession planning review by the Board on an annual or any frequent basis, which is also reviewed by RBI. These are all matters that are to be done very well by the Board and the management team. And gaps, if any, have to be addressed in a given time frame. Regarding renewal, RBI requires renewal application to be sent 6 months in advance. If you recall, one of the bank was actually penalized for sending their CEO renewal request late. So I'm quite sure that process is underway. What is the outcome of the process, you have to wait.

Right. But the renewal application has gone before 6 months. I mean, within that 6-month time line, right?

We have usually not screwed up on that deadline.

The next question is from the line of Rahul Maheshwary from Ambit Capital.

Very good disclosure [indiscernible].

We can't hear you, Rahul. We can't hear you.

Is it better, sir?

Yes.

Yes. I know, sir, it would be very difficult for me to ask this question, but as in quarter 3, you had given a witnessed some kind of guidance in terms of the you are witnessing a flattish kind of growth. But now we are in -- on a month-to-month basis, we are on an improvement trend. 2 things. One is on a holistic basis. And second, on mortgage, no doubt there is a little bit being cautious on LAP, but on housing loan, what kind of growth are you witnessing as we have seen some small size to large banks are having a very good growth? So a rough color on this would be very helpful, sir, because asset quality, you have given very detail, but on growth side, it would be very beneficial, sir.

So first of all, we are increasing our team size in mortgages and home loan. And our headcount numbers to start going up from this quarter onwards is what our expectation is. And we are presenting most of the cities. Our focus area is going to be very strongly on home loans continue to be strong. If you look at our LAP versus home loan, home loan proportion is constantly increasing for us as compared to LAP, but the segment remains the same. It is the small ticket self-employed segment. And I would say that salaried people employed in small companies, that is basically our target market. We are able to get very decent ROE on loan-by-loan on that thing. Although, the collection intensity has to be pretty strong in that because these customers are not regular in payments, unless you keep reminding them. So that's the basic segment that we are talking about. We are doing quite well on KCC and tractors in AIB business. So we think that, that would grow. Our intention is to build back a growth of at least double digit to, say, high teens kind of growth in the coming years. So we are building capacity for that. But it will take time, probably by April -- March, April, we will start to rev up. Already, in the last quarter has been pretty decent for us as compared to the previous quarter. So we work to keep continuing to build that. And that's where it is. CV, as far as CV is concerned, we will take maybe another quarter or 2 quarters to stabilize that business before building back volumes on that business.

The next question is from the line of Dixit Doshi from Whitestone Financial Advisors.

Most of my questions have been answered. Just one question. So we are very good in asset quality and maintained in terms of recovery. But given our lower loan book and lower size of the book, how do you see the growth from FY '22 onwards? Can we clock the double-digit growth or low or high double-digit growth?

Starting FY '21, '22, the intention of the team is to clock double-digit growth. Initially, it may start off slowly, but then we'll build back the thing. We are very strong in terms of our understanding of this segment. Cautiously and consciously, we took a step to make sure that we understand what exactly is happening in this segment in the last few months. So post COVID, now things are steadily improving. So like I said, we are playing 2 games here. One is to manage the stress portfolio. Another is to strongly build the sales momentum. Last quarter has been pretty good. We are succeeding in it. And step-by-step, we hope to build back, especially in home loans, gold loans, LAP, KCC and tractors. These will be the big focus area. Gold loan, if you see, we have grown by 100% in the last 1 year. And from a normal INR 20 crores, INR 25 crores per month, we are already at about INR 180 crores, INR 200 crores of sales per month in gold loan. Those are massive change we have already done in gold loans.

Okay. So basically, pre COVID we used to usually say that we can double our book 3, 3.5 years. So can we expect that from -- obviously, COVID had hit us, but, say, from FY '22 onwards, we can assume 3 to 4 years, we can double our book?

We can give you that guidance in about 1 or 2 quarters, as we are just building our momentum back. We need to see how that pans out. And we certainly will be able to give that guidance in a couple of quarters.

The next question is from the line of Anand Laddha from HDFC Mutual Fund. Due to no response, I have muted the line. The next question is from the line of Rajiv Agrawal from Sterling Capital.

Sir, can you give me the details of this unsecured loan book in which sectors do you lend?

What?

Unsecured loan book, which sectors do you lend normally? Can you give some details about that?

Unsecured loan book.

Unsecured loan book, unsecured loan. 20% unsecured loan book you talked about, which sector...

We are doing business with fintech companies. We also have BC loans, BC MFI loans, which is unsecured. Those are 2 predominant unsecured book that we have.

Okay. And sir, one more question, sir, this profit on sale investment, what exactly is that?

This is [indiscernible] sales in open -- in OMO.

Okay. So can we expect this to happen next quarter, similar type of profit on sale of investment?

No, no. I do wish, but no. We cannot...

That entirely depends on OMO announcements made by RBI, plus whatever announcement are made, we should be having that portfolio for us to sell. Third, we should be wanting to sell that. And so there are many variables in that. So we see how it goes.

The next question is from the line of Lalit Deo from Equirus Securities.

You will have to speak louder.

Yes. Is it audible, sir?

Okay.

Sir, I just wanted to ask, sir, like on the cost of deposit front, so over a year -- in the last 1 year, while there has been a 50 bps reduction for us, but for the major bank, there has been reduction of like more than 80 to 100 bps year-over-year on the cost of deposits. So just wanted to understand, sir, when the interest rate cycle will reverse? So when will be slowing -- will we change the interest rate in a slower rate than the bigger banks so as to maintain the differential of more than 100, 150 bps of interest rate?

Our focus is on retail term deposits to individuals. Our sweet spot on that is INR 1.50 lakh to INR 2 lakh kind of ticket size. That is what we focus on. Our rate is usually about anywhere from 25 to 40, 50 basis points higher than some of the bigger banks, but not one of the highest in the industry, but we are in the top bracket of the industry. Our strategy is to get retail term deposit. And then we cross-sell CASA products to those customers. We find that to be stable because it's a 3-year -- usually a 3-year deposit. But average, it will be about 20, 22 months kind of deposit. Not only the deposit when it comes, it stays for that long plus customers deepen on their own by creating more deposits. So it seems to be working for us, both from a cost point of view and from a stability point of view. As far as other banks are concerned, what strategy they follow, you have to see that for them and how it works for them. For us, the segment that we are targeting for loans, self-employed works well for us. It has given us very reasonable return. Our NPAs have been in pretty good control. Of course, during pandemic, they were one of the worst hit, but we are starting to kind of get control over that portfolio. As far as the deposit is concerned, we find it from a total cost point of view, that is cost of operations and cost of deposits, targeting retail term deposits and cross-selling CASA seems to be a better opportunity for us. And that has enabled us to reduce our dependence on bulk deposits to a large extent that we have only about 7-odd-percent of top 20 deposits. So that gives a lot of stability to our balance sheet.

Sure, sir. And sir, just one data keeping question, sir. What was like -- what would be the overall disbursement per quarter during pre-COVID times?

We have given you the dispersal of what is happening now. And we hope to build on this quarter coming March onward, we are building our capacity. We are rejigging our scorecard. So we hope to do better such that we achieve at least double digit, probably high teens kind of number next year, and that's the intention at the moment.

The next question is from the line of Anand Laddha from HDFC Mutual Fund.

Am I audible, sir?

Yes.

Sir, just in the press release, you indicated that you expect your cost to be down by 10% for the full year. If you can explain what percentage or what part of this cost reduction is due to lower business? And what part is due to cost-cutting or permanent or structural in nature?

Now on the permanent cost structure, we have told you that we are working towards a 220 basis point cost to average assets. Hopefully, in about 18 months to 2 years, we should be able to achieve that number. Predominantly through process changes, accelerating our digital agenda, improving on productivity. Those are a lot of things happening in the bank on a continuos basis. As far as cost is concerned, this year, we kind of readjusted our headcount requirements based on the kind of business that was coming through in the first 2 quarters. That has helped us something. The lower business in LAP in the first 2 quarters has helped us to save some costs. And also some of the negotiations that we have done with various vendors during this time to reduce cost, all that has helped us to kind of lower our cost.

So if you can quantify, like of the 10% reduction in cost this year, what part will be due to lower business?

So we are unable to quantify that. That is the kind of disclosure we can give you at this moment.

Okay. And sir, second, just a data keeping. In the press release, you indicated INR 687 crores of loan likely to get restructured. This includes the pro forma slippages of INR 400-odd crores, is that correct?

What does it? Come again.

In the press release, you indicated INR 687 crores of loans, which are likely to get restructured.

Not likely to get restructured, is restructured is what we have written.

Okay. And this includes the pro forma slippages or pro forma slippages and...

No, no. That doesn't include that.

So INR 487 crores of pro forma slippages plus INR 687 crore of restructuring, is that a total stress we have?

INR 448 crores. In INR 448 crores, we have given you a clarification that INR 30 crores has already been below 90 DPD. INR 56 crores is secured gold loans. So I can't see any stress in that gold loan. In INR 55 crores, we are seeing that we are partly covered by FLDG. So only part would be stressed. So we have given you some kind of indication on what that INR 448 crores looks like. And INR 687 crores is there. Customers -- various customers have asked for some kind of release restructure, we have restructured those loans.

Correct. And we have a floating provision of INR 229 crores cumulatively with us?

No. Floating provision is INR 106 crores. INR 229 crores is COVID-related stress provision.

Okay. Okay. So we would have done INR 106 crores floating provision, INR 220 crore COVID-related provision and 10% of provision we would have on the restructured book?

Yes.

Okay. So effectively, we have INR 229 crores, plus INR 100 crores, INR 329 crores and then another INR 100 crores. So almost like 3 -- INR 430-odd-crores of total provision available on a INR 1,300 crores of stress book.

I don't know how you are calculating. We have given you that detail on what all provisions they are holding. And as far as our gross NPA is concerned, we are left with only 0.56 of net NPA, which means that gross NPA is provided almost like 85-odd-percent.

Anand, you can look at the Serial #13 on press release, it will give you some idea.

We take the last question from Kunal Sharma of Perfect Research.

So sir, I just have one question. Sir, we can see the noninterest income has a big jump, which is at 66%. So can you please give some color on it? How much of it is sustainable going forward?

So the base income, we, of course, had a one-off income this year -- this quarter because of the OMO [indiscernible] site. But other than that, even the base income is coming back steadily towards the pre-COVID level. For example, I think if you look at our core fee income, I would say, it has grown by almost 25% as compared to the previous quarter, like the processing fee, ATM fees, renewal fees, CASA-related fees, all that and third-party income, all that put together has grown at least by about 25% as compared to the previous year -- the previous quarter, sorry.

Yes, previous quarter.

Great. Thank you very much, everyone, for attending this call. Have a nice weekend and look forward to speaking to you next quarter. Thank you very much.

Thank you. On behalf of DCB Bank Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.