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As competition intensifies in the banking sector, DCB Bank (previously Development Credit Bank) is charting an aggressive growth strategy.
Apart from adding 150 branches in the next 12 months, Murali Natrajan, MD and CEO, says the bank plans to keep bad loans under control with a focus on retail, small and medium enterprises and agriculture portfolio. Edited excerpts from the interview:
Could you elaborate on why your profits declined in Q2?
In Q2, the tax rate was substantially higher than in the previous year. It was 13 per cent last year, but this year we came into the 34 per cent bracket. That is a major difference. Our operating profit was up 30 per cent.
On provisions, we settled one old corporate account and took a hit of ₹6 crore. It had become an NPA (non-performing asset) in the first quarter.
Even with the provisions, our profit before tax was up 22 per cent. So, it’s income tax that made a big difference.
Where do you see the NPAs heading?
I believe our NPAs will be largely under control (1.99 per cent). At any point, we see two to three accounts under stress.
Stress in the corporate sector continues and there are cash-flow challenges. But we hope to keep the NPAs at current levels.
What is the outlook for growth?
Of course, there is a hope that it will improve. I think the situation is the same as last year. So, we will remain cautious on the corporate side. On advances, we are targeting a growth of anywhere between 25 and 27 per cent and 21-24 per cent in deposits. We had a setback because our corporate loan growth declined from the start of the year, primarily because of competition…Our retail, SME and agriculture banking looks good.
Corporate growth has been muted and there is hardly any scope to grow.
We plan to add 150 more branches in the next 12 months in tier II to tier VI centres.
Our board has approved the plan. Previously, it was 25-odd branches but we are looking at expanding as we are seeing increasing competition.
We expect the new branches to break even in about 24 months. If we put these 150 branches into action, we will be adding 1,800-2,000 people in the next 12 months. Yes, this will increase our cost-to-income ratio.We plan is to substantially improve our digital banking strategy.
With interest rates moving downwards, do you plan to change your base rate?
We hope to effect changes in the base rate in the next 15 days. We are at 10.85 per cent at present.
Since, we are seeing deposit rates coming down, we will reduce our base rate by about 15 bps. Our deposit rates have come down from 7.77 per cent to about 7.6 per cent now.
How do you see this impacting your net interest margins?
Our NIM is at 3.79 per cent for the quarter. I believe it could be impacted by 25-30 bps in the next three to six months.
We also have to see the RBI regulation on marginal-costing method to calculate the base rate.
If that comes through, the impact could be higher at 55-75 bps, but it will get adjusted over a period of time.
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