DCB Bank saw strong loan growth and improvement in asset quality but net interest income growth was on the lower side.
Murali M Natrajan, MD & CEO, DCB Bank said the bank was largely unaffected by the February 12 RBI circular because for the last 9 years has been mainly focused on small ticket SME banking and corporate book is only about 17 percent.
Out of the gross NPAs of around Rs 360-370 crore, if one were to remove 2-3 accounts the others are small accounts.
The fourth quarter net interest income was up 19.7 percent at Rs 263.7 crore versus Rs 220.3 crore reported for the same quarter last fiscal. Q4FY18 year on year net profit was up 21.4 percent at Rs 64.2 crore versus Rs 52.9 crore.
On the business outlook he said the bank has almost doubled the loan book in the last three years and aim to double it again in the next three-three and half years.
As of now, 40 percent of loan is contributed by mortgages (mainly small ticket loan against property), about 12-13 percent is SME, MSME, about 18 percent by agri and inclusive banking, about 17 percent by corporate banking and then commercial loan about 6 percent, gold loan 3 percent etc., so we have a very diversified portfolio.
Overall it has been a granular loan book growth – with mortgages growing 20 percent, SME, MSEM growing 30 percent, agri inclusive banking more than 30 percent etc, said Natrajan.
He said going forward by the fourth quarter of 2018-19 they aim to have the cost to income ratio of 55 percent and for that the bank has bene leveraging the branch networks and headcounts added, which help reduce cost to income ratio.
When asked if the bank would look at something like 811 of Kotak bank to improve their CASA, Natrajan said their bank will also have to look at something similar. As of now they have 2-3 new products which is combination of technology and benefits for example – we give cash back on using savings accounts.
Latha: Let me start with asset quality first. Where do you stand on the asset quality curve, Reserve Bank of India (RBI) February 12 circular won’t harm you much?
A: As you know for the last nine years or so, we have been concentrating on small ticket, retail, SME banking. Our corporate loan book is only about 17 percent. Now when I look at our entire gross non-performing assets (NPA), if I take out the first two - three accounts, we find that out of the Rs 360-370 crore of NPA it is almost like 200-300 accounts of small ticket making up for that NPA. So, we are largely unaffected by that circular.
Sonia: I wanted to talk a little more in detail about the loan growth which was very healthy this time around at almost 29 percent. A trend that is similar to the last two quarters, so is this a level that is sustainable and secondly can you break it up for us in terms of MSME, SME growth, how are the trends looking?
A: If you look at our loan book three years ago and now he have almost doubled it and what we are looking forward to in the next three to three and a half years is to yet again double our loan book. That is a trajectory we would like to kind of achieve. If I look at our break-up of loan, 40 percent of our loan is contributed by mortgages, essentially loan against property but small ticket. About 12-13 percent is contributed by SME and MSME. About 18 percent is contributed by agri and inclusive banking. About 17 percent is contributed by corporate banking and then we have commercial vehicle about 6 percent, gold loan 3 percent and so on.
Ours is a very diversified portfolio. Each of the loan book, like mortgage grew by about 20 percent, SME and MSME grew by 30 percent, agri inclusive banking grew more than 30 percent. We had a very strong growth in commercial vehicle and gold loan. So, it has been an overall, I would say granular growth that we have been able to achieve in the last 12 months and that we hope to do that yet again in the next year.
Latha: Then what is working well? How come your cost to income ratio has fallen? Going so retail and so granular one would think would be labour intensive and therefore expensive. Is it analytics or something better data mining that is coming to your help?
A: I will answer this in two-three parts. First of all in the last about 24 months we have added 150-160 branches which was a strategy that we announced earlier, which created a lot of excitement. We have been able to execute that strategy quite well. What happens is that the branches take about 18-22 months to break even and about 36-42 months to deliver about 50-55 percent cost-income ratio. So, step-by-step we want to reduce our cost-income ratio.
What we are aiming for is by fourth quarter of 2018-2019 when we exit this particular year, we want to be at about 55 percent cost-income ratio. So, what is exactly happening is that we are leveraging the branch network, leveraging the headcount that we have added that is what is helping us to reduce our cost-income ratio and we hope to sustain that.
Regarding the small ticket, what happen is if you recall, we have always said that we have also said that we want to make investments in technology both for frontline and for our customers, some of those things are falling in place. But I don’t think we have realised the benefit of it full extent. So, last time when I was doing review with our technology more than 200 small projects are there which are all going to help improve the customer experience, the front-line experience. I hope to use that to manage the cost, reduce the cost.
On analytics, like all banks we have also invested in big data and whether for operations or whether for hiring staff, or whether for retaining staff or whether for managing your operations well or better targeting of customers, we are trying to put many huge cases in our data analytics team. I would say we are still in very infancy stage on it. Maybe in the next three-four years we will get better at it.
Sonia: Can you also tell us a little bit more about the loan against property business? The last time when we spoke with you, you had indicated that there was some stress there. This time around how is the situation and what about growth?
A: When the demonetisation happened, the SME sector came under a lot of stress. Then they also had to adjust for the GST implementation in July 2017. What I see know in the last six months is that lot of matters have settled down and things are falling in place. We also made adjustments to our credit policy, excluded certain segments which didn’t seem to be making sense in the changed environment. I would say that barring any unforeseen situation the portfolio seems to be behaving well and we expect the portfolio to continue to behave well.
Sonia: Can we say that the loan growth say over the next couple of years will be on an average about 25 percent or so given the kind of history that you have see?
A: If I look at the investment that we have made in branches, the number of staff that we have added and the productivity that we are seeing, the product set that we are operating in, the learning curve that have happened over the last three-four years, we look forward to doubling the book in three to three and half years. Maybe if I am here it could be 25 percent or higher I don’t know, but that is the long term plan that we have. We are able to see only three to four years that any point in time.
Latha: We hear that Kotak Mahindra’s 811 has been quite a success. Your current account saving account (CASA) is well at 24.3 percent, right, of your total advances?
Latha: Is it something that you will look at this quicker opening of accounts, some big splash over there to improve that percentage?
A: Let me answer it this way, the savings account growth for us last year is 27 percent and if you recall when the demonetisation happened the CASA book dramatically increased, but later on as the cash withdrawal limits increased, the CASA balances started falling. Despite that we have been able to grow savings by about 27 percent and overall CASA by 25 percent and again very granular kind of growth. Only above Rs 1 crore we are offering higher rates. In retails segments we are offering only 4 percent.
What we have done is that we have introduced two or three new products where it is a combination of technology as well as benefits for example if you use our savings account you get cash back on shopping. This is one example there are several example. I do feel that you cannot ignore technology, you cannot ignore the ease of what they call as- these are the new words that I am hearing and learning these days is like the frictionless kind of experience for the customer. Similar to 811 or something different, we also will have to do over a period of time.
Latha: Do we very soon see you at the helm of a bigger bank? There seem to be vacancies opening up?
A: I am enjoying my job so much that I would do this for free. So, right now I am not even considering any change.