DCB Bank Limited (DCBBANK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to DCB Bank Limited Q4 FY '24 Earnings Conference Call. Joining us on the call today are Mr. Murali Natrajan, Managing Director and CEO; Mr. Praveen Kutty, Designated MD 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 Natrajan, MD and CEO. Thank you, and over to you, sir.

Thank you. Welcome to this annual results call and the fourth quarter results call. I also have in the room here, our Chief Risk Officer, Mr. Sridhar Seshadri; Mr. Gaurav Mehta, our Head of PR and Marketing; and Mr. Pankaj Sood, who is our Head of Retail Branches. So -- and then, of course, some of the staff of -- the support staff that we have. So I just want to highlight a few points, and then we will open up for questions. I hope all of you have received the results, the press release and also the investor presentation and had time to go through the same. What we are quite satisfied with the way things are progressing is that I think we are on a way to keep doubling our balance sheet between 3 to 3.5 years, which is what we were achieving till March 2020, and we got a little bit interrupted by the COVID-19 pandemic. Second thing is that deposit growth is ahead of loans growth, which is our intended approach. We have ensured that the top 20 deposits remains within 7%. The overall approach is how do we bring it down below 5%. So we have invested some more headcount in our frontline branches. It takes time -- when you invest in resources in the front line, it takes time to get the productivity up. We are moving in the right direction on gross NPA and net NPA. Once again, we have demonstrated that our recovery upgrade is very strong, which is also one of the reasons why our credit costs are lower. And we haven't had much of a problem just as we expected on the standard restructured book, the gross NPA slippages, recoveries, all that includes the standard restructured book as well. Again, in terms of provision coverage, things are moving up. We also had a small uptick in NIM. Our intention is to have a NIM of around 365 to 375 basis points, which we will be hopefully able to achieve by the mix change and mix of products, both on the deposit side and on the loan side. The headcount increase this year has been about 1,500-odd. And we will continue to invest in our front line is what our intention is. Overall, we are moving in the right direction, and we believe that with the kind of investments we are doing and the business model that we have, we should continue to grow and improve our profitability. With those words, I would like to take questions.

[Operator Instructions] The first question is from the line of Mona Khetan from Dolat Capital.

Congrats on a very good set of numbers. Firstly, on the [ CE ] side, if I look at the full year, the traction on the growth has been fairly strong at 28%. So I just want to understand, one, what are the levers? And two, could it continue growing at a faster rate versus assets?

Yes. So I'll have Praveen, our CEO designate, answer the question. But what I would like to highlight to you is that last year, the PSL fee income, when I say last year means FY '23, our PSL fee income was about INR 25 crores. And before that, our PSL fee income was INR 75 crores. This year, we are almost like maybe INR 2 crores, INR 3 crores. So which means that we've had a complete -- we are still generating PSL assets, but the market has kind of been very weak on the fee. And we have been able to make it up with the rest of the activities and initiatives. So I would like to ask my colleague, Praveen Kutty, to talk about the fee and what he expects going forwards.

Mona, so there are -- if you look at the core fee income, there are 5 components to it, which primarily comes from insurance distribution, processing fees, trade fee income and ForEx and cards and other charges. The other charge is more for behavior changes, it's not a revenue mechanism, but it's actually fees anyways. We had a decent insurance distribution fee coming up, which has offset the opportunity lost from a PSL fee perspective, what Murali spoke about earlier. '23 has become far lesser than -- it's a single-digit number. So it's virtually gone out of the market. So it's been replaced by insurance distribution income. The disbursal -- higher disbursals, which you've seen has resulted in higher processing fee generation. The trade finance and ForEx income looks sustainable and repeatable. We have income coming from our debit card, travel card mode, which is also contributing reasonably well. These are the components and these would be the components going forward also, which should be giving us the fee growth that we are aspiring for.

Sure. So would it be fair to assume that your fee growth will continue to be higher than the overall growth in assets?

I think it will be in line with balance sheet and that is what we've been maintaining all through. Of course, if our cross-sell percentage improves in the branch banking and all, we could perform better than balance sheet growth.

Also just wanted to double check, so this PSL fee income, does it fall under commission income in your case because for most others, it's not part of the core fee?

No, no, it doesn't -- it's not part of our core fee. At one point in time, it was like a core fee because we were making it every year, although we call it a trading kind of a fee, but it was. But no, it doesn't. Our answer is no.

Okay. So the core fee would be the INR 388 crore for the full year and the rest of it -- and it will fall in the other -- noncore other income part.

In noncore also, we are working hard. It's not that we are going to -- that's why I value there. But what we are focusing is the one that moves with the balance sheet or ahead of it, that kind of approach.

Sure. Got it. And secondly, again, when I look at the CASA, the traction this year though off a low base has been fairly good and unlike what we're seeing for the rest of industry. So just wanted to understand what is helping in this case. And could there be further traction from here?

So if you see our advances growth -- sorry, our deposit growth, it has been near 20% growth. Our CASA growth has been around the 17% mark. What -- from a savings account perspective, we are one of banks which gives both. One of the higher rate of interest as well as perhaps the lowest rate of interest. At the lower end, our rate starts at 2.25%. And the higher end, it goes all the way up to 8%. So it gives you a whole spectrum. The rate is not the real reason why you get the incremental savings account going. What keeps it going are certain innovative products. We have launched something called DCB Happy. We spoke about it in the quarter 3 call also, that has really improved in quarter 4 in terms of customer savings accounts coming through. Effectively, you get a cash back on UPI transactions, subject to a particular number of transaction, value of transaction and the amount of balance people keep with us. So new products have helped. DCB Bank has now got full capabilities on all kind of tax payment. CBDT and GST just rolled out in the last quarter. And the initial take-up adoption rate has been very, very heartening. What this basically means is that customers can do -- doesn't have to go to another bank for doing this critical transaction because as you are aware, we concentrate mainly on the SME, self-employed segment. So having GST into our armory has really helped our savings account growth. We will continue to be savings-focused rather than CASA-focused. So our way to go will be savings accounts, small ticket savings account would be the way we'll be growing. And we have also lastly, added extra manpower, feet on street has been significantly increased to get the CASA new-to-bank customers going. So a combination of 3, 4 factors is what is helping our CASA. Again, to sum up, the new innovative products, which we are giving. Number two, there's a whole new set of services that we are able to give to existing customers on the tax front. Number three, increased feet on street and to a certain set of people who have short-term, large amount of money to be kept without really knowing when they want to utilize it, there's a higher rate, which is giving savings account also.

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

Murali, hope for a good retirement ahead to you. It was a good 15 years, sir.

Thank you.

Just to come back on the quarter, just a couple of things. One, you have seen yields improving and so has the cost of deposits, if you can just directionally tell us where you are on this journey?

Yes, I'll ask Praveen to take that question, because if it a difficult question, I said today, it should be done by Praveen. We'll put him in the firing line now.

Mahesh, good to hear from you. So what's happening is that our NIM increase has happened. We are for the full year at 365 and for the quarter at 362. It is driven by a few factors, you can actually see that. One is the yield on our investment and on our assets have significant had an uptick in quarter 4 as compared to the previous quarters. Number two is that from a collection efficiency perspective, our GNPA has come down, it has really helped us in terms of getting those accrued -- getting the accruals growing. There has been a small change in the mix also. In Q3, we have said that we are realigning and would like to do more of LAP within the mortgage umbrella as compared to home loans. That engine is slowly -- that ship is slowly turning. So that also has had an incremental advantage coming through. So these 3 things on the yield side. The fourth -- okay, maybe some element of hybrid fixed rate loans coming into the floating rate is giving us a positive buoyancy because whatever the EBLR change that will happen, the 2.4%, if you remember over a 6-month period, that pass-on happens only at the time of fixed-rate loans becoming floating rate. So these 4 factors have helped our yield growth. And from a deposit cost perspective, we are at a -- possibly, we are seeing the tail end of that particular curve. Over the next 1 quarter, 1.5 quarters, we could see a stabilization happening based on the historical trends which we see. If we have to extrapolate that, probably over another month, 1.5 months, we would continue to have repricing of the deposits on renewal at a higher rate.

Perfect. If you -- if I were to just kind of complete the entire conversation, directionally, margins should be down in the next couple of quarters because some of these one-offs is unlikely to repeat. Is that the way to see it?

Yes. See Mahesh, remember last quarter and the previous quarter also we said that we have taken the benefit of the repricing of the EBLR and the catch-up on cost of fund is happening. We believe that, that should bottom out in about a quarter or 2 quarters maximum, beyond which we should hopefully get the entire benefit of the volume increase.

Sir, second question is cost growth has also started or has now kind of more or less kind of slowed down here. Directionally, revenue line grows faster than cost growth from here onwards?

See, from an incremental deposit perspective, we will be focusing...

I think he is talking about the cost.

OpEx cost.

Operating cost.

So on OpEx, if you look at cost to average asset, we are at 2.69%. So traditionally, what happens is that the increments and employee cost uptick happens in quarter 1, so as normal. And then we would see -- our go-to position is, we want to be at 2.5 kind of percentage cost to average asset over 3 to 4 kind of quarters going through. And where will it come from? Primarily it will come from increased productivity, as you can see, disbursals are going up. And there is quite a lot of activity happening on the digital space, which is helping us cut down the operating cost.

For example, Mahesh, one area, collection, we probably have operated with a flat headcount in the last -- or maybe even slightly reduced headcount in the last 6 months or so, primarily on account of productivity, improvement in portfolio and digital interventions. But I don't think our model will be that you will continue to add about 1,000, 1,200 people because we want to keep adding frontline so that we keep building capacity to grow our -- because there's an opportunity out there.

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

So my first question was on the MFI business. The business line uptick this quarter. So what's the approach there? How are we thinking about...

Sorry to interfere, your audio is not clear. May we request you to use your handset, please?

Is it better now?

Yes sir, please.

My question was on the MFI business that saw an uptick this quarter. What's the approach there? And how should we think about this business going ahead?

So in MFI, we have 2 types of business. One is lending to MFI companies and lending to end customers through the BC route. The end customer BC route has seen a steady growth. I don't think there has been any major uptick. But in MFI lending to BCs, we have seen opportunities emerging because of our understanding of that NBFC MFIs. And we have been able to kind of improve our lending to that particular segment. Other than that, there are -- and if I was to look back last many years, we probably were the first or second lender to most NBFC MFIs, which came into the industry.

Prabal, from a thought process sense, the MFI business that we do is to ensure that we meet all the PSL categories and the subcategories. We are picky and choosey which state we go with and which BC we go with. Currently, the entire book is less than 5% of the book. And it's even far less than 5% of the overall book. So you would see the growth in line with the overall balance sheet growth.

And when we lend to MFI NBFCs, is the yield commensurate with lending to individual customers in the MFI business? Or what's the differential there?

I don't think the lending rate to MFI and lending to individuals -- the MFI consumers through the BC route, that's not an information that is publicly revealed. So I don't think we could answer that question, Prabal.

Okay. Because the reason I was asking was a 1% increase in MFI share can have a positive impact of 10 basis points on the overall yield. So just wanted to understand if we're going for NBFC lending, then that impact might not be that much.

Prabal, we are in the MFI BC business and MFI business in order to meet the difficult part of our agri PSL and [ SME/MSME ] and things like that, right? As you know, MFI business looks very good for 3, 4 years and then suddenly it has a problem. We want to have a lot more consistent results and not want to deal with that kind of situation. So we are very focused on keeping it at about 5% to 6% of our exposure. So I don't believe that even the new management would be -- I mean, your point is valid. If you say that if you increase by X and then you can get a yield, we can increase by multiple times and still get a lot. But is that what we want to do is the question. So we have other opportunities which are much better, so which is where we will focus.

Got it. Sir, and second question was on the co-lending. So one of our partners had to stop disbursement. So how are we sort of navigating that? Because the co-lending book had come down from INR 35 billion to INR 32 billion to INR 33 billion.

So Prabal, one of the -- yes, you're right. One of the gold loan co-lending partner has had -- that volumes have stopped coming in for reasons unknown. But we have got close to 8 different co-lending partners across different products and customer segments in multiple geographies. So what we're doing is while the dust settles and whatever the right action will be taken over a period of time, the time being indefinite, we will wait for that opportunity to come back. There are other partners with whom we are engaged. We are one of the -- this particular co-lending guideline came in May '21, and I think in the year '21, '22 itself, we have started -- kickstarted the co-lending business. So we're one of the early mover, prime mover in this particular segment, and we have multiple relationships. So there are incremental originators coming online, and that will continue and that whole affiliate-driven business itself will continue. But would it replace volume for volume, what has stopped in the market, no. So in the short term, there would be a reduction in co-lending, but there are many, many other partners -- there is -- whom we are working with. And we should see the co-lending book coming back to the kind of levels that we are seeing.

And this happened in March, correct?

4th of March.

4th of March. So we've hardly had any time to -- and it happened in a very abrupt manner. So we haven't had much time to kind of the thing. But we have other tie-ups. Hopefully, some of the tie-ups will come through to compensate for some of the volume metrics.

All right. Sir, just last one clarification. This uptick in yield, so 11.71. This is organic in nature, there is no one-off in this.

No, no one-offs. Even last quarter, we never said there are any one-offs or anything, right? We track one-off problems separately or opportunities, but there are no one-offs.

We take the next question from the line of Jai Mundhra from ICICI Securities.

The first question is on your SA growth strategy. I mean, you have a calibrated -- I mean you have a staggered rate and you offer -- as you mentioned in the opening remarks also that you offer lower and maybe at another spectrum, you offer one of the highest rate in the industry. On a Q-o-Q basis, the SA balances have grown at 2% despite you offering one of the highest rates. Is that satisfactory? Or do you think there is some one-off and hence, because of this pricing strategy, we should see slightly better outcome? Or this is more or less in line with your expectations?

No, I think, Jai, we discussed this in our last quarter calls also. Praveen has mentioned to you that the SA rates are very low at the low end and high at the high end, catering to completely 2 different segments. So the reason why we are keeping higher rates on one end is to make sure that the flexibility that is required by some of the HNIs instead of keeping in term deposit are keeping in this. The actual growth is always coming from the low to mid-end because there, we are offering innovative products. For example, we launched a product where we give cash back on UPI, both incoming and outgoing. And the information that we have from our frontline team is, that product is doing very well, and the average ticket sizes have improved better than what had we not offered that thing. So we are monitoring the SA cost very carefully, and it is -- because we are offering that 8%, I don't think you should think that, that is where our SA rates are. We don't publish our SA composite rate. But I can tell you that our SA strategy is actually helping us to reduce the cost of funds and cost of deposits.

I wanted to get a comment on the growth. The product is very good, of course. It should take more float. I mean but the Q-o-Q growth of 2% was slightly not so -- I mean it looks like it should have been done better. That is what I want to be hear your comment on. This 2% is satisfactory in your view? Or do you think there is something which is -- and hence this can grow up? That is the question.

Jai, Praveen here. I'll answer that. So in this year, what has happened is that there has been a tightening of liquidity, most -- in most part of the year. There are 2 things which we are very cognizant of. Our CD ratio has remained actually flat at sub 83% levels, right? And we have grown deposits by 20%, almost 20%. Third thing which you should keep in mind is that our top 20 has decreased to 6.57%. It at one point in time was over 7%. So effectively, what is happening is there is a granualization of the book, and that's what is growing. In an environment where the retail term deposit rates are attractive, there is a propensity in the market for savings account customers to move their money into retail term deposits in the same bank, some amount of cannibalization happens, and we're very comfortable with it. Now how we are countering it is that we have built up our -- a lot of the increase in people, which Murali spoke about earlier, has come in the frontline deposit mobilization unit, which is solely focused on getting CASA going. Number 2 is that we have a partnership with some relevant fintechs, which is contributing pretty well in terms of good profile, new-to-bank savings account customers. So this is a partnership we have with Niyo, and you probably would have seen advertisements in some of the media, as you've probably seen. So I talked about feet on street, we talked about partnerships. The third element which comes into play on the savings account piece is from new accounts that we are providing, there is a very large cross-sell machinery which is at work on -- if you see 54% today of our book, our asset book, is mortgages, right? So there is a very active cross-sell happening to these customers where we're getting incremental savings. And most of them are SMEs, so they open their personal savings account with us. So that activity has come up to a different level. So 3 verticals are working on this, and we expect in line with the balance sheet growth of savings account to happen during the course of time.

And my second question is if you look at Slide 31 that gives yield on advances on a Y-o-Y basis, right? So the increase in yield on advances in FY '23 where most of the rate action happened, that is somewhere around 35 basis points. And from FY '24 where at least the policy rates were very stable, yield on advances has risen even further by more than 50 basis points. So of course, I can understand some lead-lag but what is driving this like better than -- better rise in yield on advances in a year where there is no policy action. Of course, part of that could be explained by some of the lower net NPA that we had, but if there is anything, if you can elaborate?

Jai, there are -- see, it perhaps is not correct to assume that the entire advances book is comprising of EBLR and therefore, benchmark rate change alone will change the rate of the existing portfolio, okay? So you continue to have fixed rate loans, and you continue to have marginal cost, lending rate loans, plus you have EBLR loans also. So some of these EBLR linked loans are fixed in nature for a certain period of time after which it becomes floating as well. So there is a composition of the asset book which is there in most banks and our bank also. So that's one point you have to keep in mind, right? As and when this hybrid, part fixed EBLR linked loans come into the floating rate scenario, then the repo rate increase of 2.4%, which all of us knew of between September '22 and March '23 kicks in, in some form or other, depending on when those particular loans were booked. So that's one part of it. The second part of the yield increase is coming from improved sourcing yield. The third part of this is coming from better mix. If you remember, last quarter also, we spoke about this, that we are kind of shifting the -- at that point in time, 52% mortgage, now 54% mortgage, more into LAP than from home loan. Going into the home loan was a part of the COVID safeguard fortification strategy. Now COVID is done and dusted. So now we're going back to the pre-COVID levels of higher BL, higher business loan. So there is an increase happening on that count also. Lastly, the point which you just now mentioned, less slippage, more recovery, more upgrade, not just recovery. more upgrade, which means the customer continues to bank with you. The NPA customer continues to bank with you, you get the benefit of the X number of months of interest accrual, which you derecognized, plus incremental revenue also come because the customer is, post NPA, regular with us. So all these factors contribute to what is resulting in the change in the yield. Long answer for a short question.

No, no, that's very helpful. So you said that there are a few products wherein the starting rate is fixed, but over the tenure, it will increase, it will turn into floating rate product for the customer. Is that fair understanding?

Yes.

That's right.

This would be what, business loan or mortgages?

It could be both.

It could be both. It could be something else also. It's available across various products. All floating rates -- most floating rate loans have the hybrid floating facility available.

And that is necessarily -- it will necessarily turn into floating rate, right? Or -- because the customers may not want that, right, because if it is subject to customer discretion, then he would -- will not want...

At the beginning, the customer can choose a fully fixed rate loan or a fully variable rate loan or a hybrid loan.

But fully fixed is only in commercial vehicle and tractors and also, it's very less.

So the hybrid at some point of time necessarily will turn floating, right?

Yes.

And last question. This is a small observation. If I total the disbursement in the last -- this year and last year, there is more or less similar disbursement. But there is a drop in the repayment, the calculated repayment. And that seems to be driving the -- or at least contributing to the loan growth. Is there anything in the -- within the loan product which is keeping the repayment rate lower? Or that is a kind of a general thing that year-to-year repayment rate may differ or there is something structurally within the product segment that repayment rate seems to be declining?

Essentially, last quarter had -- quarter 4 '23 had a reasonably high composition of TReDS, which forms a part of SME. TReDS are typically 45-day loan, average 45-day loan, which gets turned around. It's a liquidity management tool for the bank. So as and when there is a short-term opportunity available, you go into TReDS. If it is not, you go into longer-term loans. So that's why if you see -- if you're looking at the Page #22, there's an INR 838 crores disbursal coming under the SME that has now reduced to INR 500 crores -- reduced every quarter and now reduced to INR 500 crores. So effectively what's happening is, is the longer-term loan is coming into play.

We will take the next question from the line of Rohan Mandora from Equirus Capital.

I just wanted to understand the frontline people that we are adding, that this is a liability accretion incrementally. So as an external entity, if we have to track how effective they have been in terms of generating liabilities over next 1, 2 years. Sir, what are the metrics that we should track? So obviously, total deposits per branch or per employee can one metric, but anything else that you can indicate would be a better metric other than this?

No, no. I think total deposits per -- total business per employee and total deposits per branch is, I think, effective because when we -- our product team and our frontline team make continuous comparison on through-the-door acquisition capability and productivity of various banks. And it's not very difficult too because you conduct a lot of interviews and you'll know what kind of scorecard they're operating in various different banks. So we know what -- where we are and where they are at. Of course, there are some differences here and there. But we know that. So I think that is the best metric overall to keep tracking.

Sure. And sir, in terms of the KRAs that these people would have, who are focused on liabilities, would that be different from a normal branch employee? Or they would have all the KRAs on asset as well as liabilities that a branch employee would have?

They're all part of the branch.

Okay. So just trying to understand in terms of the focus, would the -- has there been any change in the KRA with respect to the liability accretion vis-a-vis last year?

No, there are some employees who do multiproduct, not -- except like they don't -- like mortgage, we have a separate team, right? And for loans, generally, we have a separate team. The branch team always have deposits, CASA, term deposit, fee and gold loans. Of course, within this, there are employees who only do deposits and do nothing else because depending upon their -- so the scorecard would be different for them. So there are all types like that. So therefore, depending upon, for example, a person who has paid INR 6 lakhs or INR 10 lakh could be having a slightly different scorecard from somebody who is an entry point kind of an employee.

Sure. Any, sir, guidance for slippages next year?

So if you look at our model, we essentially work on a model of NIM of 3.65 to 3.75, fee tending towards 1% of average assets and the NPE -- and the credit cost typically around the 28 to 30 bps mark. What we see now is 16, I think it is not a sustainable kind of credit cost number. It typically will range somewhere around the 28 to 30 bps kind of mark on an ongoing basis. But having said that, we have about INR 1,300 crores of NPA pool to work on and most of them matured from a legal perspective. So SARFAESI orders, in many cases, have come through or are in the process of coming through. There is also a large amount of -- all are secured. In fact, that's one thing about the bank. And most of it is secured by self-occupied residential property. So effectively, the moment orders come in, customers find a way of re-prioritizing their payment towards keeping the house than to some other activities. That's how most of our credit cost reduction is coming from. But on an ongoing basis, I think the model, you should assume a 0.3% kind of model to go with.

Yes. So the approach is that we are running a very capital-efficient model. So our risk-weighted asset consumption is pretty low, as you can see. And it has been low over the years because that's how refined the model is. And given the current capital situation, I think we probably will look at our capital, and we haven't proposed an enabling resolution. On Tier 2, the bank has always had an approach of being slightly opportunistic, and as and when there is an opportunity to pick up some Tier 2, I think, the team will work on that.

Sure. And sir, on the previous participants, the discussion that we were having on the fixed/floating rate in terms of hybrid loans, I just want to understand what would be the proportion of total loan mix right now that would turn floating in the due course of time?

We don't disclose information on that. But if we disclose it, we'll disclose it for the entire set of investors.

We'll take the next question from the line of Krishnan ASV from HDFC Securities.

First of all, I wanted to congratulate Murali on an extremely rewarding tenure. I know it tested you right at the beginning for the first few years. But I think it's been wonderful to watch you at the helm. I think a lot of credit to you and the way your team has run DCB Bank over the last few years. So wish you all the very best, Murali.

Thank you. That is really very kind of you. Thank you very much.

I just have one query. Given the kind of regulatory environment where the RBI has been fairly stringent on looking on -- looking at partnerships between banks and anything that they do on the digital side, you have a partner which is not just helping you digitally acquire NTB customers, but also in the field where it is for ForEx cards, which has not been very kindly taken to by the RBI in the past. So just wanted to understand what kind of safeguards do you have in place to make sure that you don't fall foul or DCB Bank does not fall foul of the RBI's laws because no matter how conservative lenders are or how they push the envelope, at times, it seems that the RBI is scrutinizing a lot of these relationships, I mean, with a very fine comb. So just want to understand what is it that makes you feel comfortable that you're on the right side of regulations? I mean is the bank currently being investigated or scrutinized for this relationship at all?

Sorry, who is being scrutinized for this?

He is asking whether we are being scrutinized. So Krishnan, I'll take that. So this sounds like a repeat of the master circular and master direction. But then that's the question you asked, so here is the answer. How does it work? The video KYC-based customer identification process is done by the bank. The audit of that particular process happens currently, and that is done by the bank. Once the customer is onboarded, it's a savings account customer, just like any other digitally acquired customer of the bank. When these customers either use the card domestic -- forget the card -- use the account domestically or internationally, the AML flags, which are in the system come into play. We are reasonably confident about our AML flags which are there in the system. And we look for anomalies, including one to many, many to one, usage of the card abroad with the app showing that the customer is in other country, I mean, a whole host of things is something which we do. We're not wholly predicated on one partnership for our program. Why we are part of this particular partnership is because this is a space which we want to be in, and if done right, can considerably help the bank. So effectively, it's about how strong your customer identification and onboarding process is, is fully in-house. Second is about how well you manage the transactions of the customer and as per what we believe the customer is capable of. Third is the technology angle to ensure that the transactions which happen internationally matches with the GPS, et cetera, of that particular customer in the same place. And fourth, I almost forgot to tell you that, is this information is -- the data is exclusively with DCB Bank and not with the partner. The partner does not have visibility to any of this information. It's tunneled through. So these are the various things that we have done. And the last piece is from what the letter of the master directions are concerned in this regard. Both core partnerships as well as digital account opening and partnerships, it meets the conditions that we have currently. But what you said is right. There is a heightened scrutiny of the regulator not only on this area, but in multiple areas, and our belief is that we will always play conservative than go by the philosophy of being aggressive. For us, we internally say that anything gray is black.

Understood. That's helpful. So this is extremely useful to know and quite comforting as well. The other bit was very often lenders don't walk into this, or say, let's assume that lenders don't walk into this with their eyes open. Sometimes they think they are doing the right things, and they are going by the letter and the spirit of the regulations. But still the RBI seems a little vigilant and a bit stringent on making sure that digitally, whatever is happening digitally is something completely above goal. I mean, just to reiterate the earlier query, is DCB Bank currently being probed or investigated under this? I'm sorry, I'm having to repeat this.

Yes. So let me take that. So first of all, I want to say that we can't comment on what is the regulators' approach and what they are planning to do and how they are doing. We can't comment on that. When you talk about digital lending, I am not aware of any digital lending that we are part of. I think we have examined several, several fintech and probably didn't feel comfortable in terms of their approach and what are the regulations and so on. The digital thing that we are -- Praveen was referring to was on the deposit side on Niyo. And as far as we can see, we seem to be following all the guidelines. But the regulators have the right to keep raising the bar on these. And we have to make sure that we follow. You are using the word investigative and things like that. I'm not aware of any investigation and so on. But you know that in the risk-based supervision, at any point in time, any of the regulated entity can be called upon for any information and so on. And that is a new way of how the regulations are being applied and managed. So that is my response to your question.

We'll take the next question from the line of Rakesh Kumar from B&K Securities.

All the best, Murali sir, for the future endeavors and future ventures.

Thank you. Thank you so much.

Sir, just I had a question similar to what previous participant had on this fixed floating, EBLR, T-bill, MIBOR or maybe repo. So if we can get the breakup of EBLR, MCLR and fixed rate loan breakup in this quarter, March end and December quarter, that would be really of great help.

Yes, we are not presenting those details. I don't think we have ever presented those details. The way we approach is there is a mix of products that is there on the -- the deposit side. There's a mix of products on the -- and we know that in the model, it yields about anywhere from 365 to 375 basis points. Of course, if you have, in any one quarter, some more NPA or we end up having some repricing issue, even for that matter, let's say, we have borrowed money from NHB or SIDBI, and they happen to fall due for some repricing and that quarter gets impacted because these are all so many nuances that go around. The other one that happens is the -- we obviously meet all the PSL norms. But in -- if for example, there is a shortage there, and we have to subscribe to RIDF bonds which come at a very low rate, that also has an impact on NIM. So overall, I think we would like you to go by saying that the bank is targeting a NIM between 365 to 375. So the sales team may decide that, look, we are spending a lot of money on acquiring these customers. So therefore, we need to offer a 6-month fixed rate or a 1-year fixed rate so that we have some more stability. Those kind of missions are taken in ALCO on a very ongoing, dynamic basis, right? So I don't think we are ready to present that number to you.

Okay. No problem. No problem, sir. So just wanted to reconfirm that as per the RBI guideline on the EBLR, so all the floating rate, like all the floating MSME loans should be on EBLR. So what part of MSME loan or maybe any other loan that you have -- you are offering at the fixed rate at the initial time and then converting it to the floating rate later.

That is going back to the same, to your first, previous question, which is what we are saying that we don't offer that information, and that information may differ from month-to-month, quarter-to-quarter, depending upon various meetings of ALCO, our balance sheet, our liquidity position, the way we are generating our deposit profile and so on. So suffice to say that we have offered for smaller customers, the flexibility of taking fixed rate level, though fixed rate also might change, 6 months fixed rate, 1 year fixed rate, maximum 2 years fixed rate, those kind of things.

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

My question is related to the cost to income and also the growth. So you mentioned that we are on a course of doubling up our balance sheet over the next 3, 3.5 years. So for that kind of growth, what kind of branch addition we are looking at? Or is it the branch addition will not be as significant and it will be more like sweating our existing branch network which can help our cost to income and ROA?

So see, we are a pure retail SME bank. Our corporate loan book is about less than 10%. And when we started this journey 15 years ago, I remember the corporate book was about INR 1,500 crores on a balance sheet of some -- I mean, loan book of INR 3,000-odd crores. If you have a lot of big-ticket loans, your cost to income ratio will be lower. Please compare our cost to income ratio of 63%, 64% to more pure-play banks that you may be aware of, who are into a lot more retail on the loan side. So cost-to-income ratio will continue to be high in that model. What you should focus on, in my opinion, is look at cost-to-average asset. At one point in time, when we were adding people, I think our cost-to-average asset was even 3.3% or something, which has now come down to 2.69%. As Praveen mentioned, we are working towards bringing it down to a steady 2.5%. If that results in reduction in cost-to-income ratio, so that's whatever would that be. We don't look at cost-to-income ratio, we look at cost-to-average assets. That is point one. Second thing is our model is such that there is so much opportunity. If you add headroom, we probably will add 10,000 more resources and still we will be able to generate business. But we are pacing it out. So I think we have stated in the past that a branch -- number of branch addition would be 15 to 20 per year. And if the new management team finds more sooner success in implementing branches, they may even step it up to 30, 40 or whatever that number is. And I think we are fully capable of making those branches and we are not some regional bank or something like that. We can put up a branch in Odisha, make it a success. We can put our branch in Madhya Pradesh, we can make it a success. We can put our branch in Bombay and yet not succeed where we are very good because we have not got it right on say, for example, some people or something. So we are pretty good. We have a lot of products. We can make it work. So -- but that's the way the model is.

So in terms of ROA, where do we target over the next, say, 2, 3 years?

The intention, as we have stated in our presentation also, we are moving towards greater than 1% ROA and greater than 14% ROE. You may see some banks which are having an ROA of 1.5%, but they have a 20% capital adequacy at Tier 1. We have 14.65%, and we are giving 0.9%. You may want to normalize and see where that -- because if you have a lot of capital, you can definitely get more ROA. We are trying to be more capital efficient. This quarter, the ROE has been 13.48%. I think steady state, we have clearly a 0.9% to 12% -- 0.9% ROA and about 12% ROE. And I think the team will be working towards getting this up through improvement in productivity of the existing resources and growth, which is what would be -- and not messing up any of the other parameters like credit costs and so on.

Ladies and gentlemen, we will take that as the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you, sir.

So thank you. That would be my last call. And I'm happy to tell you this is my 61st quarter where I've been able to interact with you guys, I just realized. So thank you very much for your support, encouragement and it's been a pleasure interacting with you all these years. And I wish the new management, Praveen and his team, all the very best and look forward to catching up with you at some other forum. Thank you very much.

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

Thank you.