DCB Bank Limited (DCBBANK) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and a very warm welcome to the DCB Bank Limited Q3 FY '22 Earnings Conference Call. Joining us today on the call are Mr. Murali M. Natrajan, Managing Director and CEO of DCB Bank Limited; and Mr. Bharat Sampat, CFO of DCB Bank Limited. [Operator Instructions] Please note that this conference is being recorded. I'd now like to hand the conference over to Mr. Murali M. Natrajan. Thank you, and over to you, sir.

Thank you. Good evening, all of you. Thank you very much for joining this call. I will make a few observations in the next 5 minutes and then we'll open the floor for questions. Just let me highlight a couple of items that we believe this should be highlighted. First of all, for second quarter in a row, our upgrades and recording have been very strong. In fact, in this quarter, if I probably ignore gold loans, which I'll explain in a minute, if you exclude gold loans, the recoveries and upgrades have been higher than the key pages. And what we are finding is that steadily, we are moving towards a situation where the monthly slippages are pretty much near the pre-COVID levels like December 2019 or January 2020 kind of levels. And upgrades of recordings are continuing to be performing well. Gold loan is a kind of a branch product, and there have been a lot of productivity challenges in December because of infection. We have had to kind of use skeletal operations in some of the branches and all. So customers also couldn't reach on time to settle their dues. So all those are getting resolved in this particular quarter. I mean don't worry about gold loan NPLs because those are fully secured NPLs. In terms of -- so we do believe that -- I remember having a call with the investors in March 2020 when the pandemic was hit. And we clearly mentioned saying that we run a secured business, granular secured business, and we are pretty confident about our ability to recover and upgrade. And actually, this is playing out right now very clearly. As far as the collection efficiency is concerned, again, we are pretty much back to or almost near pre-COVID levels. Where we are seeing some challenges that when a particular customer is coming out of, let's say, 3 months or 6 months moratorium, it takes 1 or 2 months for them to settle down to a rhythm of repaying. So first couple of months, we have to chase them a little harder to get them to the habit of paying. And that when it becomes part of the denominator, it kind of impact the collection efficiency. Other than that, I think we are doing pretty okay on collections. Our provision coverage has been strong, excluding gold loans, which anyway doesn't require any coverage, so to speak, but we have to make the provisions anyway. We are almost now at 66.4%. We are continuously adding it down. We are almost now higher than the headcount that we had in March 2020. We are adding frontline staff, and we have added a few branches. The whole intention is to put the bank on a good growth path in the coming quarters. So we sincerely hope that we will do a far better job in terms of growing the balance sheet in the coming years, and we are preparing well for that start of the year. As far as third wave is concerned, there are productivity challenges because the infection rate was very high. I don't believe that all infections have been reported because people are doing testing at home and deciding to stay at home and these kind of issues. So we had some challenges, but most of those challenges are being taken care of. February looks quite okay. Most of January was looking quite okay. So that is where we are. So with those comments, I'm happy to take on questions.

[Operator Instructions] The first question is from the line of [ Sanjay Ladha ] from [ Profit Relations. ]

Sir, I just have a broad question just, again, it's a common perception among the investors is that banking is a scale game and larger banks will keep getting larger versus small private banks. So just want to know your thoughts on it and how we are looking ahead.

I don't have any thoughts on that. We have our strategy. I don't have enough understanding of banking to give you an answer to that question. We have our strategy. We have adequate scale. We probably will cross 400 branches by another 1 or 2 quarters. We have adequate frontline. We understand the product. We understand the segment. We have been in the segment for more than 13 years. There is enough and more to do in this segment business. Volumes are picking up. And we believe that with the kind of approach that we have, we should be able to double our balance sheet in 3.5 to 4 years. So that is my response to your question. I don't have any broad idea about what will large banks do and what will the small banks do. I don't have any idea about that.

Sure, sir. And my next question is, sir, since previously, we have a target of cost to income digits to 50% ROA to 1% and ROE to 15%. So just wanted to know what levels will be required to achieve the same. And can you throw some light on the same as that -- this requirement will be fulfilled given that 3- to 4-year time horizon?

Yes. So we are a granular secured retail SME banking where when you put on capacity, it takes for our volume to pick up for the cost income ratio to come down. We do believe that cost income ratio may get elevated for 1 or 2 quarters. As the volume starts to build, cost income ratio will come down, cost to average assets will come down. We believe that if you are able to put the bank on a higher growth path, which is what we are doing, in about 3 to 4 quarters, we should be able to spike greater than 1% and greater than 14% ROE, ROA. And we believe that we are now -- given that we have dealt with COVID Wave 1, Wave 2, we didn't even have to touch or raise capital. We have made the strong provisions. So I think we are in a pretty good spot to reach that goal. It may take 3 or 4 quarters, maybe 5 quarters, but we are pretty much on par to achieve that.

The next question is from the line of Darpin Shah from Haitong Securities.

So first is on, if you can quantify how much was the slippages from the gold loans during the quarter?

We don't have the number. It is there. And the thing must be about -- including core lending, it must be about INR 60 crores, INR 70 crores higher than the previous quarter. So I guess, I don't know. Bharat, do you have that number with you? I think it was about INR 40 crores or something.

Yes. That is what was slippage.

Just give me a minute, Darpin. Hold on. Yes, INR 140 crores, yes. That is what it is.

Okay. And similarly, in terms of corporate...

Darpin, all these customers have to pay something like INR 2,000 to INR 1,500, INR 800, INR 3,000. They're all small loan customers like INR 2 lakhs, INR 3 lakhs, INR 5 lakhs. And despite all the digital intervention, what happens is they have to come to the branch, and they will come and deposit the money, okay? And there are digital processes like chasing them up on SMS, chasing them up with the payment things and so on. And despite that, they will come to the branch and pay. In December, particularly, we had some challenges because of staff being less. Because of infections, they were not allowed to come to the office. Some of the customers were not able to come because they themselves were in quarantine. And so all these things added to the thing. Plus the core lending we do on gold loans. So now that the book has built up, there were some NPAs that have come through core lending assets, which is also gold.

Okay, sir. Sir, the second is, again, on the asset quality, how much was the impact because of RBI circular in slippages?

Which RBI circular?

So if any account turns into an NPA. And until and unless you receive all 3 or entire.

From the time that I have joined banking over the last 13 years, unless customers face all overdues, we never upgrade the account. In any product. So we never had that problem of collecting one installment and then upgrading the cost. We never had that kind of issues.

And sir, on large data keeping question, wonder, sir, if you can provide the breakup of provisions.

For the P&L?

Yes. For the P&L in 3Q.

Yes. In P&L asset provisions [indiscernible]. HPA-related provision on the asset provision NPA or aging provision of NPA, INR 64 crores. Working provision, INR 3 crores. RBI-mandated standard as [ accrual ] INR 2 crores. Provision on asset restructure during the quarter, INR 18 crores. And specific provision for standard assets, which we make management overlays, is a net of INR 9 crores. So total INR 96 crores.

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

Just again, on the asset quality part. When could we expect slippages to normalize back to the 2%, 2.5% level? So any thoughts there?

I think it will take maybe 1 or 2 more quarters for it to normalize to that level. I'm actually not any more worried about the slippages because our ability to upgrade and recover has really shown up very good. And if you see the net increase in slippages has been purely on account of gold loans. If you compare the mortgage slippage, mortgage NPA and commercial vehicle NPA and the SME NPAs, they're actually below last quarter, which means our slippage versus what we have been able to upgrade has been pretty good. So a lot of these customers have paid -- made part payments. So part payment does not allow the account to be upgraded. So we are waiting for those to make their complete payments. Their businesses have picked up. That is why they are able to at least make part payment. Some of these recoveries are happening because customer is selling their property and just settling the money with us. So that has also been [ our recoveries ]. So I hope it is sooner, but within maybe 1 to 2 quarters, we should have monthly slippages pretty much back to pre-COVID levels.

Sure. That's helpful. And also, as you rightly said, a couple of segments, including mortgages have already seen decline in NPA levels. But if I look at the corporate NPA that is still on the rise, what explains the guidance for this quarter?

Only gold loans.

The corporate NPLs then?

Which NPL, sorry?

The corporate NPLs.

Corporate NPL, I told you at any point in time, I've always maintained some 2, 3 accounts will be under some level of strength. And so on account lift and then they have some plan to kind of repay -- our corporate loan is only 10% of our entire book. So we don't really worry about that small corporate slippage of INR 5 crores, INR 10 crores like that because we know that over a period of time, it does get recovered. In fact, I think this quarter, we may have had one recovery as well in corporate. So that is how it is. We really are more focused on mortgage, commercial vehicle, SME, gold loan, that kind of thing. Corporate, once in a while, it does have some slippages. We don't expect any major problems in our corporate book.

Got it. And what share of your loans would be EBLR linked?

EBLR linked, I don't think we disclose that, but most of the loans that we have done in the last -- well, EBLR has come with all EBLR linked. So like mortgages will be EBLR. Most of the SME, new loans will be EBLR. Gold loan is not EBLR linked. So essentially, mortgages and SME. Corporate loans, we use different benchmark depending upon what works well for the customers. So our loans are repriceable to that extent. And the rest would be MCLR linked. Even now we run a lot of MCLR-linked books because they have not run out yet.

Right. But could we say from a very broad perspective that half your book is EBLR linked by now or [indiscernible].

I won't know that. I won't know that. But yes, we don't have that disclosure right now. But all the last -- since the EBLR now, most of the loans are just EBLR linked.

Sure. Got it. And just one last clarification. So if I look at your CASA book, is it suddenly increased from INR 66 billion to INR 80 billion last quarter, and that sort of number has sustained. So is there some one-off there or what is the [indiscernible].

One-off is retail -- it's a retail CASA. There are no one-offs and all. We have gained the scorecard of the branches to work on retail and natural percent CASA. So the focus have been designed for that. The branches are focused on most of the loans, the CASA that they have to bring is on below INR 2 crore kind of CASA. And so we are seeing a decent amount of traction in that product. So we hope to take it further up to at least 30% over time.

The next question is from the line of Renish Bhuva from ICICI Securities.

Sir, just one question on the segment-wise gross breakup. It shows that INR 42 crores is going from the agriculture into the book. So this is also coming from the gold loan or?

Part of it is from gold loan. Part of it is also because of KCC is a 6-month kind of product. So 6 months later, usually the NPA increases intensity. And then as customers sell their produce and all, we bring down the NPL back. So we have no major concerns. I do think that the recovery upgrades of these small loans would be quite good. I don't -- we don't have any concerns on that.

Got it. So underlying trend remains robust.

Yes. For 2 quarters in a row, we are showing almost 100% recovery upgrade. I don't know what -- which bank you have you know can show that kind of recovery and upgrade.

No. Yes. That is true, sir. So sir, second question is on the restructure and CDS book. So what percentage of book is up for repayment as on December 21?

What does that mean?

So we might have given some moratorium to those accounts.

The moratorium accounts are not -- everyone doesn't have a fixed one period moratorium. Some have been given 1-month moratorium. Some have been given 3-months moratorium. Some have been given 6 months moratorium. So every month, some portfolio from moratorium is moving to billing. And that's what I explained. What happens when they come to billings, even though we are starting to talk to them, 2 months in advance, in the month that they come for billing, the collection efficiency drops. Then within 2 months of they're coming to billing, the commission efficiency goes back to a much higher level because they come into the rhythm of repayment, right? So every month, some percentage of the portfolio is coming into repayment schedule. So what you are seeing in the collection efficiency includes delinquent and restructure. Both. So the bill restructure is included in the collection efficiency.

Got it. So when we say slippages will normalize within 2 quarters of possibly factoring the portfolio behavior in this 2 books as well, right, sir?

Yes. Absolutely. The entire book. Because from researchers, the customer does not pay once the billing starts. And not all restructure is in moratorium, by the way. So let's not assume that. So -- yes. So when the customer comes into billing and they are unable to pay. And then we have also given you how much our percentage of customers have at least paid 3 installments, et cetera. So that tells you that the collections team is very strongly in contact with these customers.

The next question is from the line of Rishikesh Oza from RoboCapital.

Sir, my first question is, what was the interest reversal for this quarter?

Interest reversal, we don't disclose those numbers. Our interest reversal, et cetera, is all reflected in our NIM that we have shown.

Okay. Okay. And sir, my second question is if you could share your credit cost for FY '23.

No. We don't give any such statements. But if our monthly slippages starts to become -- I mean start to come to a pre-COVID level, we do believe that then our credit cost should go back to the normal 50, 60 basis points. So we are working towards making that happen in the next 1 to 2 quarters, barring any unforeseen situation.

The next question is from the line of Sandeep Joshi from Unifi Capital.

First question on researchers books. Sir, we have around 15% of coverage on our researcher loans.

18%.

Yes. Okay. Yes, around that. Are you comfortable on this number or considering the recovery trend of this might ensure a better break in the next quarter?

Yes. This researcher book is not an NPA book. Researcher book is a performing book. The collection efficiency shown in the table includes the researcher book, which means that including the researcher book, which is built, we are collecting 95.7% in business loans, 98.2% in home loans. So our provision is pretty strong on the entire book. If you look at our provision table that we have given, according to our calculations on the performing advances, it is 2.2% of performing advances we are having provision. I think Bharat can explain the provision if you like.

On the press release, if you take provision related to NPA, other -- all others -- all items other than that, which are towards standard assets. If you add all those up, it comes to 2.2% of the standard assets, which are [ INR 27,000 crores ].

Sir, I have one more question on the funding side. Sir, if we compare the cost of deposits of our banks compared to half year, there is a good gap between cost of deposits of our bank and [indiscernible]?

Not at all. Please go to the website. Check our deposit rate, and check the deposit rate of even large banks, the gap is very, very minimal at this point in time, okay? Please, check it. We check it everyday. We have ALCO every week. We check it everyday. Please, check it, okay? Our cost of funds are also coming -- cost of deposits are also coming down. And we are bringing it down in line with our approach and strategy, making sure that our liquidity is good, our LCR is acceptable and all that. You can compare the deposit rate on term deposits. Absolutely, the difference will not be more than 30, 40 basis points.

Okay. Okay. So I do, sir.

I don't know [indiscernible].

Sir, 1 more question on the recoveries. Sir, over the last 2 or 3 quarters, we have seen a good amount of recoveries. Sir, do you expect this trajectory to continue over the next couple of quarters? Or are we broadly done with the recoveries?

At the moment, no, we are never done with the recovery. As long as there is NPA, we are never done with recoveries. So we expect the recovery trends to continue. Our interactions with the collection team, our reviews with the collection team indicates that we are in a position to build strong recovery pipeline. But obviously, at some point in time, it will start to taper off just as the slippages also will taper off.

The next question is from the line of Amit Mahendale from RoboCapital.

I have a quick follow-up on operating expenses. Sir, we seem to have scaled up frontline staff and branches in last 2 quarters, from Q1 to Q3, if I see the numbers. And that's probably putting some pressure on short-term quarterly profits. So is it fair to assume that some of these staff branches, et cetera, will become productive in about say, 12 months or so? And then we kind of hit the earlier run rate. Earlier we used to do -- like if I see Q3 of last year, we were doing INR 250 crores, INR 270 crores type of a quarterly PPOP run rate. So is it fair to assume that in about 12 months?

So I can't give you any indication of what PPOP run rate, et cetera, we'll have. But I'll tell you what we are doing. If you look at our press release, you will see under the headcount, point #20. In March 2020, March 2020, we were at 6,845 headcount, March 2020. So in almost 2 years, we have moved by only 500 headcounts, okay? But because the opportunities are limited in 2020, '21, we did 2 things. One, we moderated the account. That is why when we increased the frontline headcount, if the headcount is not productive, we have a very structured process of making sure that the headcount is given chances for our performance improvement. And if the performance improvement doesn't happen, they exit based on the scorecard, okay? So we have a very flexible kind of approach on that. That is why for us to scale back, some level of headcount is not a problem. So in 2020, '21, because the opportunities were limited, there was lockdown and so on, we scaled back the headcount same in the past. We did not even give salary increase to the extent that we normally give in any particular year. And all the costs that we saved, we were able to make adequate credit provisions and ensure that the bank's balance sheet and P&L expense is maintained. Now that we are seeing things are easing out, we have dealt with COVID 1. We have dealt with a really difficult COVID 2. We are wrapping up the headcount. In retail and SME banking, when you ramp up the headcount, it takes anywhere from 3 to 6 months for the newly loss in headcount to become productive. And therefore, we believe that after a little bit of increase in cost income ratio, it will start tapering off in about 2 to 3 quarters.

Right. And sir, similarly, I also see that branch expansion you made comment earlier that you may hit 400 branches in the next couple of quarters or so. That also means that we will be adding about 50 branches in like 4, 5 quarters? Is it there [indiscernible].

No. You see that our disclosure says that we will add about 25 to 35 branches in 12 to 15 months. And that has been a steady disclosure that we have been making in all of our press release. We have not changed anything. Yes. [indiscernible] because, you see, if you look at our branch network, in 2021, we were at 352 end of 2021. In end of 2019, we're at 336. So in almost 2 years, we've added only 31 branches. So we are trying to catch up a little bit on the branch network also because now that we are seeing opportunity, we are just slightly accelerating the branch network. So that is why I said we might reach 400 in maybe 1 to 2 quarters.

Right. So I mean if I just look at the same numbers, if you look at from 2018 to '19, right, we added probably like 15, 20 branches. So it seems to have picked up a little bit. So that -- we are assuming that is to basically scale up the balance sheet and now the opportunities are available, if we have a frontline branch, that obviously helps. That's more or less the thinking. Is that fair assessment of what you intend to do?

Yes. I mean we believe that there is an opportunity. We believe that our business model is intact. We strongly believe that what we said in March 2020 that we are seeing a secured granular portfolio. Therefore, our recoveries and upgrades will be quite good, and it has even surpassed our own expectations because we are almost at 100% of recovery and upgrade in the last 2 quarters. We are not able to continue 100% all the time. So our business model is intact. There is demand. The small customers are there. Our products are quite powerful, and we are able to compete in that segment quite well. So we are quite happy to keep expanding this now that we have entered 3 waves.

The next question is from the line of Suraj Das from B&K Securities.

Just a couple of questions. Sir, as you rightly said that I mean the December productivity was -- the firm productivity was impacted by the high infection rate. And hence, in probably the gold loans saw some higher slippage rates. How are you seeing things on January since I mean now that the situation, overall situation is much better in terms of last couple of months? So now, I mean, how are you seeing trends in the gold loan side, on the slippages side. I mean have you recovered substantial portion of that slippages last quarter? Or I mean -- I just wanted your view on that.

Situation, from a productivity front line, availability is looking far better in January. And as of now, first 10 days of February also doesn't -- we don't seem to have any challenges. We are monitoring all the infections and all across our footprint and across our staff. Things are -- in fact, I would say that there are hardly any casualties or any issue in terms of the same. Although the infections were quite high. The number of people who were getting infected was very high. But fortunately, there has been no casualties, and everyone was coming back after 7, 8 days of quarantine or treatment or whatever. So I think January, February looking far better at the moment.

So has started paying off the gold loans and all that?

Gold loans, NPA, unless we have taken some other metals than gold, nobody -- I don't worry. Nobody should worry about the gold loan NPAs. These gold loans are tested. There are independent controls on this, and we have very small customers, like INR 2 lakh, 3 lakh, 4 lakh type of customer. When you present that gold to auction deals, the thing, we have an e-auction method. When we threaten to add auction, 99% of the customers come in either completely square of the loan or repay all the overdue interests and start running the loan like this. The challenge for gold loan is likely for small customers. They are used to taking the loan from -- a bullet loan kind of thing from MBSEs. There, they don't have to come and service their monthly interest. They just come once in, let's say, 6 months and all and pay off the entire amount. We are making sure that the customer is in the habit of paying his interest on a monthly basis, which we believe is a far better. Although slightly operationally more intensive, we believe that, that's a lot better matter of managing the gold loans. So we have no concerns on the gold loan NPAs.

Okay. Understood. And the last question from my side, sir, anything on your tenure, sir? I guess your tenure is coming to an end in April. So any comment on that?

We have to wait for RBI to revert. So the Board -- based on Board recommendation, the application has gone to the Bank of India. So we are waiting for RBI to revert on this.

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

I'd like to understand whatever upgrades and recovery that we have seen in the 9 months of FY '22, how much of that is coming from the slippages that would have happened during 9 months of '22?

The recoveries are coming from the early slippages, which happened in COVID 2, second wave. And also in -- some of the capital Supreme Court order, we had downgraded the accounts. So those are the slippages that have more recent slippages. What we have observed generally in mortgages is that if we are able to recover within the first 3, 6 months, it is pretty good. Otherwise, it takes time, like even maybe 12, 14 months because there may be some -- customers may have gone legal or it may create -- it will be creating some trouble in terms of settling the account and so on. But most of the inquiries are all coming from the recent vintages.

So what were the slippages from restructure and ECLGS for this quarter?

We don't have that -- it's all part of the same slippages. And we didn't do aggressive lending on ECLGS. We have sanctioned up to INR 2,100 crores or INR 2,200 crores, but we only disburse about INR 1,000 crores. As far as I can see, most of our retail deals are performing quite all right.

And sir, lastly, since we are guiding for a slightly higher-than-normal slippage for next 2 more quarters.

I didn't say that. What did I say? I'm not guiding for any higher, lower slippages. All I have said is that the monthly slippages are pretty much coming close to pre-COVID level. So in the next 2 quarters or so, we believe that it should go back to normal slippages levels that we were experiencing in the previous -- that is pre-COVID levels. That's what I said.

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

The first question is on cost of deposits, sir. So do we have -- it looks like we don't have any -- sorry, so the question is, sir, if I see -- since COVID, we have seen the reduction in cost of deposits by around 100 basis points since the beginning of the pandemic, even a decent pretty good improvement. But at the same time, the growth focus was not there. I mean the balance sheet was consolidating. And at the same time, if I compare the improvement versus peers, then it is still lagging. So other banks probably have done slightly better, at around, let's say, 140, 150 basis point odd. So just wanted to get your thoughts that, a, is this because you probably still have slightly better card rate. I mean the card rate of size is still higher versus peers maybe? Or is this something to do with something else? So I just wanted to check that.

See, we are doing mortgage business. 40%, 50% of our book is mortgage. In order to support that mortgage business, we need to take longer-term deposits. So we take -- we always reach for 3-year type of deposit, 2-year type of deposit. For circular deposits, we have to give a slightly higher pricing. Secondly, we focus strongly on retail term deposits so that we have a very strong, what is called, liquidity during these difficult 2 years that has been there. And also continuously reduce our top 20 deposit, which is almost now at 6-odd percent. So when you do that, there is a conscious decision taken that there will be some costs associated with that. We never had to struggle during these 2 years in COVID for any liquidity at all. We maintain higher levels of liquidity because the small bank cannot take any chance on liquidity at all, right? So we never took any chance on that. We make sure that we are fairly equipped. That also has some impact on our NIM. Slowly those liquidities are getting drained out. So we hope that, that also should help us to improve our income and rate. And card rates have been changed very recently. I don't think probably maybe 6 or 8 months. And card rates have been made competitive because we are competing with some of these banks which are offering such rates. However, the effective card rate, whatever you offer, effective card rate is still lower than term deposit rates that you offer. And therefore, I do expect that some improvement in cost of fund. However, in the meantime, I think funds are becoming a little tight. People are increasing their deposit rates. We are also -- you can't be off market in deposit rates and expect to grow deposits, especially if your balance sheet is only like INR 40,000 crores, INR 50,000 crores. So we are making those adjustments as well. So as far as I'm concerned, our cost of deposit and cost of funds have moved in line with our expectations.

That's good. That's good, sir. And do we have any wholesale or bulk deposits or we don't have it? I don't think we have it.

That's what I mentioned. Our top 20 deposit is 6%. So we have -- I don't know. Some of the other banks may have 12%, 14%, whatever rate. But about 3 years ago, this number was 14% or 18%. We have brought it down to 6%. So I think below 7%, 8%, we are pretty comfortable.

Right. So even in the deposit piechart that you gave, this is all -- I mean so it looks like almost everything is retail plus side. So there's no wholesale bulk deposit here.

So every bank will have wholesale bulk deposit. They will have top 20, top 50, top 100 like that. We will -- and these are reported to RBI. These are tracked internally. These are discussed in ALCO. So every bank will have wholesale deposits. What is the proportion of the wholesale deposits to total deposit is what constitutes the level of risk, which is what I'm saying. Top 20 deposit is at 6%. It used to be 14%, 15% some 3, 4 years ago.

Right. But sir, can you share the, let's say, proportion of bulk deposit or maybe the wholesale deposit, whatever the definition that you may have?

Mainly deposit, which is greater than INR 2 crores is called bulk deposit by RBI definition.

Right. I think that was changed to now INR 5 crores. But anyway, if you had any numbers for this [indiscernible].

Where do you have this information of INR 5 crores?

I think, sir, in recent LCR disclosures. Now the retail -- regulatory retail deposits that has now changed to INR 5 crores [indiscernible].

I'm not aware. I'll get with the thing. But anyway, bulk deposits, anything about INR 2 crore is bulk deposit. What we are disclosing to you in the press release, I think a lot of disclosures we are giving as a bank, I think you guys should work with those disclosures.

Sure. Okay. Sure. And secondly, sir, on disbursement. So again, I think we have given pretty much disclosure details on the disbursement. If I see there is some drop in the MSME disbursement. Maybe last quarter was a bit higher. But, sir, just wanted to understand, how should we look at INR 86 crores disbursement versus INR 168 crores disbursement last quarter?

There is nothing to look at. These are all customers that come for enhancement. They draw down -- sometimes they don't -- diversely what has been drawn down. Customers with their cash flow increases, they may not come for any enhancement. So if you give me -- like almost 70% of the business or 50% of the business is CCOD. So it keeps growing as well set up the limit, but customer may not draw down. But eventually, after we have set up the limit, they may draw down in the coming quarter or so. So that number is not such a -- what you should look at is how we are moving on mortgage. That is our key driver for growth. I think we have deferred some INR 800-odd crores in mortgages, and we expect this number to continue to build up.

Sure. And lastly, last 2 things, sir. One is on this gold lending, I mean some of these gold loans, which I've seen -- the press release says that these are from full lending as well. So fair to assume that you would also have FLDG kind of a structure?

Gold lending, we have no FLDGs. Gold lending FLGDs are not -- there is no need for FLDG. The gold lending partner has fantastic correction mechanism. When you do gold lending on a first few months numbers, what will build up, building up, there will be hardly any NPA. Then there will be ongoing NPAs in and out because some will come as NPA. Some will get upgraded. That would be the nature of the business. So we don't need any FLDG on this. We are pretty confident about the processes, the partner with whom we are working.

Understood. Great. And lastly, sir, have we moved onto account -- I mean have we joined the account aggregator framework? And if yes, then any view you would like to share?

It's a work in process.

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

So sir, 2 questions. First on the -- I know 1/3 of the entire book, whether it's a NAP-related business loan and the SME part, the segment in which the particular borrowers are there. Because if you look at towards the SME or business banking for the entire system, it has been a normal growth. But just asking the segment that you are tapping or where there is customer demanding a little bit lower as compared to what the large banks are growing. [indiscernible] because the box are not getting connected. If you look at the entire SME and the business banking part, it has grown at a very mid-teen number.

See, the segment that we are operating is SME, MSME. Now unfortunately, SME, MSME segment MRB segment is a very wide segment. Somebody doing a INR 5 crore loan also will say that I am in SME, MSME segment. Somebody doing a INR 10 crore also will say I am in an SME, MSME segment. Somebody like me who's doing INR 30 lakh, INR 40 lakh loan also will say they're in MSME, SME segment. Our sweet spot is average ticket rise of INR 30 crores, INR 40 lakhs, okay? And our focus about 40%, 50% of mortgage is in home loans, small ticket home loans. And the balance is in business loans, okay? And we are quite happy with the response that we are getting from our sales team on this particular business. What has happened is in this pandemic, a lot of the large ticket loans that we have, when I say large, it means I'm talking about like INR 1 crores, INR 2 crores at all. A lot of them have actually repaid in full because they have just kind of exited the business. So we see the attrition analysis, property sold and paid, property sold and paid is a pretty high number for us. Of course, we also have some exits because customer is asking for more money at a lower price, we have allowed that to exist. All those are happening in the book. Our segment seems to be quite intact. And based on the headcount, front line account that we are building, branch networks that we are building, we believe this number should scale up in the coming quarters. So in a broad SME sense, I really don't know which segment. Say for example, you are saying it has grown by 20% for the market, I really don't know in which ticket price it has grown. Our ticket price, there is a fair amount of demand, and we are confident that we should be able to scale up this business.

Sure. Sure. Sir, second question on SME. I want to ask that in current quarter, the disbursement of margins models has improved. But on specially on the home loans, can you give some numbers or insights type of what kind of disbursement yield and the average these banks are targeting? Because the small NBFCs are disbursing INR 1,500 crores to INR 2,000 crores as a disbursement. You audited the home loans that have taken place. So it will be very helpful to get that better bank a little bit conservative and is trying to get out of this [indiscernible] and then you will start the journey on where the growth is not matching the small NBFCs also which has a [ average of 5 million to 2 million ].

We are building the capacity now, and we expect the growth to pick up in 1 to 2 quarters. Now I really can't comment on what NBFC is growing, which segment is growing, what risk they are taking. I know what is the risk appetite we have. We know the cutoff score at which we operate. We are pretty confident because we understand this business. We have expanded the number of locations. And naturally, a lot of home loans are coming in some of the new locations that we are starting. And these are coming in the ticket size of INR 20 lakhs, INR 30 lakhs. Some of the property kind of deviations that are done by NBFCs, we do not do. We believe that it is not allowed by the Bank of India regulation. So we don't do that as well. So in this segment, they are growing. And how they're growing? We have some ideas, but we basically are not in that kind of market. They even charge 17%, 18%. Our yields in home loans, usually soft, cannot be more than maybe 10% or maybe 10.25%. That, too, is a very select segment.

Sure. Sure. And just last question and [indiscernible] you said the pool of customers in SME are targeting INR 13 lakhs to INR 14 lakhs as a customer. Can you give some [ reference ] that based on the improving efficiency and productivity [indiscernible] a platform or app, which we are developing so that we can reduce the turnaround time. And it can be very [indiscernible] to cross mind and do the cross-selling. Or we are doing a partnership base model with the fintech, and that can reduce the [indiscernible]. Which opportunities [indiscernible].

I'm not aware of too many fintechs that is present in mortgage type of business. And many of these fintechs are either in unsecured loans or some other type of business. We found it -- just to digress a little bit, we found it far more useful to tie up on co-lending with the established NBFC because they seem to have the ability to scale up. We already have 2 co-lending -- successful co-lending projects as we speak. And we have been doing co-lending partnerships in product or segment where either will take time to scale up or it is far better done by the partner. So that is how we are. For example, if a partner is doing a INR 50,000, INR 60,000 loans, whereas our average ticket price is more like INR 2 lakhs a piece, we would rather let the quality partner do that segment, and we concentrate on our segment. Now on mortgages, there are a number of technology changes that are happening continuously to improve the tax. We are currently also in discussion in terms of upgrading our platform itself in some part because this platform was done almost like 5, 6 years ago. There are discussions going on. It's an ongoing improvement we have to do in terms of using the tax for the customers. Like I know recently, for example, how either a KYC check or a PAM check, all that has been fairly automated in order to reduce the time taken for evaluating a customer, at least screening the customer. So that's an ongoing process, Rahul.

Just a follow-up on this. On the co-lending that you have done for 2 -- these 2 big NBFCs, that is only for the module segment or you would be tackling the other segment? And what is the [indiscernible] of January do? [indiscernible] the Q1 '21 numbers [indiscernible] or this is the normal...

Usually, we have not done any co-lending in mortgages. We have done only in gold loans. And we have, at the moment, it is an 80-20 kind of approach.

The next question is from the line of Prabal Gandhi from Antique Limited.

The first question is you have given a target of the growth being around 18%. Upon reading the CD ratio, you're willing to double your balance sheet. Rationally, how do you see loan-to-deposit ratio trending head on? I'm looking for any numbers. I'm looking for qualitative direction how do you see this number?

We believe that our CD ratio would be in the range of 80%, 85%. Because we do home loans, because we do small ticket MSME loans, because we do tractors and KCC, a lot of these loans are eligible for refinance, long-term refinance from [indiscernible] NABARD and NHB. And we utilize that. Those are long-term funds. They help in LCR. The rates are quite good. So therefore, your CD ratio is likely to be in the 80%, 85% kind of range. That is how we expect. However, matching our loan growth, we should be to grow our deposits, and we believe that we have adequate capacity, and we will always increase the capacity as required and decent kind of products to achieve that.

Sir, on the refinancing side, what is the incremental cost typically that we will get?

It depends on the year and the months that you brought out. And during COVID times, these are available even at 5.25% kind of percent. Ordinarily, it can be availability. It will be in line with the kind of [indiscernible] rate or slightly lower. It depends on the time. If there are plus funds, they are maybe offering the money cheaper. So it depends on the thing. The good news is any refinance that we get does not attract SLR and CRR. So whatever rate we make is the rate that is applicable.

Got it. Sir, my next question is on the other expense. We've seen -- so when we were around [ 6.7% ] cost-to-average assets 3 years back, and now we are at 2.3%, 2.5%. The drop came from the other expenses. So if you can give some color on how much is the variable, how much is the fixed. And how do you see average decline [indiscernible].

So which Bank is giving you these details of how much is fixed and how much is variable right now. Can you tell me?

Sir, we need this. Sir, so this would help us to...

Sure. It can help you, but help me understand which bank is giving these disclosures. And why do you expect us to give you this detail level of exposure -- I mean explanation. We have already shown you in 2020 that our business -- our cost of scale can be scaled down from INR 920 crores cost in 2019, '20. In 2021, we scaled it back to the INR 850 crores. INR 70 crores, we were able to do it in a matter of 12 months. So that is how scalable our model is.

My question was basically that around [indiscernible] 1.2, 1.3. And if we are investing for the future, we are building in capacity, this ratio is likely to come down. So from the extent, I wanted to get your views. I'd like to get the right approach.

In a retail SME business, when we are putting capacity -- and you can see the capacity was 6,800 people in March 2020. We brought it down because opportunities are limited. SME segment was the most impacted in the COVID. So the opportunities were limited. We also took a defensive position for about a few months to make sure that we understand the situation. Then we have started steadily scaling back the headcount in the right areas, mortgage, home loans, KCG, tractors, gold loans and so on. So as the productivity of these employees start to build, the cost income ratio and the cost to average will come down. So we have a path for that. And we believe that in the next 2 to 3 quarters, it should start to come down as the growth starts picking up from these capacities that we have built up.

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

Sir, hoping on this point again, just a follow on the gold slippages. So how confident are we of recovering this in the coming quarter, the [indiscernible].

Confident of what?

Regarding the gold slippages that have happened.

Very high confidence level.

Okay. Because where I was coming from is assuming that we recover at least a major part of it, a lot of provision reversals overall is coming back in Q3 and then assuming normal of slippages. I mean number [indiscernible].

In the last 3, 4 years of doing gold loans and scaling up from whatever to INR 2,000-odd crores, some isolated here and there. Some fraud or some poor quality gold we have seen in isolated branches. Other than that, I don't recall having any NPA losses in gold of any meaningful nature. And gold attracts 0 capital, okay? However, despite that gold being 100 to 0 capital, when it slips to NPA, we have to make the 15% provision, which is what we have done. So that provision will get reversed us. But some new gold loan may come as NPA for which we have to make provisions.

But sir, that may not be as high, right?

I mean, hopefully, there is no disruption on third wave type of thing, which disrupts our branch productivity. So then it may not be that high.

Got it. Got it. That helps. The second question is to product services and bookkeeping one. The presentation page number -- sir, basically, I'm looking at the P&L breakup of the other income. And the profit on sale of investment, the amount of INR 163 million or INR 16 crores. So just wanted to check what is the amount? Because according to the August 21 circular, we should actually -- and I think we're also following that netting off it against the investment appreciation, right? So I just want to check this some more.

No. Some of it could be opportunistic IPO kind of income as well. So we are following whatever circulars RBI has. So some of it -- of the INR 16 crores could also be some IPOs, which we are allowed to, by board, to subscribe. And then as soon as it gets lifted, we kind of sell it in the market. So operator, we have time for 1 last question.

We have the last question in queue from Dhaval Gada from DSP.

Yes. So just a couple of points. First is on the gross loss that you saw in December. How is the situation in the last few weeks?

Yes. Pretty good. It's pretty decent. No. I mean people have come back to work. And no branch manager is complaining any lack of capacity. We had a situation where like even some of the branches, we had to run without tellers and all because teller, the whole branch has got infected. So we had to send some substitute. See, the third wave did not have -- it was not like retail like the way the second wave was. But the infection was pretty high. And unreported infection was even more higher in my view. So I'm sure you also are aware of the kind of infection. But fortunately, there was no problem. I mean people are coming back to work within 3, 4, 5, 7 days like that. So yes. So I think January and February is looking okay.

Great. And looking just on this related disbursement excluding corporate and co-lending. If you see, the number is about between INR 2,000 crores or INR 2,200 crores per quarter. What would this number index, let's say, pre-COVID, like what's the kind of potential we can see next year? Because that's our core segments that we want to...

Our main focus would be to try and get the balance sheet to grow at a rate, which will help us to double in 3 to 4 years' time. And we are pretty confident. Our main leading product would be mortgages within that home loan and LAP, obviously. We will -- we are focusing on KCC and tractors because in banking, if you add any other loans and automatically 18% has to be agri. We can't go try to buy these agri products from market because that will be very expensive for us. So we have a successful KCC and tractor sales business teams. So KCC tractors would be another area that we'll grow. Gold loans, part of it will come from co-lending, and part of it will come from our own branch banking efforts. SME and MSME would be essentially a branch-driven referral product. We don't have any sales team, so to say, outside outbound sales team for this business. And then we have a trend where we are very successful in -- it's a 0 cost successful trend that we are funding SMEs for some of the good companies. So that is also another product that is there and some tie-up with fintechs and so on. So that is how we are moving forward. So we are pretty confident that the capacity that we are building and exactly, it may not like happen in a very linear fashion, but we are pretty confident that it is moving in the right direction.

Perfect, sir. And just one data keeping point. What's the PSLC income? Is it like INR 20 crores, INR 30 crores during the quarter?

PSLC?

PSLC. PSLC income. I think it's about INR 20 crores, INR 30 crores. Just wanted to confirm that.

Yes. So first of all, naturally, what businesses we do, almost 60%, 70% of the business that we do is PSLC, okay? And therefore, we probably are one of those in the small bank -- small-sized bank category, where we are able to sell PSLC and earn income. Now the way I think it is accounted, and Bharat can throw some light, is that we actually sell a lot of it in the first 2 quarters itself. However, it is recognized as the, what's it called, on the number of days basis. So therefore, usually, the fourth quarter number looks better than the first quarter. And if you look at our P&L, first quarter, the salary increase cost comes in. Fourth quarter, entire PSLC, I mean, like the big chunk of the PSLC comes in. Because that is why there will be quite a lot of difference in the cost income ratio in the 2 quarters, usually. Okay. Thanks very much for dialing into this call. And if you have any follow-up questions or you have not asked any questions that you want to ask, please write to Gaurav or Bharat, and we'll be happy to answer it. Thank you very much for your time and patience.

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