Shares of Mumbai-based private sector lender DCB Bank plunged over 5 percent in Monday's trade after the bank reported its April-June FY24 quarter numbers. The lender reported a healthy quarter, with earnings growth of 30 percent year-on-year (YoY) led by 25 percent YoY operating profit growth. However, it was lower than analysts' forecasts, as NIM compression was higher at 40 basis points quarter-on-quarter (QoQ).
Loan growth remained healthy at 20 percent YoY. Headline gross NPL (nonperforming loans) ratios were stable, but slippages were higher, though its impact on credit cost was negligible, analysts say.
NIM guidance between 3.5-3.75%
Speaking to CNBC-TV18 on Monday, Murali M Natrajan, the MD and CEO of DCB Bank said that the lender's NIM guidance is between 3.5-3.75 percent and that they don’t expect similar compression in NIM going ahead.
"We have built the business model and I have been guiding this for quite some time, at a margin of about 370 to 375 basis point. This quarter our margin is 3.83, so I can argue that our margin is still higher than the business model that we have created," Natrajan said.
Explaining further, the CEO said, "The methodology works like this, that when EBLR is changed based on repo rate changes, cost of funds takes a little time to catch up. In more recently, cost of funds have not been raising so fast. So I don't expect similar kinds of compression in our margin, and we should be able to hold on to our business model names."
"Most of our portfolio is repriceable portfolio so therefore, even if the cost of funds goes up, I don't believe that our margin compression would be severe. So we should be able to sustain with the product mix and the cost of funds mix at about 370-375 basis points," Natrajan added.
The lender's MD and CEO also said that DCB Bank should be able to double its balance sheet every three to four years. "We don't give guidance on yearly basis. But the kind of frontline investment we have done, including the number of branches that we have added in the last one to two years, and the kind of products plus the process improvement, the technology that we are putting in, we believe that we should be able to double our balance sheet every three to four years."
On deposits and loan growth, he expects the current trend to continue. "Our deposit growth has been about 22 percent, our loan growth has been at about 19 percent. But if you look a little deeply the core products like mortgages, home loan, co-lending, construction finance, agri inclusive banking, which is our core business has grown at higher than 20 percent, so we expect this trend to continue," Natarajan said.
He further said, "The recoveries and upgrades is where we had a little bit of slowness, and we are building pipeline of recoveries and upgrades. If you look at whole of last year, our recovery and upgrades were almost 100 percent of the slippages. And I believe that in the next one to two quarters, we should rebuild the momentum in recovery and upgrades while slowing down the NPAs."
Through technology process improvement, and also because of the growth that the bank is likely to achieve for the investment it has made in the last couple of years, the CEO expects the cost of income ratio to come down step by step.
Domestic brokerage house Kotak believes the bank is on track to deliver a healthy loan growth and better operating leverage, leading to higher RoEs (return on equities). It has a 'Buy' rating on the counter, with a target price of Rs 160, suggesting a potential upside of 30 percent from the current market levels.
DCB Bank stock is down 4.40 percent on a year-to-date basis, while it has rallied 43.74 percent in the last one year.
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