DCB Bank Limited (DCBBANK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the DCB Bank Limited Q4 and FY '21 Earnings 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.

Good evening. Welcome to all of you. Saturday, late evening, thanks for dialing into our call. Hope everyone has had a chance to look at the press release and the investor presentation, and of course, the 2 pages that we have put on the stock exchange. I have a couple of remarks to make, and then we'll open up for questions. March 24, 2020, when we had the lockdown last year, and it was a very, very different situation for all of us, for the entire nation and of course, the entire world. And at the time, we were trying to figure out how exactly are we going to move the ship forward? What are going to be the challenges? What should we focus on? What should we do next? And at that time if somebody had asked me to get or take a shot at what would be our profit performance for 2021 -- FY 2021, I wouldn't have given a very high probability of hitting the same number as we delivered in FY 2020. Even on an underlying basis, when we look at our performance for fourth quarter and for the full year, if you look at -- if you back off some of the excess provisions that as a conservative management team we made, we seem to have delivered same or better performance than last year from a P&L point of view. Many complications we had to deal with from lockdown, moratorium, extended moratorium, honorable Supreme Court judgment, the various relief and other guidelines released by Reserve Bank of India, the impact of that on the system. And don't forget, the bank even upgraded -- in the whole lockdown and other things, the bank upgraded its core banking system of Finacle to the next higher version. So we had some really -- I would put this as one of the most challenging professional year in my life in all these years of banking. But thanks to the support of my team and the Board and the promoter and investors, we are where we are at the moment. Is the battle over? No. We seem to have started the whole situation once again multiplied by, say, 5x or 10x of what we faced last year. The team is very confident. I used to tell you that we are confident. We continue to be confident. The experience that we have learned on dealing with this kind of situation last year is going to come once again, handy. It is unavoidable for some level of stress in the book. But we have strong operating profit, and we have a really good capital position. Tier 1 is 15.5% and total capital position is almost 20%. So we have a pretty strong capital position. And we have a robust business. Yes, it is focused on self-employed largely. It does get affected by lockdowns and curfews and restriction. But the fact is that most of it came back, I would say, by February-March. And we thought we ended March quite well only to come to a situation by 1st week or 10th of April, whereby unfortunately, the situation deteriorated a lot in the country. And the main priority of the country right now is to make sure that we plateau the second wave, reduce it and then get back to our business -- save lives and get back to our business as soon as possible. If you look at the slippage for the full year, it is same or similar as what we had in the previous year. And what has impacted us a bit is that normally you need about 7, 8 months to upgrade stock, collect from NPA accounts. You have to work with the customer, you need to use the SARFAESI Act and so on. The disruptions and our ability to kind of work out solutions has been hampered by various restrictions and so on. The customers are very much there. If you look at our collection efficiency, barring a percentage or 2%, we've been able to collect at least 1 installment from almost every customer, right? And a high percentage of customers had paid at least 3 or more installments. So that tells you about -- and it's all in-house. We don't have any external collection agencies, all in-house collections and recovery process. So that is where we are. We believe we have added headcount since the last quarter. We were all prepared to press the accelerator and move forward with some more speed. Unfortunately, there has been some setback because of the drastic increase in infection. So what we are doing is we are preparing ourselves to be ready such that as situation starts to improve, we can try and normalize the business as soon as possible and as much as possible. That's where we are. Hope you've had a chance to look at the presentation. I'm happy to take questions.

[Operator Instructions] The first question is from the line of Akshay Kila from Perfect Research.

Yes. Am I audible?

Yes, you are.

Yes, you are.

I just had a few questions. The first one, sir, can you please share the thought process behind investing in companies like India INX, India ICC and Techfino? Will we be seeing more such investments in coming times? The second one is, what's the long-term vision we aspire for? Do we also have the capability set to scale up, like, say, someone like Kotak Bank in the very long run? And the third one is what's the percentage -- total percentage of secured loan book in our total loan book?

What was the last question?

Sir, what is the total percentage of secured loan book in our total loan book?

Yes. So we will give you the answer on the last, but I want to tell you that except for MFI BC loans. And to some extent, some -- what's it called, fintech tie-up loans. Hardly, we have any unsecured loans in our book. And I'll give you the exact percentage on that in a minute. As far as Kotak Banks or other big banks are concerned, we are currently focused on how do we get past the current situation that is there in the country. And how do we build momentum in business. And how do we make sure that we have as minimal impact on P&L as possible from loans that are likely to get stressed and are spread. That is our focus. If situation improves as soon as possible, we are planning to try and get our loan growth book, and we have the capacity now. We have got a lot of stuff sorted out in the last few months. We were all ready to press the accelerator. In fact, March has been a very good month for us. Unfortunately, April -- by April 7, 10, we have had these challenges, lockdowns and so on. We believe that we should be able to at least grow by high teens, provided situation improves as quickly as possible. Regarding our investments, from time to time, our management team keeps looking at some of the opportunistic investment. We are not interested in some big stake at all. They are all very small investments. Years ago, we made an investment in Annapurna. Then recently, we made a small investment in Techfino. Then we have made this investment in these exchanges. So we keep looking at small opportunities like that. And it will come without giving up some great valuation and having some great P&L impact or so. We just look for these opportunities and invest. So there is no big game plan here. It is just as simple, management keeps reviewing opportunities and making 1 or 2 investments here and there. It so happens that 2 investments have happened pretty quickly within a short time. Regarding your question on unsecured, secured, we have information that about 95% of our book is secured.

[Operator Instructions] The next question is from the line of [Malar Kemalmani] from -- an individual investor.

Yes, sir, I wanted to understand like what is the average duration? And what is the average ticket size of the deposits and loans?

Our main focus on deposits is retail deposits. If you see the press release, retail deposits, which is less than INR 2 crores per ticket has grown by 19% year-on-year, okay? Generally, the retail deposit size that we get is somewhere between INR 1.5 lakhs to INR 2 lakhs. Our loan, usually ticket price is only about INR 30 lakhs, INR 35 lakhs. If you look at the press release, you will find that we are one of the most granular portfolio in loans that you can come across. Only 5% odd of our book is in the top 20 loans. 80-odd percent of our book is less than INR 3 crores in terms of ticket size. So we are one of the most granular portfolio in banking at the moment, okay? And what was your first question?

And the duration of the loans and deposits?

The mortgage duration, the actual duration that we give could be anywhere from 10 to 15 years or something. But actual duration, customers may have only 7, 8 years because they tend to repay. Deposit, we always encourage customers to take long-term deposit like 2 or 3 years. So some months, we get deposits, which are 18, 24 months; some months, we get 30 months. So you can safely say the duration could be about 20-odd months.

Okay. Got it. And I wanted to -- I have 1 question. Like in your FY '20 annual report, you have mentioned the use of the SAS analytics and credit risk management on predictive model and the data analytics and the default behavior scorecard and the optimization of cash loading at ATM. So I wanted to understand this better. So if you could elaborate or else we can connect offline after this recording.

So the analytics team, there's a separate team, which looks at opportunities and risks using advanced analytics like the way we explain. And then we look at opportunities to optimize things. So like, for example, you were talking about loading of ATMs. If the loading of ATM is optimized, you'll save on funding costs, you'll save on transport costs, you'll save on agency costs. That's 1 example. So obviously, we can connect offline and say, but that is basically the job of the analytics team.

Okay. So if we could arrange that offline, that would be great.

Yes. Let's go. Yes.

The next question is from the line of Anil Tulsiram from ContrarianValue Edge.

Based on the bank track record for the last 10 years, I have full confidence on the asset quality of the -- that asset quality will be maintained and COVID challenges will be met. So no questions on that. I'm just trying to understand our strategy. So in the bank -- in the past, bank has repeatedly mentioned, City Union Bank has it's own model. So 2 questions on this. City Union Bank focused more on the working capital loan, whereas we focus more on the LAP. Not for a second I'm suggesting that bank policy is wrong or we need to change, just trying to understand why. And second-related question is, DCB Bank employee per branch is close to double that of the City Union bank. As a result, our employee cost as a percentage of total asset is 40 to 50 basis points higher. So can you just explain this?

First of all, we, of course, working capital loans. If you look at the pie chart in the investment -- investor presentation, you will find SME/MSME. Majority of that portfolio is working capital kind of loans. City Union Bank has an advantage. They have far number of more higher branches, and they are far more concentrated on a particular geography. So their strategy may be different to that extent. We find that we have expertise in loan against property. Even in loan against property, on a case-by-case basis, when a customer comes, we give certain kind of additional facilities to the customer based on cash flows, et cetera. We find that from a branch cost point of view, from a delivery point of view, loan against property is somewhat superior because in CC/OD what happens, customer utilization is a very big variable. Sometimes customer utilizes, sometimes doesn't utilize, but you block your capital because you have to keep the capital for the entire limit. So that we find not very efficient, right? And also the maintenance cost is higher in a CC/OD kind of product. That is our outlook, okay? So to that extent, it is different. We are different. At the same time, we are similar to City Union Bank because the target market for City Union Bank is self-employed, our target market is also self-employed. The way we administer the product is very different. For example, I don't think City Union does loan against property, but we have a separate team doing that. Cost, the number of people per branch is, again, in different model. We have a lot of outbound sales teams in most of the products who go and actually seek these loans, whereas City Union probably has a more branch-based model. What you should look at is what is our cost to average asset. Our cost to average asset this year probably is about 2.19, but that may be because of some of the actions that we took in order to -- the special actions that we took last year. But we believe that over a period of time, we should be same or better than City Union Bank over a period of time in terms of cost to average assets. And that is what is more important.

Yes, yes. Sir, second question is, can you elaborate more on the API banking strategy? What I meant is, what is our strategy for taking help of the fintech on acquiring assets and acquiring liabilities.

On a monthly basis, we are meeting several fintech. Some of the fintech companies are good and they can scale up. So we are trying our best to make sure that how can we make available APIs so that the fintech company can consume it and we can consume their APIs such that we can have an almost seamless kind of delivery to customers. This is a very long and big topic and complex topic, which we may not be able to address all of it here. Suffice to say, that we have a separate team, which is working with several fintech companies. Some of it succeed, some of it doesn't succeed. We sign up. We work on it. Fintech is not able to scale up. Some of the fintechs are not very compliant. So that puts the bank at risk. So therefore, we have to back off and say that, look, I don't think we can continue with this product, those kind of things. So it's a very long and big discussion which we have to have separately. Suffice to say that, there is a separate team focusing on tying up with fintech and making it successful.

Yes. Sir, the next thing I want to understand is, over the last few years, bank has been excellent in deposit franchisee. And today, we have one of the most granular deposits among the small deposit banks. So to ensure that these customers keep their money with our bank, just -- not just on the basis of the higher interest rate, but because of the better service or whatever it is. So can you elaborate more on this? Or will it be always higher interest rate or we can provide something else that they are incentivized to keep money with us?

If a company -- if a bank offers 7% interest on CASA and grow their CASA, you guys think that they are doing a very good job. And you think that we are offering a lower interest. If a term deposit rate is maybe 25, 50 basis points amongst the comparative peers, you think that we are offering higher interest rates. So you have to compare it properly and see where it is. Obviously, our rates are far higher than a Kotak Bank or something. They are a different franchise in comparison. The way we make sure that customers want to have our product apart from slight improvement in the pricing is the product itself. We offer health insurance in our term deposits. We offer life insurance in term deposits, all rolled into one. And customers like it. You can't go to the market and say, I'll give you good service, so give me a deposit. It doesn't work. But once you get a deposit, you better give good service, otherwise, you will see the deposits will go. That's is the way banking works.

Yes. Sir, one data keeping point, what is percentage of advances, which are in the floating rate of interest?

I don't have that number. Those are normal, not be disclosed here. So sorry about that.

Okay. Sir, just 1 last question. Sir, the cost of funds of the small banks like AU Bank, Ujjivan and Equitas has come very close to our bank, and they have also entered that of ticket size around INR 20 lakhs to INR 30 lakhs. So do you think you will have high competition from them or we will manage the competition the way we have managed in the past?

I have finished 12 years in the bank and started my 13th year, we have always faced competition from different, different segments in different, different point in time. Of course, AU is a competition, Equitas is a competition, HDFC Bank is a competition to us. Whatever be the competition, we have to have operational excellence, have good product, have good ability to deliver, and that is how we keep growing our book.

That's it, sir. Sir, just 1 request, at the end, next time, if you can put some slides...

You have to give chance to other people to ask question, please. Sorry about that. You have to give other people chance to ask question.

It is just a request, not a question. Just a request. Next time, if you can put some slides to explain the API banking strategy, that will be helpful.

The next question is from the line of Rohan Mandora from Equirus. Mr. Mandora, if you can speak closer to the handset, please. Your voice is not audible.

Is it better? Is it better?

Yes, sir.

Slightly better. Yes, go ahead.

So sir, on the collection trends in April, how is the trend if you could share some comments on that? And also given the fact that in the previous year, post the COVID, it took some time for some of the borrowers to start repaying. While currently, the numbers are there -- like in the nonrepaying customer is lesser, but it took some time for them. So now with the current wave of COVID, how do you expect them to behave?

The first-cut numbers of April seems to suggest that the collection efficiency is slightly lower than what we've seen in March. That is primarily because customers are available. There's not that any contactability issue. What I want to tell you is the difference between what you see in the second wave and first wave is, and I'm not trying to paint a negative picture here, I'm telling you the factual picture is that collection staff are -- some of them are infected. Some of the staff members families are infected. Customers are infected. Customer families are infected. So the whole system is somewhat distracted in trying to get past this challenge, right? So therefore, it does have an impact on collection efficiency and the market is close. I mean, you know that. I mean, people say in some of the states, we are not allowed to go out after 2 or 3 clock or something in the afternoon, even if you are essential service, right? There are very strict guidelines, which we have to follow, which we have to absolutely adhere to. So there is some dip in the collection efficiency, which I have mentioned in terms of a comment in my press release. Now what we like about the current -- this recent announcement by RBI is, it may change tomorrow, but we really appreciate that, is that they have not declared any moratorium. We believe that when moratorium is declared, then it takes time for customers to come out of the moratorium, which is what we faced last time. Although from a 58%, 60% moratorium, we were able to kind of "wake up" almost entire customer base and get our collections up. I mean, that is a dramatic improvement we have done since the August of last year. So if you do moratorium, then there are maybe complications in term of what happens to interest and what happens to interest on interest. All these complications, I think, have been avoided by not declaring moratorium. So if the situation comes back to normal quickly, I don't believe the collection should dip as less as what happened last year. But again, we have to watch and see what happens. That's my guess.

Sure, sir. And sir, any quantification for the April collection, how much decline it had compared to March level?

We will provide all that as we move along and declare our results in the next quarter. It's too early right now to say about it.

And sir, NIM decline sequentially other than the interest reversal on the 2 components, INR 37 crores and INR 10 crores. Is there any other one-off in that?

Underlying NIM appears to be in the same range as 365 to 370 basis point. We are confident that, that would be our NIM. Of course, how the whole MCLR benefit keep getting passed on because as we keep reducing the cost of fund, the formula is very much clear that it has to go back to the customer, especially those who are linked with the MCLR and not having fixed rates. So we believe that we should be in that range. There has been some quarter-to-quarter up and down regarding subreversal on NPA or reversal on the restructure or whatever, but core underlying NIM seems to be quite okay right now.

[Operator Instructions] The next question is from the line of Renish Bhuva from ICICI Securities.

And congrats on a great set of numbers in such a challenging time. So sir, just a -- first question is on the provision and the health of the portfolio. I mean, as on March 21, do we believe that the -- whatever impact is there due to first wave so in terms of recognition and credit costs, we have built it in. And the incremental stressed asset formation and the credit cost will be limited to the second wave? Or do you still believe that there will be some spillover of the first wave?

See, the existing customer, some of them have not been affected by first wave, and some of them have not been affected by second wave. Existing customer, some of them may not have been affected by first wave but may have affected by second wave. So it's very hard for me to segregate who is affected first wave, second wave and all these things. All I can say is, at the moment to me, I was like holding my heart in my palm, wondering as to what is going to be the announcement by RBI. Fortunately, there is no moratorium. When there is no moratorium, it is slightly easier dialogue with the customer. In fact, we have sent SMS to customers and all saying, boss, [Foreign Language], continue to pay. Moratorium gives some kind of inertia and some kind of a challenge, whereby it's very difficult to have a dialogue with the customer on its repayment. I mean, I don't know whether I'm able to get across my point on this, right?

No, no. I got it. Yes.

I'm not saying customers should not be given moratorium, but that should be left to the bank to see what kind of moratorium is required. For example, just restructure a loan, you can give a 3 or 6 months moratorium for him to come back to some business as usual to see and start repaying. That's a pretty decent way to handle this thing, right? And what we believe is -- see, it's like this, what we believe is our NPA slippage last year and the year that we finished is pretty much the same. And if you look at the NPAs that we started with the year before, we would have provided almost 80%, 90% of that NPA. It is when you get a sudden increase in NPA because of all the Supreme Court and all, it takes time for us to build the provision, okay? Second point I want to say is, provision also is a factor of the recovery. We are dealing with secured business. I'm telling you, given the small ticket rise and all, customers will not let go off their property and things like that. But you have to give that time to customer to rectify his account. And maybe they want to just liquidate something and pay, whatever it is, it's better to do that way. That is how we are trying to get the collections going. Currently, what comfort I can kind of present here is that if you look at Page 3 of our press release, if you can get hold of that. If you look at it, provision for NPA is INR 489 crores. That includes the floating provision. We never have, so far -- we have been creating floating provision every quarter, and we have never used that floating provision, okay? So we've just kind of presented that to you separately, right? Then we have INR 287 crores of provision for restructured assets and for other contingency. So as we enter 2021, yes, we are facing second wave; yes, maybe collections efficiency will dip and all; but I won't call it cushion, but I would definitely call it as some kind of quantum that we are carrying forward. And we kind of try to assess the situation by -- from competitors and other banks and all, we seem to be in a reasonably good provision situation is what at the moment. What will happen in the coming quarters, the management is very clear, always make conservative provision because that helps the balance sheet to strengthen. And we are only making provisions. We are not doing write-offs. So it should come back as we do the recovery.

Got it. So sir, actually, my next question on this reconciliation. So this INR 489 crores is including floating provision. I mean, if we look at the calculated provision coverage on the gross NPA and net NPA, so we are utilizing floating as in Q4, right?

No. Sorry, Bharat can answer.

Yes. Renish, for floating provision, RBI gives 2 alternates. One is one can count it partly towards Tier 2 capital, where there is limitation on what we can count. So standard asset provision, which we make, goes into our Tier 2 capital. Floating provision, which we are making, other option RBI gives is if you don't take it as a Tier 2, then you can recommit for net NPAs, but it does not mean that, that INR 180 crores is absorbed against actually specific NPAs, which are over there. Specific provisions for gross NPA is at INR 380 crores, which is mentioned over there. INR 287 crores, which is mentioned is assets which are not slipped. They are standard and still to make additional provision or they are restructured stress, but they are standard assets.

Got it. Got it. So basically...

The RBI guidelines, which I'm saying is recorded in Tier 2 capital by us.

Got it. Got it. So if I understand correctly, so floating provision, since it's not a specific provision, in case there is a higher recovery, we can write back.

Yes, RBI has recently announced that you can look at floating provision with Board approval. Earlier, it was only 1/3 and with RBI and Board approval, now they said, you can utilize up to 100%, and that too with Board approval. So that flexibility is there with us.

Got it. Got it. So basically, for COVID, I mean, for all practical buffers, we have a pool of INR 287 crores. I mean that is the contingency buffer we have as of now.

INR 109 crores also, in a way, is a contingency buffer in that sense.

Like it's a way of presenting. You can see INR 287 crores and move on, that is also -- we don't have any problem because that is also correct. The answer one I have is that the provision that we made for NPA, let's say, for example, we started with X amount of NPA this year. The formula that we have in terms of making provision for that is always higher than what is prescribed by RBI. I mean it's not that we have to -- like it's the way the policy works in our bank because we want to make sure that we are always ahead on provisions. And of course, if the recoveries are there, you -- we kind of reverse that provision.

Got it for it. I mean, so our provision policy must be on LTD base rather than IRA account base is what you're trying to highlight?

It's partly there, yes. Not fully, but partly, yes.

The next question is from the line of Pranav Gupta from Aditya Birla Sun Life Insurance.

Hello?

Yes, go ahead, please.

Yes. Good set of disclosures from your end. Just a couple of questions. So firstly, in your opening comments, you sort of spoke about being able to deliver mid-teens growth if we see a normalization of this pandemic in the next couple of months. Just want to understand from your end that while you have added capacity, would you -- once this thing of COVID sort of eases out, would you be more conservative and sort of wait for a little more time to understand how the cash flows of customers will get affected post COVID? Or would you start sort of lending where you have comfort. Just wanted to understand that.

That is what we did last time also. You see last time, also because of lockdown and stuff like that, we had to wait for a certain level of cash flows to be visible for us to lend. I am taking all that into account. See, for example, we have grown gold loan by more than 100%, 150%. Now today, the challenge is, I was talking to some very big gold loan company Chairman also. The challenge is customer's fear and inability to reach the branch for gold loan, as an example, right? When the situation improves, I don't see that becoming a problem for us, so that we should be able to lend that. When I look at our SME working capital kind of loans, we are constantly in touch. We can see the churn and we can constantly see the thing. So we should be able to do well. With out home loans, we talk about small family home loans or even small outfit, within a short time, we should be able to see some of the cash flow. So obviously, we are going to be cognizant of -- we are going to take cognizance of what is the cash flows and all. What I'm trying to say is that from a capacity point of view, we are quite ready, and we feel confident that if situations start to smoothen out and better, we will be out there. That's basically what we are seeing.

Sure. Sure. Sir, second question is, just wanted to understand your perspective on SARFAESI versus restructure. So obviously, because of the Supreme Court circular, you were not able to enforce any recovery measures until late of March. So given the second wave, we will see cash flows and we will see collection efficiencies drop. And once we start seeing a recovery, will we sort of look to do more recovery proceedings versus a restructure? Or how should we think of this?

There is no magic formula on that except one, is that SARFAESI for an account that has slipped into NPA should always be used as some kind of -- I won't say threat, but some kind of a pressure on the customer, okay? Usually, customers -- I mean, even in the past, I've told you, 90%, 95% of the customers always settle. They don't go in for SARFAESI because customers feel that if they sell the property, and we also feel that if they sell the property, they'll fetch a better value than bank selling the property because the property will lose some value, and the customer won't get any excess cash flow that may be available to him. So our usual go-to question is to force the customer to settle with us in that. When a customer, we feel, has got even all these restructures that we have done, none of the restructure, I can say, has been done, just say, okay, fine, let's do the restructure on this and push it forward. That is not how it is. We track restructure performance separately to see how customers are repaying. The reason we do that is if customer has said that he is going to be all right, his business is looking up, he can pay 50% of installment, 60% of installment, we want to make sure that we give him a chance. That way what happens, 12, 18 months down the line, if the customer situation improves, it will be better for the customer as well as for us, right? NPAs don't earn any money, right? So I don't think there's going to be any change in strategy. But given RBI's current announcement that has happened, I do feel that customers will ask for restructure. Again, we will do case by case, look at it and see how best we can tailor that for them.

Great. Sir, just a clarification on this. So had the Supreme Court order not halted SARFAESI, do you feel that we could have seen accretion to NPAs, which would have been lower than -- or much lower than what we saw, given that collection efficiencies still March have continuously improved post moratorium.

I think I would like to answer the question. As I think we probably would have done a far better job on recoveries and upgrades. Because if the courts are not functioning efficiently, if you can't take help of the lawyers on a continuous basis to serve the notice. I mean there's a lot of logistic challenges. How we go and paste a notice in a house which is under, say, for example, mini -- what is that called, containment or something, right? I mean there's -- I mean, if I start describing this, there's a lot of small, small, small. I mean, when we sit in our collection call, partly it is entertainment, and partly, it is -- you just say mine, I got so many complications are there in a COVID kind of situation, right? So yes, I think we could have done a far better job. But the fact is, I think the team is quite geared up. I mean, we keep doing collections review about 2, 3 times. The spirit of the team is very high. I don't see any de-motivation and things like that. Yes, sometimes, we get a call from parents saying that their children won't come for work or something because they are afraid and all. We deal with all these things. But having said that, I think when the situation improves, we have already demonstrated to the investors that our collection efficiency -- we are the first bank to put out the collection efficiency as a number to track and other banks followed, you know that. So we will continue to look at that metrics and see how we can improve.

Sure. Just 1 last question, if I can squeeze in. So I wanted to get some sense from you on the extension that you received from the RBI. What I understand that you -- the bank might have applied for a 3-year period, but only 1 year has been received. Is there any -- anything additional in the communication that we've received to suggest why the RBI might have offered a 1-year extension rather than a 3 year? Because as per the new paper, you are eligible, right, to receive an extension. Just wanted to understand that.

In general, whether it is -- I mean, this is my understanding. In general, all banks apply for 3-year extension for CEO, and RBI has been giving only 3-year extension. The extension process with regulator is not an interactive process, whereby the bank will come to know in advance or something as any of that. It's a level -- it's a process whereby you put in your details, they may seek some additional details. And then -- so whatever communication has come from RBI, we have put it out in the exchange for you. If there is any additional communication, we would be responsible enough to put it out for you if it is...

[Operator Instructions] Next question is from the line of Himanshu Upadhyay from PGIM.

I had a question on this collection efficiency, what we present to business loans and home loans, okay? So, generally, what we read and what impressions we get -- or maybe my impression is wrong, you can correct me, if that is the case, that home loans are more stable, okay, than business loans. But in collection efficiencies, what we are seeing is for us is business loan is doing much better than home loans, okay, in both one time...

Where are you reading, can you just guide me on that?

This is Page #4 of the press release, what you have given, okay?

So home loan is at 96.8%. Business loan is at 95.2. Customers, including delinquent and restructure in home loan is 1.43, which is slightly higher than this. And if you look in 3 EMIs paid, it is 95%. So it could be like small bunch of customers are from maybe some slightly higher ticket price or somebody who would have passed it. So I won't read too much into this as a difference in some portfolio and all. Both are self-employed portfolio largely. So I wouldn't -- I mean I won't consider this as some major difference to be explained.

Okay. But the risk-weighted returns would be similar for both the products? And what is your observation?

Home loans, generally at a risk weight of 35% to 50% and loan against property is generally at a risk weight of 75%.

No. I was asking our own observations. What has been in our case?

We have had -- we had made sure that our pricing metrics and our risk metrics delivers greater than 14% return on both these products. Customer to customer, it may differ, but our, what's it called, hurdle rate is 14% ROE on all these loans.

Okay. And 1 question was on gold loans. This is Slide #12 of your presentation, okay? Do you see a significant amount of jump in the stress, or I would say, INR 69 crores to INR 552 crores in 1-year period.

INR 6.9 crores to INR 55 crores. Gold loan, INR 6.9 crores to -- this goes up and down. We don't -- we bunch up the auction process for customers. We don't -- and we give a fair chance to customers to repay the loan because these are all their personal jewelry. So I won't -- I mean, we keep looking at various ways to make sure that we are not sitting on some fraud or spurious jewelery. So as and when we are able to do auctions, these numbers will start coming down. So I won't -- I mean, I won't be concerned about that.

And 1 last question. On the FD side, which we give, what help that strategy we have used very efficiently over the last many years, okay, to get granular deposit franchisee and increase the penetration. But how's the relationship or the strength of relationship? Have we any important learnings from that thing that we have been able to increase the depth of those relationships? And how do you evaluate your own performance over the years?

So first of all, the scorecard of the branch is skewed towards getting retail term deposit and then cross-sell CASA to that customer. Secondly, I think the product team has given some good products like this health insurance and life insurance, which has been packaged into these products. Third is our analytics team tell me, based on a sample data of the term deposits, if, for example, our term deposit customer comes in, in January of a particular year at INR 100, they deepen their relationship to almost INR 150 or INR 160 by end of the year. So it seems to be quite working well for us from an existing customer deepening of relationship as well. So that's how we have been getting term deposits and reducing our bulk deposits.

Okay. Okay. And generally, a conversion rate would -- has it improved drastically over 4, 5 years?

What is conversion rate?

So cross-sell ratio for those customers and the depth of relationships, what...

It's been 3 years since we embarked upon a full retail term deposit strategy. September 18 is when we started. The initial results are quite encouraging, and we believe that as we put more and more effort on this from our call center and branches, we should be able to do better.

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

Just a couple of questions from my side. On the AIB, the increase in NPS, could you just kind of discuss what's driving that now?

Yes. So much of the NPA is coming from MFI BC portfolio. And we have not completely utilized the FLDG of some of these BCs yet. We are giving them a chance to collect. The recoveries were shaping up quite well till end of March, then unfortunately, we hit a wall in like 10th or 12th of April. So the MFI BC portfolio recoveries would be slightly long-haul from a full recovery point of view, but part of it will be covered by FLDG.

See, last quarter, you indicated about INR 55 crores is secured by FLDG.

Yes.

That's the same amount that we are looking at this time around as well?

It could be higher because the FLDG has different structures depending upon the performance of the BC.

Okay. Second question is on the restructured loan segment as well as the ECLGS. On the restructured loan, which product segment has seen the maximum amount of uptick?

Mortgage and CV. When I say mortgage means largely loan again property, and CV. And we are tracking how these customers are performing. We have done proper evaluation of these customers. ECLGS, don't confuse with restructure. That is a separate product. And like I mentioned, we have always been very careful to jut give -- because we have a lot of customers who used to call us desperately for ECLGS and we have been very careful about giving that disbursal because if the customer's business is not going to survive, no point in just taking ECLGS and applying to the other thing and then only to get affected later, okay? So we have been very careful, and we intend to be careful because we can disburse all the way till September.

Perfect. Sorry, and just 1 clarification. Collection efficiency will include arrears as well, right?

Include what?

Arrears as well, right?

It is -- billed is the -- what we bill is the numerator and what we collect is the -- sorry, what we bill is the denominator and what we collect is a numerator.

Collection includes the past dues as well?

It does not. No.

The collection against the billed amount.

Whatever we bill.

Billed amount for the month and collection against that billed amount. Previous month is not included.

But that includes even restructured loans.

Just to let you know that.

The next question is from the line of Amaan Elahi from Investec India.

Just 2 questions from my side. Firstly, when do we expect our NIMs to glide towards the guided number of 365 to 370 basis points? And secondly, this year, obviously, first half, we didn't see much of lending happening. So obviously, our costs were lower, especially cost to assets. And our cost to assets for the full year is in the range of 2.1% to 2.4%. So how much can we expect this to increase for FY '22 and FY '23 as we start to increase our lending activity?

Okay. One thing you guys have to clearly understand and give us credit, especially how we implemented 150 branches in 2015 onwards and still had the cost metrics pretty much come under control. So just give us credit that we understand how these costs move and how we control these costs, okay? So in near term, costs will increase because last year, we have not been able to do the kind of salary action that we intended to do, which we will hope to do for at least part of the population, okay? And second point I would like to make is that our headcount is also increasing because they're increasing because we want to make sure that we have enough firepower when things improve because we have the product, we have the distribution, so we want to make sure that we do that. To that extent, you should see some increase in costs in the quarter 1, maybe even quarter 2. But what we are confident is we know how to make those people productive. We know how to make sure that our cost efficiencies are coming in, in the planned manner. And cost income ratio will start to drop even if it increases in the near term. That is point number one. Second point is cost to average assets, our long term goal is 220. And there are several activities which are going on uninterrupted in getting that done. For example, the Mission 309 accelerated digital agenda. It's continuing. There's a separate review that happens to make sure that these things are doing. And as and when we succeed in actually getting some efficiency there, we hope to at least showcase some of that to investors. Regarding NIM, underlying NIM is in the range of 365, 370 basis points. Unfortunately, this Supreme Court and these NPAs that kind of creates some kind of noise in this thing. Like I said, barring any issues regarding restructure and NPA, our underlying NIM is pretty intact is what I would like to say. So when the situation stabilized, we didn't anticipate the second wave and all these impacts. So we have to deal with that in quarter 1, perhaps even in quarter 2. So yes, that's is where we are.

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

Sir, is the restructuring number that you have given is the net restructuring number. And if I add the provisioning that we are carrying, it is somewhere around INR 1,100 crores. So that would be around 4.3% number as a percentage of loan. So I just wanted to check, this is the total restructuring under the, let's say, resolution 1.0? Or there is something else under implementation under restructuring 1.0?

This includes all the restructuring that we did, even including the COVID package.

And there's nothing under implementation?

This nothing means what. I'm saying that this is what the total restructure book for the bank. And I told you that we'll be probably around 5%. We are at 4.3%.

Sure. Yes, yes, so that is there. And second, sir, I mean, you've given good details on the product-wise stress kind of a book, right, which -- that these percentage of people have not paid an installment, but I think if one was to look because you have now started disclosing NPA and restructured. So from -- so whatever is NPA and whatever is restructured is anyway given separately. If you have any number, which is, of course, not a part of NPA or restructuring but is kind of having a stress in your view? I mean, do you have that kind of a number because -- now because you have NPA...

I think we are doing a fair amount of disclosure. So for the time being, these are our disclosures.

Sure. Okay. And last thing, sir, on the new RBI guidelines, right? So that also suggests that the Chairman should also be independent. Any thought process there?

We have to follow the guidelines of Reserve Bank of India new governance structure. Whatever -- see, we are operating this bank under the Reserve Bank of India guidelines. So whatever guidelines come, we have to work through those guidelines.

And lastly, sir, maybe it is too early to ask that you have been given 1-year extension and probably -- usually, a bank start -- I mean, like you also did 6 months before the scheduled term end. But a clarity on this, at least from your side would help that, at least from the bank side, right, there would be -- I mean, there have been various instances of 1-year extension given multiple times. But just wanted to check that how are you approaching this as and when the time comes? Or this could lead to a rethinking at the Board level?

Rethinking about what?

I mean, having a 3-year term for any MD/CEO is, I think, is more, let's say, desirable. So in that direction...

Even for the MD/CEO that is desirable, right? So what I want to say is that the Board, furthermore, cannot ask for extension beyond 2 more years. Now what the Board -- we have to apply usually 6 months in advance. Otherwise, it is seen as incorrect processes by the bank. So most likely, the bank will approach RBI for whatever the decision is by the Board in October of this year. So it is really too early to comment at this point. As far as I'm concerned, I am proceeding as though I'm here for some time and working with my team. And as far as the succession plan is concerned, the Board is well aware of what needs to be done. The promoter is well aware of what needs to be done. And our bank has always taken succession planning and all very seriously, and we are very confident that it is going to work out quite well.

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

I have 1 question on the growth front. So while DCB remains an SME-focused bank, if you look at the recent quarters, while we have maintained caution on this segment, we've seen several of the larger banks increasingly become aggressive in this segment and delivering a growth of about 6% to 7% sequentially. So why is this dicotomy? And how do you read this? And does that pose a risk to our model in terms of growth and opportunity?

As far as I know, there is no risk to our model. And I think we have done a pretty decent job in the fourth quarter. We are starting to increase our headcount. Of course, we may probably have to give it a pause for a month or so. And we are pretty confident that our growth rate, as and when situation improves, should be quite decent. And we probably may not have to see the kind of growth rates, unfortunately, that we had to deal with in the last couple of years. Of course, the only condition is, we have to figure out as to how soon it improved. We got our sales target market, whatever else needs to be sorted out, all lined up. Unless there is any dramatic change that happens in the environment, as soon as situation starts to improve, I think we should be fine.

Sure. And on the PCR front, just wanted to double check, so the closing provisions of INR 109 crores, it's already part of your PCR calculations, is that right?

Yes.

Okay. And lastly, if you could just throw some light on your branch expansion plans going ahead?

At the moment, there are some logistic issues. But we think that 20, 25 branches is something that we should be able to do in the 12, 15-odd months, that is what we have mentioned. And we know how to run branch. We are not worried about costs shooting up and things like that because we know how the costs will go up and how we'll bring it under control and how we'll make it efficient. So all those, we are pretty clear about. And we have demonstrated in the past. So we think that -- we also have identified where else to put our branches, what else to do. The situation was very different on March 31 or even maybe 3rd or 4th of April. Unfortunately, what has happened in the last month or so has kind of put some challenges. But having dealt with similar challenges last year, we are quite confident we'll deal with it this year again.

The next question is from the line of Asutosh Mishra from Ashika Stock Broking.

My question is a bit from the longer-term perspective. As our cost of deposit is now -- has come down potentially, which may give us opportunity to launch some new product, which -- where we can capitalize or grow. Do have any plan -- anything pipeline in that because you are collaborating with a lot of fintech and other?

So like I mentioned, one of the new products we did very successfully in this quarter was TREDs and we hope to scale it up. It's a pretty good product from utilizing the excess liquidity that you have on short term. It is MSME product. It is largely PSL. It is small ticket. It fits -- it ticks all the boxes that we have. So we have a separate team that works -- is working on it, and we have been fairly successful, at least in the initial stages on TREDs. That's a new product that we launched. We also have kind of 2 -- 2 successful fintech. We can see some green shoots on that in terms of scaling up. One is in the agri area and the other is in regular business. So we are also looking at some opportunities in co-lending space. Several NBFCs have approached us, but we want to make sure that operationally and from a return point of view, it is meaningful for us. So hopefully, we should be able to do that as well. So a lot of work is going on. Again, the speed will depend upon how well we can execute in these times, but efforts are on.

Yes. Okay. Sir, similarly on deposit front, as the deposit rates are historically lowest in India at this point of time. Do you see any challenges for a bank like us in the future on how we are preparing ourselves for that?

In 2009, when I joined the bank, one of the rating agencies asked, are you constrained on deposits? This is like 2009. I was just looking at them and saying, what are they saying? But if you look at the way we have grown our retail term deposit, which the same strategy is being copied by some of the other banks. The way we have kind of managed our LCR, I don't believe that we have any problem in generating deposits. We have consciously chosen not to onboard a CASA customer first because the cost versus their balances versus the stability, all that is a lot of -- I mean, like with all these Google Pay and Paytm and all the other things, customers -- the reason to buy on a CASA has to be very strong for us to be able to do that. But if you do as term deposit and then have customers take the SA account, that seems to me a lot better from a loyalty as well as from a deepening point of view. Now that's our view. We can always throw money and say here is 6%, 6.5%, please take the SA, I'm sure we'll be successful also. But that's not what we are choosing to do.

The next question is from the line of Kamlesh Dadlani from Oman India Joint Investment Fund.

See, the question is in relation to growth. So obviously, for FY '21, management rightfully focused on limiting slippages, consolidating balance sheet and advances growth was only marginal if you look at it from the full year perspective. But what would be helpful if management can just guide us in terms of what is the outlook -- growth outlook in terms of advances that we can look at, say, in a short-term FY '22 perspective and even in a medium-term perspective and where the opportunities for growing the loan book that management currently looks at? So I think that will be largely...

Have you read the Point 9 on our press release?

Yes.

So I should assume that you read it?

Yes.

Okay. So I'm clearly telling you where we are focusing on, business loans, home loans, gold loans, KCC, tractor loans, loans to MFI, MFI BC loans. Year-on-year, we have grown our home loans by 15%, gold loan by 172%. Agri and inclusive banking 7% and you please remember that in agri and inclusive banking, MFI loans were not doable for almost 6, 7 months, okay? So if you look at our performance on some of the targets and what we are doing, we are quite doing all right. We have not had success in terms of growing commercial vehicles because we have chosen to kind of limit our exposure in the near term on commercial vehicle, right? So the growth area will be the same. We have built the capacity. From a 6,000-odd headcount in December, we have gone to 6,400. We were targeting a pretty decent growth in FY '22, but it looks like first quarter, we may not have too much of success. But as things ease up, we are ready to start in full flow, the process of whatever we were doing in the fourth quarter, especially February and March. So we are pretty confident that we should get back to a much better growth path as things ease up.

The next question is from the line of Gaurav Jani from Centrum.

Just 2 questions, mainly on the recovery side. So if I look at your...

Sure -- go ahead. Sorry, go ahead.

Am I audible?

Yes, please go ahead.

Yes. So if I should look at your recoveries in overall of FY '21 versus our past run rate, we've obviously lagged, and obviously, you mentioned the reason, but just wanted to have a deeper perspective as to what led to such a slow run rate because typically, what we understood is the second half, typically the last quarter was fantastic overall for the banking system in terms of lending and probably also in terms of recoveries. So you could please tell me if I'm wrong, but the point being so -- see, what led this slow recovery? And was it slow than it was anticipated? That's the first part of the question. I'll come to the second part later.

Yes. So we largely rely on putting pressure on the customer through SARFAESI and working through the customer on selling his property or part selling his properties so that he can reduce his loan, put him on a payment plan so that he can repay. So many of those activities got disrupted in last year. We picked up, started picking up speed in February-March. Usually, when you start picking up speed, it takes about 6 months for things to kind of gain some momentum. We have also had limited success on organizing the auctions in gold loans because, for COVID reasons, we were just not able to get all the things together, especially in March, as things were getting a little tough towards the end of March. So what I feel is that as the court process, the lawyer process, all that starts to kind of ease up, we should be able to step up our recoveries. The good news is that we hold the properties, the LTVs are in pretty good -- pretty acceptable range, customers are cooperating, they all understand what the issues could be. So I do think that there will be some pick up in this thing as situation improves. So I am not -- while I'm slightly kind of disappointed that our recoveries were not that good. But reviews in collection indicates that it will look positive as things move.

Sir, the second part is, obviously, so how do you look at FY '22 in terms of recoveries? Still early days, but probably going back to our previous levels or still early days to comment on that?

It is early to comment, but collection team is on full swing, except those who have been affected by COVID. They are working very hard to get customers to the thing. The first focus is on making sure that as less number of customers slip into NPA as possible. And there is a separate team working on recovery efforts. And once that starts to pick up, hopefully, by second or third quarter, we should get some momentum back on this. Operator, last 2 questions.

The next question is from the line of Nikhil from SIMPL.

Am I audible?

Mr. Nikhil, if you can speak closer to the handset, please?

Hello? Am I audible now?

Yes, sir.

Perfect. Go ahead.

Yes. Sir, my question -- 2 questions. One is, if you look at like almost 4.5% of the book was restructured. And another INR 600 crores of book was booked as a gross NPA. Now if you look at over a year, like in this COVID, we've seen the worst from a lockdown to a normalization -- part normalization of cash flow. So for rest of the book, the 95%, do you see any issues with their ability to generate the cash flows or and -- in their business models? Or are you like comfortable that we should not see any issues over there, incremental issues?

The NPA slippage is pretty much similar to what we had in the previous year, okay? What we have had is a higher restructure, and that has been as per my guidance. I gave this guidance almost 2 quarters ago that, that is what we are looking at, at the moment based on the cash flows and so on. So that can give you a sense of how well we understand our portfolio as to what is likely coming through because we do a lot of reviews of collections to see whose cash flow, how it is impacted, what can come, what cannot come and so on. Even in the INR 600-odd crores of NPA that we have had, had Supreme Court said that recognize the NPA on March 23, the picture would be very different. But rule was that we should recognize from September 1. A lot of the customers of NPA had -- may not have paid all 3 installments, but many of them have started putting, in fact, for the country, in my own view, I mean it's my personal view, if we have started recognizing NPA only from March 23, many of the customers will remain standard and that gives them a chance to probably rectify their credit rating and whatever else and then actually become better. Unfortunately, the ruling was applied on September 1. I mean, we have to work with whatever is the ruling. So if I look at that from the point of view, a lot of customers who were quite all right on March 23, but because they didn't clear all 3 installments from the September were NPA and it will be included in that [personal] growth. So we understand our customer portfolio pretty well. What happens is when the lockdown and things like that ease, it takes almost 3, 4 months for them to come back to even a 70%, 80% type of cash flow level. At that time, the bank needs to kind of understand what we should do to help. That is how we have kind of helped out a lot of the customers on restructure. We haven't lend to our customer. If nobody is paying anything, we have not said that they can be restructured. We said, sorry, we can't restructure because you don't have any cash flows to support. That's how we have handled the portfolio.

Okay. Which means then the rest of the book which we have as of today, even with the localized lockdowns which are happening now, we are pretty confident, like probably 85%, 90% of the book should remain stable, except in case some unforeseen issues come up like because of COVID, some health issues and all. But otherwise, these business models are sustainable and the promoters are also able to bring back the cash flow?

We don't -- we have not lend to any customer whose cash flow was not sustainable, business model was not sustainable. They all had excellent CIBIL record. To the best of my knowledge, very few customers would be below 700 or even 650, most of them would have been at 700 plus kind of levels. These guys have been doing business for 3 years or more. Many of these customers have had double income, in the sense their own business income plus some income from spouse or [time]. So there's a lot of combination of income. That's the reason we have been able to kind of bring the collection efficiency from 60% moratorium to all the way to what we presented to you in March. So we are confident of the portfolio. But how these people will be impacted by this COVID, what business out, even I don't have experience in telling you how it would be. But we have to wait and see how that pans out.

Okay. Secondly, sir, on gold loan, you did discuss about it. But just 1 question which I wanted to understand, like if we look at it, it's almost close to INR 1,500 crores of gold loan book in our advances, and we went -- we became aggressive enough in the gold loan book to grow it over the last 1 year. And still if you look at the NPAs, from INR 6 crores, it jumped to INR 55 crores...

Don't worry about the gold loan NPA. I don't know what you guys are thinking. Gold loan NPA...

Sir, let me finish.

We will do auctions. When we say we are going to do auction, customer comes and pays, and that's about it. Unless I'm sitting on the fraud, which is not the case, don't worry about gold loan NPA.

Okay, fine.

Because I don't want to waste time on discussing something which is of no consequence in this whole scheme of things. So stop bothering about gold loan NPA. It is not a fraud or anything like that. Customers are not paying. It is their family jewelry. We will tell them -- we will give them auction notice, 95% of them or 90% of them will come and pay, rest of it we will auction and the matter will be finished.

We take the last question from the line of Nilanjan Karfa from Nomura.

So, 1 question, given that the wave 2 is seemingly obviously quite bad and there is unfortunate mortality risk. So I just wanted to understand how does you take care of this mortality risk through our underwriting? I mean what kind of structures do we typically do? Does it differ between term loans versus working capital loans, if you can talk about that? And second, of the 916-odd ECLGS, if I can have a split of what is individual and nonindividual?

Most of that -- most it, almost 60%, 70% would be individuals, I guess, or maybe it is a 50%, 50% split, I don't have that data. But all of them are business loan, that is how you can give ECLGS. Otherwise, you can't give ECLGS. We have been as careful as possible in giving ECLGS to most viable businesses rather than just trying to use it for solving some near-term problem. Hopefully, that would be successful time will tell. But at the moment, it looks okay. Regarding mortality, I somehow think that over time, insurance pricing, health insurance, life insurance, all this is going to jump, if not already. A lot of our customers have taken insurance when they took this loan. So to that extent if there is any mortality, we should get payment from the insurance company. But over time, I think most insurance companies will probably be relooking at their rates or probably already done it. I'm not keeping track of that. But that's how we try to protect our portfolio. We have the underlying property. Most sad thing to do would be to deprive the whole family of that property to satisfy the loan. So we try and be as empathic as possible under the circumstances and try to come to some settlement with those kind of families. As of now, we haven't faced too many of those challenges.

Right. Right. So if can push a final question. The AIB NPLs, ultimately, how do you -- what the loss given defaults look like?

So much of that NPA is coming from AIB, MFI BC loans. And so BC loans, part of it will be covered by FLDG, part of it will be with our agreement with the BCs to recover those loans. The ones that are not covered by FLDG will be slightly long drawn, wherein some select cases, customers may have to be given some additional funding for him to repay this thing. We are working that out step by step. It was all going on quite well till March. Now the collection has, again, slowed down in BC. I don't know what the other MFI companies are telling you, but we have information from BC that there has been some reduction in collection efficiency.

I would now like to hand the conference over to the management for closing comments. Over to you, sir.

Thank you. That was a very long, 1.5 hours call today. Thanks for everyone's patience. Have a good weekend. Look forward to talking to you all in the next quarter. Thank you very much, and safe day.

Thank you. Ladies and gentlemen, on behalf of DCB Bank Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.