DCB Bank Limited (DCBBANK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the DCB Bank Limited Q2 FY '24 Earnings Conference Call. Joining us on the call today are Mr. Murali M. Natrajan, Managing Director and CEO; Mr. Ravi Kumar, Chief Financial Officer; and Mr. Ajit Kumar Singh, Chief Investor Relations Officer. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Murali M. Natrajan. Thank you, and over to you, sir.

Thank you very much for joining this call. We also have Sridhar Seshadri, our Chief Risk Officer; R. Venkatesh, our HR operations and IT Head; and then we have Praveen Kutty, who is our Head of Retail Banking and Agri Banking. So let me just give you a few points, and then we will open up for questions. Our advances growth was about 19% and deposit growth was 23%. The market conditions were tough. So the cost of funds went up and were not easy to grow CASA balances. That had some impact on NIM, and we expect this to stabilize over the next 2 quarters. We will explain in detail a little bit more. Collection efficiency continues to be strong. While there were slippages in mortgages, primarily coming from customers who have just now come out of moratorium, and there are no more moratorium left. Everything is built as of now. Our collection upgrades and recoveries have started picking up. For example, if you see in Page 25, last quarter was INR 211 crores of upgrade and recoveries, this year -- this quarter is INR 289 crores, which is 73% of the slippages. We expect this number to continue to build. And we think that we should be able to reach similar levels to what we were able to do last year in about maybe 2 quarters or so. If I look at slippages without considering gold, it is at about 2.69%, which is lower than last quarter slippages. And we think that step-by-step as we intensify our collections on customers in the restructured pool, we should be able to contain the new slippages, essentially coming from mortgages, that is one. In terms of loan growth -- in terms of disbursal, again disbursal has picked up and we expect this number to improve in the coming quarters. We started growing our headcount again. Last quarter, you may have seen a lower number on headcount. This quarter is an increase in headcount. And we are building this capacity so that in the coming years, we can achieve higher than 20% growth rate on a year-on-year basis. And our intention is to double the balance sheet in 3-plus years, that still is how we are proceeding. In terms of cost to average assets, that is declining with growth, and we expect that to keep coming down as we continue to grow our portfolio. So those are some of the things that I wanted to mention. Top 20 deposits is just about 7%. And we continue to be very granular in our loan portfolio. 85% of our loan book continues to be at INR 3 crores or below. Credit cost is at 28 basis points. And our capital adequacy remains strong to support our growth ambition. I'll open up for the questions.

[Operator Instructions] The first question is from the line of Darpin Shah from Haitong India.

So when you explain about the slippages being lower ex gold. But if I see the no NPAs segment-wise, there has been a rise for most of the segments, whether it's corporate, which you mentioned -- sorry, whether it is for mortgages or even the SME segment. And even in the other segment, et cetera, excluding gold. So if you can just throw some light there as well? And second question is on other income. I'll ask that later.

Yes. So mortgages, all portfolio has come out of moratorium, all portfolio is built. If you see our collection efficiency, including restructures, we are in pretty good shape in terms of restructures. What happens, Darpin, in customers who have come out of moratorium is that it takes about, like, I think, explained last quarter also, it takes about 3, 4 months for them to come into the rhythm of paying on a regular basis. As you know, even if they miss -- once they miss three payments, and then even if they are making one, one payment, it remains as NPA. And it takes time for them to kind of bring back to normalcy. You will see that usually, our upgrades are higher than recoveries, that suggests that we are able to get the customer back into regular-paying customers through upgrades more than we do on recoveries. So from that point of view, I think we should expect the recoveries to pick up, and we have demonstrated that this quarter also because it's already at 73%. Last year, we were demonstrating about anywhere from 98% to 100%. And we expect that because we have adequate capacity in collections to achieve that. SME and all, even if some two accounts slips into NPA that might show as an uplift. Again, these are cases where we have full security, customers who have missed, for example, that November 12 circular of not servicing free interest slip into it and then they come and repay and then come back to normalcy. On corporate, it's a very small slippage of some addition to some existing NPAs. So I don't think there has been any challenge on that. So that is how the things look. Gold loans, it is at INR 42 crores. We don't worry about gold loan too much. Like I said, we have full security, and we have been able to demonstrate that we can reduce gold loan NPAs at any point in time as the customer comes and settles the loans with us.

Okay. And just to add. If you throw light on -- when do you see that slippages coming below 2% ex gold, like you were pre-COVID or slightly prior to that as well?

I think we have to give ourselves another two quarters, at least, I feel. The reason for that is that all these small customers who had gone into restructure and moratorium, some part of them take time to come back to the rhythm of repaying their loans. So we are on top of it. We have -- the good news is that we used to actually have a separate team reminding customers in the moratorium. Now that they are not in moratorium, we have kind of brought them into regular collections, which is also helping because now we can be a lot more confident in asking the money to -- from the customer when they were in moratorium for example. We have collected a lot of money while they were in the moratorium also to make sure that they don't get into a habit of losing touch with payment schedules and so on. But some of them prefer to stay in moratorium. So -- but overall, I don't see any issues with the portfolio. And our recovery upgrade performance on some of these customers who have come out of moratorium who are restructured also indicates that we have a pretty good handle on the situation.

Okay. And sir, my second question is related to margins. In your initial comment, you mentioned about cost of deposits stabilizing over the next two quarters. So if you can throw some light there, how much deposits have already been repriced? What's coming next or what will be coming in the next couple of quarters? How do you see that shaping up?

So let me talk about margin and cost of deposits. We are tracking cost of deposit on a daily basis. And we have a good understanding on how the deposit pricing is moving. The deposit repricing of the existing term deposit and all should complete in about two quarters, Ravi?

In another two quarters.

In another two quarters, it should get completed. But while that is happening, Darpin, what is happening also is that -- you have -- we have different types of portfolio, right? For example, tractor and gold loan will be in the fixed category. So that will not see any improvement in yield except for new loans that we originate. The portfolio cannot be repriced there in some of those. Like for example, CV is about INR 250 crores or INR 200-odd crores and some tractor, which is -- which can't be repriced. Then we have a portfolio where -- which is essentially mortgage, LAP and home loans where we give a small period of fixed and then we make it variable, to help us to kind of make sure that the customer retention is intact, at least in the initial period. Many of those portfolios are coming up for repricing in the coming months and start to pick up even more in the next year. MCLR portfolio, which is a declining portfolio, also has a fixed schedule of every quarter passing on the increase. So net-net, what seems to be happening is that we just have to bear with the cost of fund increase for about two quarters. And then the entire benefit of volume starts to -- we start to gain that post, say, about 1.5, 2 quarters, if I look at our month-on-month basis. So that's how our indications are. And we are pretty confident that unless there is some major issue in market in terms of liquidity and cost of funds going haywire, we seem to be in that path at the moment.

Okay. Just related to it, how much was the margin impact because of slippages during the quarter, and that will be -- that's it from my end.

We don't have that, but some recoveries happens, some slippage happens. So I don't think I have that stuff. But I don't think it is a very material number because obviously recovery upgrades as well. And in recovery, I've seen the slippages, say, for example, in slippages I sacrificed 3 months interest, as an example, I'm just saying. But if I recover some old NPA, which is 6, 7 months, I might actually gain interest of 6, 7 months. So it's like a lot of plus and minus on that.

The next question is from the line of Jai Mundhra from ICICI Securities.

I have a couple of questions. So first, on your savings rate, right? At the end -- at the fag end of the quarter, we had increased the SA rate from -- in INR 10 lakhs to INR 2 crores bucket to 8% versus I think slightly below 7%. So, a, of course, this is maybe at the top end of the industry offering. Other banks that offer such kind of rates, they have very high yielding micro finance portfolio or some other unsecured portfolio, whereas our blended yields are around 11.5%. You add some blended cost on top of this 8% regulatory costs, et cetera. Then the incremental margins that would come out of this liability would be much margin dilutive, I mean, broad mathematics. So, a, what led to this kind of a pricing strategy? B, what could be the proportion in this bucket, so because this is -- this has come at the fag end of the quarter, so ideally the full impact should come in third quarter. So, a, why is this change? Of course, other banks are -- also have such pricing, but they have a very high proportion of -- or a significant proportion of MFI unsecured loan. So your thoughts there.

Yes. So first of all, bulk of our savings account balances come at the lower end of the pricing band, okay? To be able to -- let's say, for example, we have 100 RMs in the frontline. Not more than 15 RMs can actually be really phasing up to high-ticket HNI kind of customers. The rest of the guys all get ticket price of INR 1.5, INR 2 lakh, INR 2.5 lakhs, INR 3 lakhs, like that. So the pricing on these savings account for many of these customers are in the aspirational zone as opposed to actually them earning. But it is slightly better than, say, for example, a public sector bank, and also we are able to attract customers. Besides that, we also offer some cash back kind of opportunities in some of the products, so that also attract customers. So even after pricing at an 8%, I don't believe that, that is our price that we pay in overall SA balances, that is point one. Second point I want to mention, many times the customer retention strategy is that you have to offer a slightly higher rate in savings because the customer instead of giving it at the term deposit, wants to have the flexibility of keeping it at the savings account. So those are the customers that are attractive in that high ticket -- high pricing. And frankly, the customer is paying us less than the term deposits in this particular case, because he will actually get all the band pricing, so it will probably come at less than 8%. So I would like to argue that for retention of those customers, we are actually paying less than term deposit rates. So that is our approach on those things.

Okay. But, sir, this will be a very -- I mean, this could be a significantly margin dilutive strategy, right? Because even this is...

You compare -- Jai Mundhra, you compare what is the cost of fund increase on a marginal basis on the last quarter, that is a quarter that has come by for all the banks. I mean we have done the comparison. Our cost of fund has grown up by 16 basis points, right? You can check that and check with all other banks who may actually be showing different -- maybe lower rate in the car or something and how their cost of funds have gone up, then we can obviously have a discussion on that.

No, no. So this quarter, the impact would have been only for 3 to 4 days, right? Other banks have seen cost of funds increased by 30 to 40 basis points, we are much better off...

Even 80 basis points, even 80 basis points.

Yes. So we are much better off. But I think the full impact will come only in third quarter, right?

Not because of the savings rate. Like I said, savings rate at 8% is more of a retention strategy of customers who are getting cannibalized on the term deposits because some other bank is offering that kind of flexibility to them at the savings rate. So better that we actually retain them by this, where we actually end up paying less than 8% because of the various rates that appear in the band.

Okay. And are you seeing very healthy inflows because of this and retention? I mean...

So you don't want to lose some of the customers. So -- and like I said, the customers who are acquired by us are all in the smaller band. All the branches -- I mean, it's very difficult to get customers at INR 2 crores, INR 3 crores, INR 5 crores, it's not easy because there are a lot of opportunities for those customers. So bulk of our customers come in the smaller balances in SA.

Okay. Understood. Second question is, sir, on your disbursement trend and loan growth, right? So loan growth has been very healthy at 18%, 19% Y-o-Y. But if I look at our disbursement in the last 3 quarters, that has been negative Y-o-Y. The growth has been negative Y-o-Y.

What is negative Y-o-Y?

The disbursement growth is negative. I mean there is a Y-o-Y decline in the disbursement amount.

So the answer to that is very simple. We had a product called TReDS, and we have toned down that product substantially because there is a huge amount of competition that we are facing in -- from public sector who are possibly offering far lower rate than us. So if you back off the TReDS out of it, Y-o-Y, quarter-on-quarter, our growth will be quite impact on that. And that was a low yielding one. So we really don't worry about it. Part of it has got shifted to better yielding short-term corporate loans.

Right. Okay. And then, sir, on your gold loan strategy as a product, right? So this has been a core -- I mean this has been a key focus product. But if I see the portfolio is reducing in percentage terms, and I think in absolute terms also. And at the same time, slippages, at least in the last few quarters have risen, right? Maybe the net slippages would be miniscule because you would end up recovering everything. But the proportion is reducing and the slippages are rising. So what is -- what wrong is happening in this product versus marketplace?

Nothing wrong is happening in the product. Gold loan slippages are sometimes can also be seasonal. Sometimes it can be that some inefficiency in the branches in terms of following up on the gold can cause slippages. As long as we ensure that there is no fraud or any poor valuation kind of thing in the gold origination -- gold loan origination, we really don't worry. From a timing point of view, NPA is a problem. But other than that, we don't worry. As of now, we are focusing a lot also on gold co-lending and other co-lending. And diverting some of our branch resources to getting deposits because you would appreciate that last quarter has been tough for the entire market on deposits, and we have grown deposits by 23%, and we want to keep a healthy growth of deposits. So what we -- when we do gold loan co-lending with the different entities, we don't incur operating costs and the margin is also very healthy. So part of the capacity has been diverted to getting more deposits. And gold loan is something that we will continue to push and -- as we improve our deposit momentum.

But sir, the proportion in overall loans is reducing for gold loan, at least...

Co-lending has been doing well.

So co-lending gold does not come in the gold, right? Is that the understanding?

No, no. There is co-lending gold and co-lending other products. Co-lending gold is not reflected in our gold loan, probably. Separately shown as co-lending.

Okay. Okay. So -- but why -- I mean, our own sourcing of gold loan, why is it not growing? I mean, considering we have...

We told that we have put some of the capacity for deposits in many of our branches because we want to make sure that our deposit momentum -- retail deposit momentum is -- so that kind of balance we have done to make sure that without giving them additional capacity, make sure that they focus on gold. So we change the scorecard here and there to make sure that the deposit momentum is strong. And also you see the fee momentum because some of the branches are performing quite well on core fee income, which you would have noticed in our presentation.

Yes. Yes, noted, sir. And last question, sir, on your OpEx to assets, right? So in the last 2, 3, 4 quarters, that ratio is improving. And we are steadily making an improvement there towards our goal of 2.4%, 2.5%. There is no -- I mean, that trajectory should be maintained, right? I mean is a fair way to look at it? I mean there is no, let's say, I mean, this quarter, the staff has increased, but ideally that trajectory should sustain improvement that is a broader question.

Yes. The way we have been looking at our projections for the next 3 years, making certain assumptions, we will continue to invest in frontline. As you know, in quarter 1, all the cost of salary increase and all comes in, whereas there is no balance sheet to support. So usually, our first quarter cost would be higher without the corresponding balance sheet, the growth. At that time, you may see some here and there increase in cost to average assets. On a long-term trend basis, year-on-year, we expect cost to average assets to come down. While we are continuing to invest in frontline -- increase of frontline staff for us to continue to grow. And our intention is to increase the growth to above 20%.

Right. And sir, if I may ask, I have one last question. So, a, the status or the -- any status update on the MD, CEO appointment? And secondly, there was an RBI notification which said that bank has to have more than one whole-time director. So your time line on the appointment of another whole-time director.

Whatever RBI guidelines, we will comply with it. So we have to engage with the NRC and Board to make that happen. So I think the guideline has just come about 4, 5 days ago or a few days ago. So we are on top of it. As far as the MD, CEO appointment is concerned, the application has already been put into RBI, and we will wait for RBI to revert to us.

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

So firstly, you mentioned in your opening -- in one of the comments about the mortgage book first coming at a fixed rate and then repricing at high level. So could you just explain what exactly happens in this product? And is the entire portfolio in the same format?

I did not catch your question. What is same format?

So on the mortgage portfolio, you mentioned that you first give these loans at a fixed rate of loans...

Small-ticket loans -- see, we incur legal costs, we incur valuation costs. Some of the small-ticket customers, at least for a small period of time prefer fixed EMI. And these small-ticket customers, our yield is higher than our average yields that you see in our portfolio, depending upon their credit risk profile. Because we have certain bands, depending upon the type of product and location, et cetera, we have a pricing grid, which we administer on that. So when you originate these loans, they come up for -- they're all fixed for a small period of time, and then they come for repricing. So we see that whatever loans we have booked in the last year or so, all that is now coming up for repricing month-on-month. And that starts to build up further next year because our new originations have also started improving since the last many months. So all that all starts to come for repricing in the calendar year of next year itself. That is what I mentioned. And this happened only in small-ticket loans. For a slightly bigger-ticket loan and all, it is fully variable, right from day 1.

Got it. So the fixed rate is typically for a year, and then it moves to the...

It depends on customer preference, it can be 6 months, it can be 1 year. It depends on the customer's preference.

Got it. And if I have to understand of your mortgage book, how much of this is -- this kind of -- how much of the portfolio is...

Because our mortgage book is very old now, it's INR 18,000 crores, we've been doing mortgage for -- I don't have that number readily. All we monitor is how much is coming up for repricing and what is the impact of that on basis points on -- so in our projection, we keep adding those changes.

So in the next 6 months, for example, how much could be coming up for the repricing of the mortgage book?

I don't have that. But I think it keeps building up because we started booking more loans, if you see in the last 12 months, right? So it starts to build up much more by February, March of next year.

Okay. Got it. And secondly, on the restructured book. So I understand some of the flow-through is happening over the last two quarters. So two things here. One, do you expect this to continue? And secondly, when these loans become an NPA, is the interest reversal typically more than 3 months because they were restructured and were not paying? Or is it typically the similar 3-month format?

Usually, it is only 3 months. But when we upgrade some of these loans, so it could be more than 3 months because two things happen. If a customer goes into NPA, and we have to, let's say, initiate all the legal process and all, the legal process and everything takes about anywhere from 3 to 6 months to kind of fructify, maybe even 7 months to fructify. But in the meantime, if you are able to negotiate with the customer and get him into upgrade his account, settle, et cetera, then you actually gain a few more months -- I mean, all the months, the interest that he has not paid.

Sure. Got it. And just finally, on your ROAs what would be the guidance? And what could be the drivers here on from the -- for the ROAs?

I think two, three drivers are there, but not in any particular order. We are slightly -- we are slightly, I would say, delayed on that because of the sudden cost of fund increase that we had to grapple with in the last 3 months. But we see that situation stabilizing in about 2 quarters or so. First of all, the growth would help us to improve the -- cost to average assets, for example, would improve and we get the balance sheet. In line with balance sheet, our fee income also is expected to grow, that is one. Secondly, although it is difficult to grow CASA, what we have done is we have kind of put a lot of -- shifted some of the capacity, like I mentioned to Jai Mundhra, to CASA and term deposits because we want to make sure that we don't allow the cost of funds to get too much out of control despite the market conditions. We don't believe that our credit cost should go out of VAT. I used to give a guidance of 45, 50 basis points. But from the current portfolio, it looks like it can even be like 35, 38 basis points. That is how it looks from whatever reading that we have of our portfolio. And lastly, we are also changing some of the product mix, and this is important for us to know is that prior to COVID, we used to do lot more business loans and our proportion of home loan was like maybe 20%, 25%. During COVID, we shifted our focus to home loans. Again, the same segment. Segment remains the same as self-employed. And slowly now, we are shifting it back because now we are pretty confident of the current market situation and our own, portfolio. We are shifting this direction to more business loan. That also should help us to give us a few basis points on the NIM. These are the actions that we are taking to get to ROA of 1% and 14%.

The next question is from the line of Sameer Bhise from JM Financial.

Just on the restructured portfolio, as you said that none of the current restructured accounts are under moratorium now. So how does one expect the upgrade trajectory here?

If you look at our slippages, more slippages are coming out from the restructure and much less on the overall nonrestructured book. However, from upgrade and recoveries, there is no challenge in any of the slippages. So recent slippages, which has happened because of customers coming out of moratorium in, say, for example, early calendar year this year and maybe April, June, et cetera, whosoever has slipped out of it will take about 6 months at least to mature into either a settlement or an upgrade or a recovery action. So we expect and we have demonstrated. Again, if you see our absolute recovery and upgrades this quarter, I think it is about INR 295 crores. And if you look at March quarter, we probably were at about INR 300-some crores. I think it is on Page 25, if I'm not mistaken. Yes, Page 25. So again, INR 306 crores, we are at INR 289 crores. So we have demonstrated ability to do upgrade and recovery of this pool. So I expect this number to continue to improve. And we don't use any collection agency and all. All our collections are in-house. Even lot of lawyers we have in-house. So we feel that we have pretty decent handle on this.

And of the balance pool of restructured loans, how much would be mortgages?

I think much of the pool is either home loan or LAP and very small part will be commercial vehicle. Other than that, we don't have anything. So that's the other thing. We've never restructured any unsecured loan and all. We probably would have restructured maybe INR 5 crores. We never restructured BC loans. The only loan that we restructured was customers who have good track record with us and who are having temporary difficulties, which was mostly in mortgages, home loan and commercial vehicles.

So 80-20 split across mortgage and CV would be a...

No, no, no. CV will be much less than that, much, much less than that. Our CV portfolio itself is very small, as you can see.

The next question is from the line of Gaurav Jani from Prabhudas Lilladher.

Sir, first question is probably I missed the comment. The fee income looks a bit bumped up this quarter. Is it because of PSLC and if you could quantify this, sir?

PSLC, [Foreign Language] 2 years ago, we earned INR 80 crores of PSLC, right? Last year, I think PSLC was some INR 20-odd crores, right? This year, I think, PSLC will be maybe INR 3 crores, INR 4 crores. We have taken a hit of INR 80 crores on our chest on the PSLC. PSLC which looks like every year, it will improve for whatever -- I mean that's a separate discussion for whatever reason, and we have been continue to generate good quality PSL and all, but the demand supply has been a challenge on this particular -- this thing. So it's not PSLC income, it's a lot of work done on third-party fee income. If you recall, we have told you in the past, maybe few quarters ago that we have a separate team, which is training the front line in all the branches, giving them training, the analytics team giving them support on the kind of customers they should contact, all that is happening, and we hope to continue to build the momentum on this.

Appreciate this. Just want to clarify that there are no one-offs out, right? I mean, so could you assume INR 90 crores, INR 95 crores run rate to be in normal?

There is no one-off on this at all, and we hope to grow fee income in line with our balance sheet growth year-on-year.

Understood. Understood. Sir, secondly, coming to the funding profile, right? If you could just quantify the LCR, the reason I'm asking this is because over the last 1 to 1.5 years, we've increased our share of wholesale deposits. So a sub-question to that is would be the...

So from where are you getting the information that we have increased the sale of the wholesale deposits?

Sir, the interbank deposits have gone up by from 9% to 13.3%. So that is the number.

Yes. So we have the following -- for top 20 deposits you see, it has been below 7%. This quarter, it has just slightly risen to 7.06% or something like that, right? That is number one. We have a number of customers in the co-operative bank category, small co-operative bank categories, who give us noncallable deposits, okay? And that has been our core customer for probably 10-odd years. At the same time, you see, we have continued to grow our retail term deposits as well. So from a profile of liquidity and LCR, I think, are in pretty good shape, except that market has not been very easy for us to grow our CASA balances and we are putting that effort by shifting some capacity -- more capacity into CASA.

Sir, just a sub-question to that. I mean in terms of funding costs, right, the interbank deposits and retail term deposits, the cost of funds, funding would be similar?

For what and what?

For retail term deposits and interbank deposits?

No, there are bulk deposits and retail deposits. That's the way the interest rate works. So -- and those are all items published in our website, and you can have a look at that. We probably are one of the banks which publishes all the rates, including bulk and everything in a very transparent manner. And I am looking at the deposit rates across this thing. Of course, each bank have to choose which is the bucket in which they want to have, what is called, the peak rates which is their sweet spot. So we keep choosing that depending upon our asset profile.

The next question is from the line of Prabal from Ambit Capital.

Sir, my first question is on the PCR provision coverage ratio. So that has come down from 68% in March to 64% now. So how are you thinking about this ratio because our net slippages continue to be greater than 1%?

Our intention is to take it up to 70%, okay, over time. But when I look at different categories of loans, okay, where we see the recovery is taking time -- first of all, okay let me just backtrack. Let us say, RBI has certain IRAC norms on what kind of provision has to be done on secured, unsecured, et cetera. Our provision is ahead of that RBI norms and it has been like that for many, many years. So if they say X percent will be provided in a particular time, our provision would be higher than that. So our provision is always higher than what is required by RBI guidelines, and I'm very confident about that. That is point number one. Point number two, we also have something called a specific provision for certain assets. So wherever we see in terms of some large ticket, especially, let's say, corporate NPL and all, we see that the recovery efforts are taking time. We have an overlay of provision on that to make sure that we appropriately kind of represent our risk on that to our Board and our Audit Committee. So as an example, corporate bank will have far higher coverage ratio for the NPA that is there up to INR 28 crores. Whereas in mortgages, we don't believe that we are going to lose money on mortgages or home loans. So even if our coverage is, say, for example, 35% or 40%, we feel that it is far higher. It doesn't mean that we'll stop making provision on that. That aging provision will continue to happen in that.

So let's say, until the time net slippages normalize and parallelly, if we try to raise our coverage to 70%, there could be a possibility that credit cost might overshoot 50, 60 basis point guidance that we typically use for?

I've never given 50, 60 basis points guideline. I don't know from where you are getting. Just now I gave a guideline that we think that it probably will be 35, 40 basis points. So I don't think -- pre-COVID and post-COVID, my guidelines have been in the range of 40, 45 basis points only. So I don't think we have any 50, 60 basis points. Even pre-COVID barring maybe some aberration in commercial vehicle and all, I don't think we've had any issues on that. That is point one. Point two is please also look at Page #29, okay? So for restructured advances, we have a separate provision of about INR 194 crores. There is another contingency provision of another INR 43 crores, right? So that INR 43 crores, for example, is not counted in net NPA. It's a contingency provision that is there, while floating provision is counted in. So I think our provision coverage, obviously, can be better, but I think we are very strongly provided at this point in time. And to answer your question, why it may not exceed this is because our recoveries and upgrade also, we expect it to improve. If you don't recover and upgrade, then obviously, the credit costs will go up.

Understood. Sir, my second question is that our agri-inclusive banking seems to be growing at a faster clip, 30%, 31% Y-o-Y. So is this going to be the focus area going forward as well?

Agri-inclusive banking has been a focus area for us. If you look at our strategy document and what we have been mentioning, retail, SME, MSME and agri-inclusive banking has been our focus area for past many years. Corporate has not been something that we wanted to grow, but we keep it only for liquidity reasons. And there are multiple products in agri-inclusive banking, like KCC, tractors, mortgages, MFI and so on. We have separate teams working on each of this. And given that we have almost 190-odd branches in AIB, we believe that we should do very well in AIB.

And the yields on the AIB portfolio, is it better compared to, let's say, our overall yields of...

It depends on product to product. In certain cases, the yields are also higher and even credit cost could be higher.

Understood. Sir, you mentioned that to improve our yields, we might start focusing more on business loans. So is this the LAP, loan against property, that you were speaking about?

Yes. So we started this journey with the loan against the property, which we used to call as business loan, many, many years ago. We used to be at -- almost 85% of our business used to be in the LAP, 10%, 15%. Towards end of 2019 and early 2020, given the market conditions, we changed some mix. And what we are seeing is now that we have much more, what is it called, data points and the thing post-COVID, we want to kind of focus a little bit more on BL, which will add a few more basis points to our yield and NIM, that's our intention. And we know this business backward. So shifting some of the capacities or adding some of the capacities into business loans is not something that we would have difficulty in doing.

Okay. So let's say within mortgages, the share of LAP could increase compared to home loans because now we are more comfortable on business...

Yes, in a step-by-step manner. Like over a period of next 1 year or so, we will be increasing the share of it, so that we get better yield. Nothing wrong with the home loan and it also comes at a lower risk weight. But we would -- now that we have a stronger understanding of post-COVID issues and all, so we are kind of shifting some focus into loan against property.

The next question is from the line of Manish Agarwalla from PhillipCapital.

So I have a question about the quarterly repayment rate. So if I do a back-of-the-envelope calculations, your quarterly repayment rates have been coming down despite the fact that a lot of loans have come out of the moratorium. What can be the reason around this?

What is quarterly repayment rate?

So if I give the disbursement number and give the loan number. So if I just do a reverse calculation to see what is the quarterly repayments, so it used to be, say, 10%, 11% every quarter. And right now, that number has come down to 7.5%.

No. If -- okay, if we are at -- first of all, I'm not sure what that number indicates or something because we have a full handle on the repayment of each and everything. And you can see our collection efficiency has been pretty good. So I don't think we have any quarterly repayment issues. But let me put it this way. If you have a -- if you are building a portfolio of installment loans, which is what most of our loans are in mortgages, which is what it is. What happens then is when the new loan proportion keeps increasing, you should expect smaller repayment in the early stage for some of those loans because that is how it would be. So I don't see any major issue with our quarterly repayment. And we are confident that the kind of capacities and the disbursal target that we are pursuing, we should be able to pursue 20% kind of growth rate.

Sir, I got your point. The point I was trying to understand is that as a strategy, are we renegotiating the rate in order to stop balance transfers?

There is a separate team and I haven't seen any major problems in our monthly pre-closures. The pre-closures are in similar range as it was in last quarter or previous quarter. Usually, pre-closure rate increase in a declining-rate environment. We have not seen pre-closure out of our ordinary kind of whatever modeling that we have done. So we don't have any concern on that. But having said that, the mortgage team has a separate team which discusses with the customer and it has been done without causing any pain to the customer because we don't want them to complain to ombudsmen and think that we are trying to hold back their loan and so on and so forth. They are very trained kind of frontline people who try to understand what are the reasons that they are going. And we have some models by which they decide what kind of price break that has to be given to the customer for retaining the customer. That activity has been going on for quite some time, and it's a separate team that works on it. In our call center, and I don't know, Praveen, where else they have. There is a call center -- call centers, yes.

Okay. So there was one more related to this. As we pass the rates yields, are we increasing just a tenure significantly or how it is working?

Up to a point, it's always a tenure increase. In some rare outliers and all, we may increase the installment. But generally, in mortgage business, since I've been part of for the last several, several years, you just simply increase that tenure. And where the interest rate comes down, the tenure comes down, simple.

Got it. And finally, sir, your thoughts on CV and microfinance. So when do we expect the CV business to start growing again? And there has been some...

Microfinance, we have signed up a couple of more BC partners. And unfortunately, some of our BC partners got acquired by some banks and so on. So therefore, we suddenly were without some BC partner, but we have kind of rebuilt that BC partner. And we are looking for more high-quality BC business associates. So that is all in process. So I think in the coming months, we should do better than how we have done in the last few months on this thing. And as far as CV is concerned, we feel that we'll count just to cross sell to our existing customers on CV and concentrate more on business loan and home loan, which we seem to be having a pretty decent understanding and handle. And we expect that to contribute almost 60% in the coming years.

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

Just one clarification on the Slide 35, other income line. You can see one line of -- line item on the fee income line, which has gone up on the commission exchange. There is a corresponding drop in others.

Page 35?

Yes, this is at -- the breakup of the noninterest income. You can see commission exchange and brokerages have gone up.

So it is 97 versus 77.

Great. But the overall noninterest income is unchanged.

Just hold on for a second. Okay. We have to come back to you on that. There is some reclass, but nothing -- you are looking at this 75 versus 97, you are saying, no?

Correct. The total noninterest income is 107. Commission has done exceptionally well, but others has not done. So just trying to explain what explains that?

Okay. Mahesh, I'll come back to you. I think it has got to do with the changed in the IRDA regulations, right? Yes. In terms of how they...

Usually, that line item will have recovery from...

No, we don't have any -- return of recoveries have been miniscule for us. I don't think this quarter, they have had any major recoveries on that. I don't think that is an item. But I think some IRDA regulation change is what is reflecting some part of it here.

Okay. That explains a big drop in the -- I mean the Q-o-Q change that seems to be a line item, which is of an aberration here in this quarter.

Yes. So that is basically something to do with the IRDA regulation. I don't think there is anything else on that. The actual amount of business that we are doing on third party also has gathered steam. And we are hoping that we will build further momentum on this because we are really putting in a lot of effort from the corporate office to train and get everyone to focus on the products that we are distributing for 2 or 3 of these companies.

The next question is from the line of [ Darshil ] from Crown Capital.

Yes. So just I think most of my questions have been answered. Just wanted to know that our outlook that you mentioned in the presentation of ROA 1%, that we would target to move it by what time period?

Okay. So what we know from whatever we have been able to achieve post-COVID is 85, 90 basis points and 11.5% to 11.75% is consistently possible in that. Now unfortunately, last quarter and then this year has started, we have had some cost of fund increase and some of it is still to be passed on to the customer based on the portfolio profile, which I explained, right? So that all should -- hopefully, in the next couple of quarters, we should be able to do that. The way we are thinking about it is that keep growing at, at least, 20% per annum, and we know that the kind of capacity that we have built, we should be able to achieve that perhaps more, but at least 20% is something in the core products that we are concentrating on without messing around with any of the liquidity profile and so on. The other focus is, I know difficult times on CASA, but we are thinking that this is a time when we have to put more effort on CASA to help not let the cost of fund go out of control. So that is the second point. Third is we believe that our credit cost is actually improving from whatever previous projection that we have said based on our understanding of the portfolio. And we think that recoveries upgrade should continue to pick up pace. So all in all, most of the parameters -- and cost to average assets also steadily come down. All in all, all the parameters are moving in the right direction. And we want to target at least in the next 3 to 4 quarters of consistently delivering 1% and 14%. And this is a plan that we have. And I also mentioned to you about some of the product mix change that we are hoping to do, which is already started.

Okay, sir. And sorry, sir, clarification for 20% growth, you mean in our loans, right, sir?

We believe the capacity that we have created, we should be able to achieve it. Our intention is to double it in the 3 to 3.5 years, and we seem to be on track so far.

The next question is from the line of Rakesh Kumar from B&K Securities.

So just one question with respect to the provisions that we are holding on the NPA and non-NPA book, that number as a proportion has been coming down. So just to understand that is it that like sort of comfort that we are deriving from the nature of the characteristics of the loans? Or there is any other reason that we are...

Main reason is when an NPA moves from restructured to -- sorry, when an account moves from restructured to NPA, the provision also moves with that. And we have recovery and upgrades, you don't need to keep that provision. We have to make provision only for the newer NPAs, right? From a coverage point of view, I also mentioned that over time, we want to take it up to 70%. And in that, at the moment, even that INR 43 crores that we have separate as a contingency provision is not considered. So -- and I also mentioned to you that from a provision point of view, we are -- our provision policy is ahead of the minimum IRAC norms that's prescribed by RBI. So from a provision point of view, I don't have any concern on our portfolio.

Understood, sir. But just from a modeling perspective, just to see that what provision that we hold at the end of, say, '24 or '25. So this provision, is it like for non-NPA provision for the performing advances, which is 140 bps now. So where should this number go to?

I can't predict that for you. These are all the provisions that created, if you remember, during COVID times, right? And during those times, the whole focus was on strengthening your provision because it was not very easy to predict how things are going to be moving. Now we have a lot more -- I know there are still uncertainties and all. But COVID type of big challenges is not there. So therefore, these provisions will continue to come down. And -- but we'll continue to make provision on the NPA portfolio or any other portfolio which we think could be in stress.

The next question is from the line of [ Saikiran Pulavarth,] who is an Individual Investor.

Just one question. Yes. Sir, just one question from my side. I think you will be completing 15 years pretty soon. If you have to look back in the journey, how do you, what I can say, evaluate what has gone right, what has gone wrong? Or probably where you are leaving this bank, how do you look at this in terms of the platform for someone to come and take it over? Just your thoughts that will be really helpful, sir.

Why don't you call me separately and we can discuss, because I'm not sure this is a forum where we can. And if I share my personal views, and I don't believe that it will be appropriate for this audience.

It's nothing personal, sir, but just as CEO of the bank because you would have certain thoughts and everything, right? So this thought of chipping on that, if you're comfortable, that's it.

No, I'm comfortable, but on a one-on-one basis as opposed to in a group.

Got it, sir. And one more question, sir, if I have to see since last 2 years, you had significantly added capacity in terms of the number of employees and the branches. How do you evaluate the productivity of these employees? And how -- whether some more productivity is expected going forward, sir?

Praveen, would you like to answer it? Praveen is a person who adds a lot of capacity, so he is the best person to answer this.

Sai, good to hear from you. So let me tell you what we're doing is two, three things. At a very broad level, there is the feet-on-street-led productivity increase that we're doing. At a partnership level, we are increasing the footprint, which allows us to get the desired assets at the rate required through affiliates and partnerships, both on the deposit front as well as on the loans front. And the third leg, slow but emerging, is the digital do-it-yourself leg. So 3 levels to which we are adding on to our top line and also the income. On the feet-on-street, we have mentorship program where we ensure that early success is got by our employees because that's a very, very good indicator which will arrest attrition. The single biggest problem that we have with new hires, feet-on-street, et cetera, they are extremely mobile and they get job at a drop of a hat and they keep hopping around all the time. So the best way to arrest that is to ensure that they become successful early in their career. Otherwise, it becomes a revolving door. Are we successful at it? We can be better at that, but we are much better than what we were before. So there is progress happening on that front. We are -- whilst on the productivity front, we are also seeing improvement in terms of partnerships. I'll give you two examples very quickly. One is on co-lending, which we do on the asset side. And the other is where we do partnerships with, let's say, Neo, for example, it's basically use your card abroad proposition through which we -- through this partnership which we get underlying savings account. So that's how we are looking at productivity clearly. To sum it up, feet-on-street improvement, more partnerships, more judicious partnerships and the DIY digital proportion.

The next question is from the line of Chintan Shah from ICICI Securities.

Most of my questions are answered. Sir, just one data-keeping question. On the provisions breakup for the current quarter, if you could just help with that.

He asked about provision breakup, guys? Hold on a second...

Hi, Chintan, the provision breakdown is -- the NPA provision is about INR 25 crores. The standard provision is INR 7 crores. We have floating of INR 4 crores and the other is about INR 3.7 crores. So that totals up to about INR 39.7 crores for the quarter.

Sure, sure. And sir, just one on the OpEx same quarter, we have been saying that on the branch, we have significantly added or maintained -- build the capacity and now it is time for expansion. So going ahead, any ballpark number on what kind of expansion would be seeing in the -- so kind of the branch -- expansion in the branch and headcount would be relatively quite slower as compared to the loan growth, is that a fair assumption to make?

I mean, I've said this even in the past. For the market opportunity that we see and for the kind of understanding that we have of this segment and also the fact that we have so many years of experience on this. If we had more headroom in our cost-to-income ratio, we would add a lot more people because that is the kind of expansion we have. But we have to pace it out because on a near-term basis, also, you can't sacrifice too much of operating profit and so on. So this opportunity is there to add a lot of frontline employees. And like Praveen mentioned, because of attrition, we also have to be -- make sure that we don't lose capacity and keep adding resources. So I don't think we are going to slow down on adding our number of employees on a year-on-year basis. Of course, as we have cross play, for example, 10,000, if we add 1,000 that will look like at 10%. But when if you have 6,000, if we had 10,000, it will be like a 16,000 difference. So from a percentage point of view, it will keep coming down. But we'll keep steadily adding frontline in order for us to continue this growth momentum. However, cost to average asset, we expect step-by-step to come down because of growth and productivity. In terms of branches, I don't think we will add more than 25, 30 branches per year. I think we are quite happy with that addition.

Yes. Sure. And sir, just one last thing on the margins part again. So sir, as we have -- as you told most of the SA, which comes is in the lower pricing band and the rates which we have increased beside that there won't be much rise in the SA cost. So if you could just share the number of blended of cost SA. If possible, if you would just share say that number for this quarter and the past -- previous quarter as well, if you could help with that?

Which number are you talking about? I'm not getting it.

Savings account blended cost...

Overall cost of saving account, blended cost of saving account.

We don't present that number. We are giving you the cost of deposit, which also includes. But the reason why we pursue savings accounts, so although success have been a little low because of the market condition is because it is much more beneficial for us to pursue savings account than term deposits, despite the various bands of cost because most of it comes from the lower band of deposits -- I mean, lower band of average balance.

Sure, sir. And sir, just one last thing to your follow-up on this. So if you could just help with any broad margin guidance on this and so where should we expect the margins to settle and any...

Our business model is at 365 to 375 basis points. But there are near-term challenges, which I mentioned at the start. And then there is a balance of portfolio that needs to get repriced over a period of time in the contracted time frame, which is starting to build up, which will help improve the margin, but some of it will get taken over by cost of fund. What we believe is that over the next quarters, we still have to deal with this cost of fund, which is coming through repricing, renewals and so on. But post which, volume growth should give us the full benefit of interest income growth is what our thought process is.

That was the last question. I would now like to hand the conference back to the management team for closing comments.

Thank you very much for dialing in. I look forward to talking to you next quarter. Thank you.

Thank you very much. On behalf of DCB Bank Limited, that concludes the conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.