February 09, 2022, Mumbai: The Board of Directors of DCB Bank Ltd. (BSE: 532772; NSE: DCB) at its meeting in Mumbai on February 09, 2022, took on record the limited reviewed financial results of the third quarter (Q3 FY 2022).

Highlights:

1)  Profit After Tax

 The Bank’s Profit After Tax (PAT) was at INR 75 Cr. in Q3 FY 2022. PAT for Q2 FY 2022 was INR 65 Cr. and for Q1 FY 2022 it was at INR 34 Cr. After the Covid-19 second wave impact in Q1 FY 2022, PAT has been improving based on overall business improvement and control over NPAs.

2)  Operating Profit

 The Operating Profit for Q3 FY 2022 was INR 199 Cr., the Operating Profit for Q2 FY 2022 was INR 175 Cr. and Operating Profit for Q1 FY 2022 was INR 202 Cr. While Operating Income is improving, Cost increase due to branch expansion and headcount addition for stepping up growth has an impact on Operating Profit.

3)  Net Interest Income

 The Bank earned Net Interest Income of INR 345 Cr. in Q3 FY 2022 as against INR  323 Cr. for Q2 FY 2022 and INR 309 Cr. for Q1 FY 2022.

In Q3 FY 2022, Net Interest Margin (NIM) was at 3.61%. In Q2 FY 2022, NIM was at 3.37% and 3.31% in Q1 FY 2022.

4)  Non-Interest Income

 In Q3 FY 2022, Non-Interest Income (Fee) was at INR 118 Cr. In Q2 FY 2022, Fee Income was at INR 98 Cr. and INR 121 Cr. in Q1 FY 2022.

Core Fee Income (including PSLC) was at INR 89 Cr. in Q3 FY 2022. Similarly, in Q2 FY 2022, the same was at INR 83 Cr. and in Q1 FY 2022 it was INR 50 Cr.

5)  Cost Income Ratio

 Cost Income Ratio (CI) for Q3 FY 2022 was at 57.09%. The CI ratio for Q2 FY 2022 was at 58.41% and in Q1 FY 2022 it was at 52.97%. As mentioned earlier, the Bank is consciously increasing its frontline headcount to step-up growth. As the Bank is predominantly in the small ticket secured Retail and SME/MSME business, headcount increase initially impacts CI ratio in the near term. If the business volume increases as planned, then CI ratio is expected to decline over time.

6)  Return on Equity

 Return on Equity (ROE) (Annualized) was at 8.28% in Q3 FY 2022. In Q2 FY 2022 it was at 7.28% and in Q1 FY 2022 3.79%.

7)  Capital Adequacy

 Capital Adequacy continues to be strong and as on December 31, 2021 the Capital Adequacy Ratio was at 18.21% (with Tier I at 15.10% and Tier II at 3.11% as per Basel III norms).

During Q3 FY 2022, the Bank has exercised the call option on the Basel III compliant Tier 2 Bonds and repaid INR 237 Cr.

8)  Deposits

 The Bank has been steadily growing the Retail Term Deposits (less than INR 2 crores) and reducing Bulk Deposits. As on December 31, 2021, the top 20 deposits ratio was at 6.17%.

CASA Ratio was at 25.94% as on December 31, 2021. As on September 30, 2021 it

was at 25.38% and as on June 30, 2021 it was at 21.69%.

9)      Advances

 The main target market of the Bank is MSME/SME segment. In terms of products, the Bank is focused on growing Home Loans, Business Loans (LAP), Gold Loans, MSME/SME (CC/OD/Term), KCC (Kissan Credit Card), Tractor Loans, Loans to MFIs and MFI-BC Loans. As of now, the Bank is achieving steady growth in TREDs platforms and Gold Loans Co-lending.

In Corporate segment, the Bank is mostly targeting short term loans.

As on December 31, 2021, Net Advances was at INR 27,659 Cr. As on September 30, 2021 it was at INR 26,850 Cr. and as on June 30, 2021 it was at INR 25,496 Cr.

In Q3 FY 2022, the Bank disbursed INR 3,341 Cr. (Mortgage INR 821 Cr., Gold Loans INR 328 Cr., Agri & Inclusive Banking INR 661 Cr., MSME/SME INR 86 Cr., Construction Finance INR 169 Cr., Commercial Vehicle INR 21 Cr., Corporate Banking INR 570 Cr., Co-Lending INR 685 Cr.)

Due to Covid-19 third wave infections frontline productivity was impacted to some extent in December 2021.

10)   Refinance

 Bank Refinance (NABARD, NHB and SIDBI) was at INR 2,593 Cr. as on December 31, 2021. Given the granular nature of Advances, the Bank’s portfolio is eligible to continue to seek long term refinance options from SIDBI, NABARD and NHB periodically.

11)   Liquidity

 The average LCR for Q3 FY 2022 was 125.13%.

On a conservative approach, the Bank had maintained daily liquidity at levels higher than “business as usual”. However, as situation is improving, the Bank is slowly moderating the excess liquidity.

12)   Costs

 Costs are increasing on account of (a) Increase in frontline headcount (b) Salary increase (c) New branch additions (d) Technology investments. This may result in near term increase in Cost / Income ratio. Both Cost / Income ratio and Cost to Average Assets are expected to steadily decline over time with increase in business volumes.

13)   Provisions

 As on December 31, 2021, the Bank is holding the following provisions:

14)   Asset Quality

 The Gross NPA as on December 31, 2021 was at 4.73%. As on September 30, 2021 it was at 4.68% and as on June 30, 2021 it was at 4.87%.

The Net NPA was at 2.52% as on December 31, 2021. As on September 30, 2021, it was at 2.63% and as on June 30, 2021, it was at 2.82%.

As the Bank has a mostly secured portfolio, as the environment improves, the Bank continues to have strong performance in Recoveries and Upgrades. In Q3 FY 2022 Gross NPA was impacted by an increase in Gold Loans (including co-lending) NPAs which is expected to be recovered/upgraded in the coming quarters. However, Mortgages, Commercial Vehicles and SME/MSME witnessed a decline in overall Gross NPA. BC-MFI Gross NPA remained flat in the previous quarter.

For two quarters in a row, Recoveries and Upgrades have been very strong.  In Q3  FY 2022, against fresh slippages of INR 457 Cr. Recoveries and Upgrades were INR 401 Cr. or 88%. (excluding Gold Loans 114%). Similarly, in Q2 FY 2022, against fresh slippages of 417 Cr. Recoveries and Upgrades were INR 397 Cr. or 95%. (excluding Gold Loans 89%)

The Provision Coverage Ratio (PCR) as of December 31, 2021, was at 62.17% and PCR without considering Gold Loans was at 66.40%.

15) Collections Efficiency %

 Although Covid-19 Wave 3 infections affected frontline productivity in December 2021, the Collections Efficiency impact was contained by strong efforts by the Collections team.

The Collections Efficiency Overall (including delinquent and restructured)

Business Loans (LAP): Customers (including delinquent & restructured) who have not paid any installment from April 1, 2020, to January 31, 2022, was at 0.61%.

 The percentage of portfolios who have paid 3 EMIs or more from April 01, 2020, to January 31, 2022, stood at 98.4%.

 Home Loans: Customers (including delinquent & restructured) who have not paid any installment from April 1, 2020, to January 31, 2022, was at 1.54%.

 The percentage of portfolios who have paid 3 EMIs or more from April 01, 2020, to January 31, 2022, stood at 94.6%.

 Commercial Vehicle: Customers (including delinquent & restructured) who have not paid any installment from April 1, 2020, to January 31, 2022, was at 2.76%.

 The percentage of portfolios who have paid 3 EMIs or more from April 01, 2020, to January 31, 2022, stood at 95.4%.

16)   Credit Costs

 The Bank’s portfolio is mostly secured on hard collateral. However, while relentlessly focusing on NPA Recoveries and Upgrades the Bank is likely to make provisions on a conservative basis.

17)   ECLGS

 Under ECLGS the Bank has so far disbursed INR 1,110 Cr. (13,978 customers). The Bank continues to be cautious and selective in disbursing ECLGS loans.

18)   Restructure

 Unlike Covid-19 first wave, the unanticipated severity of the second wave drove more customers to seek restructure as their business/livelihood was impacted. The Bank has been cautious in approving restructure requests. As on December 31, 2021, the Net Restructured Standard Advances including Covid-19 relief stood at INR 1,884 Cr. mostly contributed by Mortgages, Commercial Vehicles and SME / MSME.

19)     Branch Network

 The Bank’s branch network stood at 367 as on December 31, 2021. The Bank intends to add 25-35 branches in the next 12-15 months. The pace of branch expansion will depend inter alia upon business opportunity and performance.

20)     Headcount

 The Bank’s headcount was 7,349 as of December 31, 2021 (6,432 as of March 31,

2021 and 6,841 as on September 30, 2021, 6,845 as on March 31, 2020). The Bank plans to continue to increase its frontline headcount to build capacity for growth.

21)     Accelerating Digital Agenda

 The Bank has embarked upon accelerating the digital agenda with the intention of vastly improving customer journey/service quality and reducing costs as part of strategic cost management. The Bank has identified 769 digital projects (103 – Large, 416 – Medium and 250 – Small) of which 217 projects have already been completed. Most of these projects have a payback of less than 18 months. A compact execution team has been put in place to drive the digital initiatives.

Speaking on the Q3 FY 2022 results Mr. Murali M. Natrajan, Managing Director & CEO said, “As compared to Covid-19 second wave, as of now, the third wave has been mild and disruptions have been minimal. However, the high number of infections have affected frontline productivity in December 2021. We are satisfied with the progress on NPA Recoveries and Upgrades. Monthly fresh NPA slippages in Mortgages, Commercial Vehicles, SME/MSME and AIB are almost back to pre Covid-19 levels. We are building frontline capacity to step up growth”.

Key Balance Sheet Parameters

DCB Bank Unaudited Results for the Quarter ended December 31, 2021