DCB Bank Limited (DCBBANK) Q1 2026 Earnings Call Transcript

DCB Bank Limited (NSE: DCBBANK) Q1 2026 Earnings Call dated Jul. 31, 2025

Corporate Participants:

Unidentified Speaker

Praveen Kutty — Managing Director and Chief Executive Officer

Analysts:

Unidentified Participant

Akshat Agrawal — Analyst

Rohan Mandora — Analyst

Sanjay Ladha — Analyst

Chetan Gindodia — Analyst

Suraj Das — Analyst

Jai Mundhra — Analyst

M.B. Mahesh — Analyst

Gaurav Kochar — Analyst

Akshay Badlani — Analyst

Aditya Khandelwal — Analyst

Presentation:

operator

Ladies and gentlemen, good day and welcome to the DCB Bank Q1FY26 earnings conference call. As a reminder, all participant lines will be in the listen only mode. And there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on the attached tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Praveen Kutti, Managing Director and CEO. Thank you. And over to you sir.

Praveen Kutty — Managing Director and Chief Executive Officer

Thank you very much. Good evening everybody. I’ll give you a short commentary on the results and then we are happy to take questions. I want to tell you that in keeping with our ethos of consistent, predictable and sustainable performance. Happy to inform that we have grown the deposits by 20% and assets by 21%. Y o y this is the fourth consecutive quarter where we have grown the balance sheet by 19 to 20%. Y o y what is even better is that the bottom line is also growing in line with the top line. The bottom line growing by 19.72% in Q1.

This is a quarter where we had many firsts. Our operating profit of 327crores was highest ever and not just highest ever in quarter one but highest ever in any given quarter. A fee of 236 crore is again the highest ever. Of course it had some one timers. But what is of equal interest is that the core fee income has registered 134 crores. A 17.5% increase from the previous Q1. Our operating revenue growth of 28% and our operating cost growth of 13% has shown that the jobs that we command, the operating leverage debt we command of 15% is the highest in the last four years.

Going ahead, we thought it was prudent to take accelerated provisions during this quarter. The entire NPA stock of 3-31-2025 of MFI and unsecured DA has been 100% provided in quarter one. We are also happy to inform that that despite the three rate cuts across this year, this financial year adding up to 100 basis points reduction, our NIM reduction over Q4 was 9 basis points. Some seriously good work has happened on the cost of fund and cost of deposit front. On the improvement side Our slippage ratio has creeped up. This is on account of three items, two of which were obvious and one which was kind of surprising.

There has been a higher slippage on MFI and unsecured da, both of which we were aware of. And that’s not a surprise. But what really was a surprise was the small ticket secured DAs that we have taken have taken up a higher than normal flow into NPA. As you all know, we do DA and PTCs. DA is more as an experiment to figure out. It’s a sandbox to us. We figure out what works, what doesn’t work, and then it gives us the ability to test, validate and either reject or go ahead with the proposition. School finance that the bank launched was an ideal example of that.

So that exactly is where we are on the commentary on Q1. Happy to take questions.

Questions and Answers:

operator

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star N1 on the touch tone telephone. If you wish to withdraw yourself from the question queue, you may press STAR and two participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. First question is from the line of Akshat Agarwal from Swift Institutional Equities. Please go ahead. Good evening sir.

Akshat Agrawal

Thank you for the opportunity. The first question is on asset quality. Aside from the MFI and unsecured da, there seem to be uptick in gross MP ratio for mortgages as well. So is it from the illegally mortgages in FY23 where sourcing was not very good which we had flagged in previous quarter. And do we see credit cost to be maintained around like current levels at 60 basis point or will it go back to 45 to 55 basis points? Further on PCR provision compensation ratio it fell down by 3%. And so is it just, you know, all the tax rated provisions in diagrams or is something else? That is my first question, sir.

I have a few more. Thank you.

Praveen Kutty

Hi Akshat. So let me answer the first question first. The bank has taken accelerated provision primarily on MFI and the unsecured DA and the secured DA also. So the secured DA frankly shows up in mortgages. If we had not taken our accelerated provision, our credit cost would have been in line with what we demonstrated in December 24 and March 25. It will be in the same range itself. So the reason why the accelerated provision is taken is that we thought it would be more prudent. I’m not sure about The MFI recovery ability so that it makes sense for us to cover the exposure that we have through accelerated provisions in the beginning of the year itself.

The second part on the pcr, the reduction is primarily on account of write offs that you’ve done. Every year we write off somewhere between 100200 crores. Last year I guess it was about 120 crores of write offs. That happened. This year I think it is about 170, 173odd crores of write off. And that’s the reason why. Technical write off. Let me clarify. Okay. Technical write off that we do which is the reason why the PCR has come down. What is of equal relevance is that our PCR otherwise is 74.04 for the quarter. A 44bps reduction from what it was in March of this year.

Akshat Agrawal

Right sir. So on the credit cost, as you said it, you know.

Praveen Kutty

Thanks for reminding me. On the credit cost, what would the future look like? The future should it will neither be 60% nor will be within the 45 to 55. This is why we expect it to be below 40.

Akshat Agrawal

Great sir, thank you. In terms of co fee income which has, you know by its YY growth it has declined sequentially and in last eight quarters there like for seven quarters it had a sequential expansion. So is there some seasonality now which is creeping in where 1q is weak versus rest of the quarters? And what is the average free run rate we should look at? Is it like 135 crores this quarter or more like 160 crores which was in the last quarter. Thank you.

Praveen Kutty

I’ll answer the first part and leave the second part because I don’t know comment on immediate next quarter what the number is. But what is important is that the core fee income has got third party distribution gains. It has got processing fees. So these are two of the parameters. Usually Q4 of a year has got a significantly higher contribution from third party distribution. Also the net disbursals in Q1 are usually less than the net dispersals in Q4 resulting in EF being of a lower nature. So the right indicator for that is compare the quarter with the corresponding quarter of the previous year.

You would see that I’m not too sure whether it’s really quite feasible to replicate the Q4 TPD income in the subsequent Q1. So quarter fee income we are very confident should grow in line with the balance sheet or slightly lesser than the balance sheet. And secondly treasury incomes one time incomes are not forever. So we have a Solid plan on ensuring that trade fee income which is recurring in nature and sustainable in nature will over a period of time cover for the one timers as and when they vanish.

Akshat Agrawal

Right sir, thanks for that. If I can squeeze in a question or two for cost. The bank continued to perform well on cost with TTI now at 60% our employee expense sequential growth was elevated despite headcount reduction. So if you can provide some insight on that. In terms of branches there was only one branch addition during the quarter. What’s the plan for rest of the year and are we seeing any productivity benefit besides the headcount reduction and slowing down of branch extension? That was my question. Thank you.

Praveen Kutty

So yeah, thanks. So on productivity increases, clearly between last year and now we have reduced our headcount by about 800 odd people and we’ve been growing by 20%. So effectively that is resulting in a higher productivity plus there are a lot of technology gains etc. So our front end LOS systems across multiple products have not only been modernized but also been made into the mobile. So quite a lot of non productive work has gone away with the advent of technology. So that is helping us reduce the operating cost. Why has the stop cost gone up? Well people do deserve a hike in the bonus and that happens in quarter one so obviously it will be on the higher side.

But remember we have brought down the cost to income ratio by over 700bps corresponding quarter two to the current quarter of last year. So that’s a 7% reduction that you see on the cost income ratio. On the cost to average assets we are at 2.52. The stated objectives should be below 2.5 and we can clearly see a roadmap for that.

Akshat Agrawal

Thank you for that sir. Last question on loans growth, sequential loans growth is coming down is coming from actually co lending, gold loans, corporate banking as well as mortgage. Under AIB you are looking to slow down co lending to balance sheet growth and corporate lending is generally not a focus for you. So if you can provide some insight on what would be the major drivers of growth going forward I would like.

Praveen Kutty

You to take page Number, page number 21 page number 21 update on advances and there you can see that we have done IBPC of close to 1500 crores. So had we not done the IBPC you probably would have seen asset growth in excess of 25 26%.

Akshat Agrawal

Right sir, but I just wanted to just follow up on that that the co lending growth, I mean is it like you are slow down there?

Praveen Kutty

So on co lending, the co lending book will be 15% of the bank’s book that we are very clear on. What we’ve done in Q1 is clearly to focus on shorter term loans, fixed rate loans and the reason for that is very simple. With rate cuts coming through we wanted to focus more on short tenor loans and on fixed rate loans which basically meant that we could do the 15 year 20 year loans post the impact of the full rate cut of what we currently loan. So in April and May there has been more focus on gold loan and co lending and after the entire 100 basis points been passed down you would see that there is incremental uptick on the longer term loans that the bank gives.

Most of the corporate loans that you see disbursal that you see, compare it with the actual growth. The actual growth is only 200 crore even though disbursal is about 1200 crore. So we are focusing on the shorter term in the first quarter but that will change. That is a very tactical move at the time of multiple rate cuts coming through on what is essentially a floating rate book.

Akshat Agrawal

Thank you very much for answering all my questions. All the best. I will leave you in the queue.

Praveen Kutty

Thank you.

operator

Thank you. Next question is from the line of Rohan Mandora from Equida Securities. Please go ahead. Thanks for the opportunity.

Rohan Mandora

Just touching upon the asset quality piece. The slippages that we’ve taken this quarter on the segments that you alluded to. Is there any overdue book which is still pending to slip in second quarter and overall at a bank level how should one look at the slip for the rest of the year?

Praveen Kutty

So the way you should look at it is that the DA book which the bank has is a limited book and within that the small ticket size book, the 2 lakh to 6 lakhs loans given a secured lending is an extremely small loan. So if the same trend were to continue then the impact on the overall credit cost like I said in the previous discussion would be low on the unsecured book. Just want to repeat what in case you haven’t heard earlier, we have taken 100% of the provision of the unsecured book which basically the MFI book and the unsecured DA that we have as of March 31st.

So incremental aging provision on that will not come in what fresh flows happen in Q2 and Q3 there is a possibility of that book flowing through but because the volumes are not large, the impact of the credit cost will not be much. The DA book that we have is actually for experiment. It’s where we Try out different things. We do unsecured business lending, we do school finance, we do various things which you don’t do in there is a cost component of commercial vehicles. So there are multiple asset products that we do under the DA program.

It also tests the locations, it’s an understanding of the business and and understands the credit behavior of certain geographies where we’re not present. So that’s the logic of doing da. What a surprise for us is that for the first time you’re seeing the small ticket secured lending, not organic. Organic has absolutely no. I mean we don’t have the book so we don’t know. But in the small ticket DA lending we see the pains coming in which is very similar to the unsecured lending book and the MFI book.

Rohan Mandora

Sure. But just to understand the thought process. Here, see if we go back into history, last five, six years we have experimented with several products and we have seen asset quality slippage coming in from those segments which are disproportionately higher than the overall book that we see. And as you rightly alluded to, the core book has been performing fine. So why are we keeping on experimenting on these things when it keeps hurting us on a recurring basis?

Praveen Kutty

So we have a KCC book which is about 3, 4% of the entire book. The industry has got practically double digit npa. Ours is a very, very well run book. We have a school finance book which is close to about 700 crore book which is again an extremely well run book. So these are different products that we have, we have benefited from and I think that’s the right way to go. Instead of going it like the way we did with CV we went headlong into commercial vehicles and took up a beating on that. So the right way to do it is test, validate and scale or ditch based on a DA performance.

Because you’re doing small, you’re doing originations which are in different locations and then using that pick up the ones which are working very well and building on it.

Rohan Mandora

What were your total outstanding under DA book?

Praveen Kutty

I don’t think that’s something which is being what you see on page number 21 is what is being shown.

Rohan Mandora

Okay, sure. The second was on your movement on yield on advances. So the ratio has come off by. 30Bps q on q. But if you look at the interest on advances that’s up 3.3% despite loan growth being sort of flattish this quarter. So how do we reconcile these numbers?

Praveen Kutty

We’ll do one question because then I don’t want a Situation where I miss any of your questions. So on the first part, the flattish loan book, you just look at page number 21. There’s an IBPC of 1500 odd crores. Right. Okay. So that doesn’t make it so flat. Right.

Rohan Mandora

So, so the TBPC of the entire. Amount happened towards the end of the quarter.

Praveen Kutty

It happened during the quarter.

Rohan Mandora

During the quarter. Okay.

Praveen Kutty

Actually the majority of it happened during the quarter.

Rohan Mandora

Okay.

Praveen Kutty

So it is not flat. What is the second question?

Rohan Mandora

So the yield compression had happened of 30 bips q and q. And if you look at the interest income in absolute terms it has gone up by 3.3%. So the delta is almost 6% if we adjust on the yield and the interest earned. So how do we reconcile these two numbers?

Praveen Kutty

What you’re seeing is flat is not flat. Flat is two endpoints.

Rohan Mandora

Right.

Praveen Kutty

So you make, you make, you make money on the, on the assets that are there during the quarter.

Rohan Mandora

Got it. Got it. And on the repo transmission, how much of that has been passed on to the borrowers?

Praveen Kutty

Whatever is legally supposed to be transmitted has been fully transmitted.

Rohan Mandora

So we do it on a T plus one basis.

Praveen Kutty

We do it as per norm.

Rohan Mandora

So like some banks do it on T plus on someone 1/3, 1/3 every month and some on the end of the say quarter or something like that. So what is our transmission policy?

Praveen Kutty

So standard policy, there are four calendar quarters. And, and based on which we pass it on. Pass it on or, or hike it up depending upon how the rate movement is.

Rohan Mandora

Sure. Got it. And finally any guidance on the loan growth and NIMS for the full year?

Praveen Kutty

See for the last four quarters we’ve been growing by what you’re seeing and there is any reason why it should not be any less than that both on the deposit side and the loan side.

Rohan Mandora

Okay. Sure, sir. And anything on mems?

Praveen Kutty

We’re very happy with the way that we have managed the MEMS so far with a. You know, despite the yield going down by what you said, despite the repo rate cuts of three branches, there has been a 9 dip drop. Will that continue? We are doing what it takes on the cost of fund and cost of deposit front to ensure that the minimum impact is minimized so that work is continuously on and it will continue happening whether there is a future rate cut or not. And we still are growing the liability book by 20% and we still are keeping the top 20 well below 7%.

Rohan Mandora

Sure. Thanks a lot.

Praveen Kutty

Right.

operator

Thank you. Next question is from the line of Sanjay from Baston Research. Please go ahead.

Sanjay Ladha

Yeah. Hi sir, thank you so much. Sir, my question would be on book side. So you know, over the last 10 quarters sequentially we have grown our loan book by approximately 5% Q on Q and you have explained that because of IBDC the growth was not there. So could you explain more onto that what has been changed and you know how things. So does it has a BT out in our case or, or a prepayment sort of things or I’m thinking on the wrong lines and can you explain me on that side?

Praveen Kutty

Essentially IBPC is used to ensure that the NIM impact is managed better. We have a basically PSL as well as non psl. IBPC is there, we get a very decent rate on it and which helps the NIM in the IBPC tenor. So that’s the reason why we did it. The important thing was to at that point in time was to ensure use all the means to reduce our cost of deposit and cost of borrowing. So one of the items that is on the agenda was ibpc. It will come back at the end of the tenure.

So it makes the perfect sense for us and the price is right. So we are comfortable with it.

Sanjay Ladha

Since we are saying that over the years we will grow at 20% that is excluding IBBC.

Praveen Kutty

No, we will grow. When we say we will grow, we’ll grow. There’s no excluding, including we’ll grow.

Sanjay Ladha

Okay, okay. And sir, the my another question would be on. No, as you already said that the credit cost would be in the range of 40, 45 below 45 basis point or 40 basis point over the year below 40 basis point over the year. And this impact has been. So the Q1 has been, you have largely included all the, you know, MFI and insecure loan books. So over the years over the quarter there will be no further incremental, you know, cost, which incremental is moving on to that group. Right.

Praveen Kutty

Going forward, theoretically you will have. Because there could be fresh flows happening and to that fresh flow you’ll have to take the incremental provisions required. What, what I want, what I want to clarify is in quarter one we have taken full provision for all unsecured and all MFI book. All unsecured DA and all MFI book as of March 31, 2025. So there are incremental flows going to happen in quarter through quarter 2 or quarter 3 or quarter 4. We’ll take incremental provision for that.

Sanjay Ladha

Largely sir, when we, you know, in the previous convoy we have said that since we are a secured private lender and largely Our book, the recovery over the quarters has been quite strong. Once you know things have been taken into the slippages part of this that you are seeing for after two quarters or beyond that or you know this book has been quite a lumpy on that side and could not comment right now. What what’s the sense we should take on.

Praveen Kutty

The sense I wanted to look at is that we’re not changing our, you know our guidance on overall credit cost. What we usually say is between 45, 55%. I’m saying that going forward we should be below 45% on credit cost for the next oncoming quarters.

Sanjay Ladha

Right sir, answer on the fee income. We are already saying that as we are moving up it would be upwards of 1% of the asset side. Right.

Praveen Kutty

Average, is it?

Sanjay Ladha

Yeah.

Praveen Kutty

Yes. Yes.

Sanjay Ladha

Okay sir, thank you. I’ll come. Come back in the queue. Thank you.

Praveen Kutty

Anytime.

operator

Thank you. Next question is from the line of Chetan Ginjodia from Mahindra Manulife Mutual fund. Please go ahead.

Praveen Kutty

Hi Chetan.

Chetan Gindodia

Yeah, just wanted to understand what is the total quantum of this DA book and also the total unsecured exposure we have. And the unsecured exposure is just the MFI part or is there any other unsecured MSI portion?

Praveen Kutty

So the entire asset the bank has taken is given in page number 21. Okay. So you can have a look at it. That gives you a good understanding of what are the various products that we have. And by looking at the name itself we can figure out which one is secured and which one is unsecured. If you want me to be specific. MFI we have a 625 crore book which is lending to MFI institutions. We have a 500 crore book, slightly less maybe 499 crore book which is lending through DC. These are to JLG customers being given through the business correspondence that the bank has.

Then we have a personal loan book on retail banking of 271 crores. Right. And there’s a mixture of that in the others which is the miscellaneous will have about some, you know, all others are plugged into that. Some very small portion will come there Broadly this is where this is a book which is unsecured in nature. And a proportion of this whatever was NPA as of March 31, we thought it was prudent to take it choice not to take it also. But we said look, it makes sense to it’s more prudent to take it. And if recoveries come in, workers continue to happen.

If recoveries come in, great. It helps Going forward.

Chetan Gindodia

Okay. And the fresh slippages that have come this quarter, can you help us quantify which segment, what quantum of slippages we have?

Praveen Kutty

I’ll give you a kind of broad brush understanding. Mainly it has come from MFI which is understandable. Unsecured DA which we had kind of geared up for. What was a surprise for us is that within the secured, what you see in the mortgages book there is a secured BA book of 2 to 6 lakh and 6 to 10 lakh also. These are areas where we don’t which organic lending doesn’t happen where we are seeing pains. So these are originated by somebody by certain nbse stroke hses where we have done a DA with them. And we are finding that there is a bit of surprise that there is deterioration and there’s a cherry picked pool.

Mind you, your hand picked cherry picked customers which are in the DA book where the performance is deteriorated in the last quarter.

Chetan Gindodia

And is there an incremental risk of this, this particular section to further escalate and give us more slippages in the coming quarters?

Praveen Kutty

It may. But the fact is like I mentioned in the call earlier, I don’t expect the credit cost to be at the higher end of our guidance also.

Chetan Gindodia

Okay, got it. And just lastly, any plans on capital raising? Because given our aspirations for growth rate, we will be consuming tier one pretty fast. So any changes that have happened around that trend, that will be Chetan, this.

Praveen Kutty

May sound flippant but it’s a fact. Okay, it may sound flippant to you but it’s an absolute fact. In the last one year we have grown 21% assets and our tier one has increased by 20bps.

Chetan Gindodia

Right?

Praveen Kutty

Are you with me? So we are super stingy when it comes to cost and when it comes to capital. But having said that, our ambition, our hunger, our growth ambition is far higher. At some point in time we will need to get capital. What we are hoping for is one is take capital when it’s available. The other is to ensure that keep doing what we’ve been doing for the last three four quarters which is consistent performance top line as well as bottom line. Keep doing it. Keep doing it. In quarter one, quarter two, quarter three.

At some point in time the price would reflect the actual value and that probably is the time when we will be going to the market. Got it?

Chetan Gindodia

Okay. Thank you. Thank you.

Praveen Kutty

Thank you very much.

operator

Thank you. Next question is from the line of Suraj Das from Sundaram Mutual Fund. Please go ahead.

Suraj Das

I’m good, sir. How Are you sir?

Praveen Kutty

I am. Very good.

Suraj Das

A couple of questions. I have actually quite a few questions.

Praveen Kutty

So first we have all the time you can, you can go over all the questions, right?

Suraj Das

No, I think beyond what you mentioned in terms of this MFI and TA transaction I think there is increase in the gold slippages as well. So anything to look into that or it is just probably one off or something like that.

Praveen Kutty

I wouldn’t look at it if I were you. It is. It is hardly anything. Gold. You’re talking about gold, right?

Suraj Das

Gold Gold.

Praveen Kutty

No, no, no, not at all. It is 35 crore of NPA on a. On a pretty large book. 21 page number. 21 gold book is how much it’s about almost. Yeah, it’s a pretty large book. So hardly anything, right?

Suraj Das

No, but I. If I look at your slippages. Slide, slide 28. So your overall slippages has increased by. 1. Overall slippage is 4.6 and 3.1 is the non gold shared. So slippage ratio is high in gold. But there it’s a question of dealer because we are dealing with customers who are 2 lakh kind of average balance and most of it are OD customers. So you have that number 12 circular where if the customer doesn’t pay there’s a manual payment over the previous 90 days is less than the interest credit just debited during the previous 90 days then will be deemed an NPA. So customers, the slippage is there but it doesn’t result in loss rates.

Suraj Das

Superb sir. Understood. And sir, when you give this number of 3.1, is this only including the retail gold or including the EIB gold as well?

Praveen Kutty

Is it basically non gold means non gold.

Suraj Das

Okay, okay, understood. In the second question is that on the DA part, DA and IBBC part. So this IBPC that you have done, would it be fair to assume that it will be mostly in mortgage because your mortgage growth this quarter is quite everything.

Praveen Kutty

Mortgage growth is not weak. I mean it’s weak compared to Q4. Yes, but otherwise it’s not. It is. Okay. It’s not something we’ll write home about but it’s a decent, decent thing. So the IDPC mostly consists of secured assets. And our last. See whichever way you look at it, 54% of the book is mortgage. So there will be a large component of mortgage in the IDPC also.

Suraj Das

Right? The reason for asking this question is, I mean if I look at your mortgage with quarter after quarter for last I think several quarters it has been 4 to 5 or 6% range this quarter. It has been only flat or hardly 1% QQ growth. So is anything changing in your view, I mean on the mortgage book side going ahead? Yeah. I think given that you are also seeing some stress on this in a small ticket kind of in a mortgage segment that you were mentioning.

Praveen Kutty

Okay. On the small ticket it is not impacting us at all in the organic side because that’s not a segment that we are into. Okay. We are not present there at all. So it doesn’t impact us. But in mortgage in April and May we focus more on other assets which are short term in nature, which are fixed rate in nature primarily to ensure that look in a demand and supply equation, the customer is willing to give a rate and then within a period of, let’s say a month or even less, there is a reduction which is going to happen and then you have to hold it for a long period of time.

So we upfronted most of April and May with short term and short term loans which comes up a renewal quickly or fixed rate loans, mortgages pushed to the last month where the impact of future rate cuts, at least that which we consciously know is lesser. You got that Suraj?

Suraj Das

Right? Right.

Praveen Kutty

That is, that is one point. And secondly Q1 usually is there’s lower dispersal than Q4. Q4 is A. You get a much, much better thing. And that is also reflecting in the processing fees.

Suraj Das

And the last question, I mean in terms of this small ticket mortgage that you were mentioning, 5 lakh or less, that segment would be primarily sitting in an agree and inclusive banking book.

Praveen Kutty

Right.

Suraj Das

Not in the retail.

Praveen Kutty

Right. Actually it is a part of a DA book. So it is neither retail nor agree. So it’s a bought out book. So I actually don’t know the answer where we put it. But it is actually it is not an organic book. Right. It’s not a self grown book. So we take it and the entire thing probably is sitting in. Let me ask my finance people, is in retail. Yeah, it is put in retail. Sorry.

Suraj Das

Okay, sure.

Praveen Kutty

But. But that is immaterial to the rest of the book.

Suraj Das

Right, so understood sir. And sir, last question. In terms of this mortgage, that journey that we were on, in terms of that lap to home loan, home loan to lap that journey still on or you’ll be saying that we are there there in terms of incremental disbursement and outstanding book as well.

Praveen Kutty

Why would you think that the 3 rate repo rate cuts is resulting only in a 9 bits reduction? So a lot of it has got to do with caution, deposit a Whole lot of it has got to do with the kind of assets that we have put in. Also it has got to do with the product mix also. So there’s quite a lot of lap in there.

Suraj Das

Sure. So. So I mean the mix of lap in the outstanding book is still increasing.

Praveen Kutty

Yeah. Every. Every month, month after month.

Suraj Das

Okay, sure. Thank you, sir.

Praveen Kutty

Not at all. Thanks.

operator

Thank you. Next question is from the line of Jay Mundra from ICICI Securities. Please proceed.

Praveen Kutty

Hi Jay, how are you?

Jai Mundhra

Yeah, good. I’m good, sir. Thank you. Sir, a few questions first on this asset quality and DA book only. So fair to assume that Microfin MSI loan is given to institutions. So ideally that would not have caused you trouble, right? In terms of slippages so far? No. 625. Not at all. Not at all. Okay sir, then I. If I exclude that then 500 crores. 499, 271 954, 620. Roughly around 2500 crores. This quarter we have seen slippages rising from 366 to 580 crores. So roughly around 200 plus increase. I would believe that MFI slippages, you know, would have only increased marginally. Right. So a lot of this seems to be stemming from da unsecured book. Right?

Praveen Kutty

Sorry Jay, that’s not a right assumption. There has been a flow through in MFI also. So you had a MFI flow. You had actually even gold, the flow was higher. Even though the net impact is low. There has been higher slippage and higher recovery. But clearly across multiple lines. That’s why in my commentary also I said we’re not happy with this high slippage. 4.3 is not a good slippage ratio. Right. Our non goal 3.1 is not it. We want to get it down to a 2.5 kind of level.

Jai Mundhra

Right. Okay. So sir, what I am trying to understand is that. I mean see what we have seen is whenever any product segment starts to show some deterioration, you know, it does not end up in. It does not end in one quarter until. Unless there are some very drastic measures that are there or there was some event specific thing which deteriorated. Right. So for example, so what have you done let’s say in the last, in the last 90 days that will make you believe that incremental credit cost will only be 40 basis points. Because it looks like you know what has caused the trouble in this small ticket DA either you would have stopped them doing that is number one.

Or you have some very strong request from the DA partners that will insulate you or how is it that you know this is the first quarter or maybe the beginning of the deterioration in this segment. The outstanding book is also around 2500 crore. Then how do we get a confidence that incrementally it will only be 40 basis points?

Praveen Kutty

So let’s go by this one is that from a slippage perspective and secondly from a credit cost perspective. Okay. The confidence that which we have as management is based on the fact that the pool is small. Okay. The second is imagine a situation whereby we were not prudent and did not provide 100% on the MFI book and the unsecured DA book. We probably would have had a credit cost similar to what we had earlier. So we would have had a higher slippage and similar credit cost. So credit cost, I’m not considering it, just that we had accelerated the provision, taken it to a 59 odd bips level.

So even if you had done nothing just by not taking the incremental provision, our credit cost would have been the same. That’s why there is confidence that next quarter also will be will next few quarters also will be of a similar nature. So I do not sorry Jay, fully listen to me. All we have to do is not do any accelerated provision and the credit cost will remain at the kind of levels that we have. That’s why we have a confidence to commit in the public what we think the future credit cost will be. So are we doing anything special to do that? No, we’re not doing anything special to that.

Normally our total cost will be that in quarter anyway. We’ll have a discussion in the when the next quarter results come in. Remember this conversation, you see what the credit costs are.

Jai Mundhra

My point is unsecured NPA you have to provide 100 within four quarters, right? Within a year. So it does not matter if you accelerate, don’t accelerate within the year. You have to provide if there are slippages. Right now this is the first quarter where you have seen slippages rising in the unsecured DA book. You may choose not to provide fully. But within FY26 if there are slippages you will have to provide 100. Right? So I mean the point is if the slippages does not stop then your credit cost cannot remain at 40 basis point.

Praveen Kutty

Only assuming that there is unlimited quantum of unsecured and unsecured DA and mfi, it’s a very limited amount. So that is why even if the worst case scenario, if you were to estimate it will be below 45bps credit cost is What I say, had we had a, you know, 10% or 9% or 8% unsecured DA and MFI book, then what you say probably is true. But since the, since the universe of such loans are small, even in a worst case scenario, repeat or even worsen, your credit cost will still be lower than what it otherwise is.

Are you with me or should I explain again?

Jai Mundhra

Yeah. No, no. So that is right. That is fine that even if the situation remains like this, you are confident that you know, slippages, I mean credit cost will be.

Praveen Kutty

We are still.

Jai Mundhra

Okay, yeah, yeah, yeah, yeah. Correct. Do you have any reports? Because this would be originated through partnership. When you have such. Let us say it looks like a very high single digit kind of a slippage here. Do you have any reports or not meaningful?

Praveen Kutty

What? Okay. We have following things which we, which we do and we have actually done. One is we look at the collection efficiency of the originator. We look at whether the same customer is paying other loans and not the originator. These are things which are in our capability and added to is a question of speaking to the originator and telling them where the gaps are. But guess what? The collection focus on this will be very limited because it’s a small book. We don’t have that. We don’t. Neither do we have the ambition or the ability to over focus on that because it’s a small book.

Jai Mundhra

Okay, so I’ll take that there is no report. Right. It’s a business as usual thing that we would have entered into.

Praveen Kutty

We’ll soon see. Because we’re taking 100% provision. You’ll see write backs coming through.

Jai Mundhra

Right? No, sir, actually I am not worried about the write off because 175. Right. I mean we have been very minuscule. Right off.

Praveen Kutty

Whatever provision. We have taken the right back of the provision.

Jai Mundhra

Okay. And sir, on. On the fresh stress formation at the bank level. And maybe within these products the quantum is small, maybe 5, 6% of the overall bank. But are you seeing anything trend or. I mean you mentioned that the slippages even if they were to remain here or increase also it is under control. But I’m saying how should one look at the trajectory only is this like that the slippages like in MFI we have had last 3, 4/4 cycle. Right now banks are saying that the slippages from second quarter onwards should improve materially. What is your sense in this unsecured da? How quickly or shortly or longer can there be the cycle? If you have any comments there, my.

Praveen Kutty

Personal opinion is that the pain in microfinance will continue. It will take at least 2, 3/4. Just because overall at industry level from 6.8 it has come down to 6.2652 10 is a big number. So I don’t know. I have. I don’t have any very positive view on the microfinance industry at this point in time.

Jai Mundhra

Right? Sure. Okay sir. And changing track sir, on your cost of deposit. Really a good job. On the funding cost and this thing now you have cut the sad. I mean in the month of July also any ballpark number of rupees crore saving. Because we have cut in the multiple buckets and it is very difficult for us to you know calculate how much interest savings would that be? If you have any ballpark number that you know bases the current balance. This could be the.

Praveen Kutty

AJ I think you should. You should just compare the periodicity and the quantum of the rate cuts and see its impact on nim. And you can compare with our competition also when a rate cut of. Of this. This magnitude happens how much is the NIM impact for competition? How much is it for us? And then look at it for this quarter, look at, for next quarter. Look at for the quarter later you will see the. The. The efficacy of the management action coming there.

Jai Mundhra

No I. I am not doubting that. I’m saying sir, if you have any rupees crore number for cost of savings. I mean benefit because of the cost of saving cut across card rates.

Praveen Kutty

It is we calculated. But how does it matter when the NIM is a real indicator. Right?

Jai Mundhra

Right.

Praveen Kutty

I’m not even saying cost of fund or cost of deposit. The NIM is a true indicator of how that is behaving. So you take a see look. You pick a hit of 30bps on yield and advances. Right. And 16bps has been covered by. By term deposit. Sorry by deposit rate cut. And just think through this. The real impact of the term deposit rate cuts you will get over a 13, 14, 15 month period only. So what you see now is only the only one small part of the iceberg because you haven’t seen the out of the long term deposit.

You know that our sweet spot in a term deposit is some 15 months or 18 months or somewhere there. So this benefit is going to flow through to the bank all through to quarter two quarter three of next year. So. So it’s a space we are. We are closely monitoring and managing.

Jai Mundhra

So. So. So if I were to summarize this then. So then assuming there is no further rate action by rbi you are fairly Confident that means should not deteriorate too much, should be stable. Stable, stabilized here. Right. At least in the very near term. Is that the message? Assuming no rate cut, no rate action?

Praveen Kutty

No, that’s not the way to look at it, Jack. Because in the first quarter at different points in time we have had a rate cut. The full impact of that has not really been taken into account because some record happened on June, some happened in April and I’m giving a hypothetical date, dates and numbers. So it all didn’t happen on April 1st. It happened at various points in time. So for you to know, not for me to know, for you to know. It will take you one more quarter to really get to know what the full impact of the rate cut has been.

And then with every passing month or day we see incremental benefit of TD rate cuts coming through. Correct?

Jai Mundhra

No. So I was saying, sir, of course there will be yield impact and you have also cut the SA and you have managed the, let’s say the balance sheet IDPC fairly well. So the outcome should be that if there are no more rate action from rbi ideally the NIM should stabilize. Is that the correct thesis or not?

Praveen Kutty

I’m saying no, that’s not theoretically not correct. Because you haven’t seen the full impact of the rate cuts. Because some rate cut had a two and a half month impact, some had a one month impact. So you haven’t had a three full month impact because the governor has done a three tranche rate cut. Are you with me? Not for us and for everybody else. Also for the industry also it is had all the rate cuts happen on April 1st. What you say is true. The rate cuts happen over a period of time with three separate rate cuts.

So the full impact of the NIM, I don’t think is seen in the industry yet. But in quarter two, definitely in quarter three you will get to know the real impact of the rate cut and its impact on the yield and advances.

Jai Mundhra

Right? Understood, sir. Yeah, that is it. Thank you so much for answering all the questions.

Praveen Kutty

Always a pleasure.

operator

Thank you. Next question is from the line of Varun from Bandhan Life. Please go ahead.

Praveen Kutty

Hey Varun, how are you doing? Doing fine, thank you.

Unidentified Participant

Thanks for the opportunity. Just which are the areas in which employee count is falling and how should we look at it?

Praveen Kutty

The fallen employees primarily on the front line. And the way you should look at this, that I consider them a wrong hire. We shouldn’t have hired them in the first place. So effectively these are non producers which we take time in understanding the 45 minute interview or a one hour interview doesn’t allow us to see that. So we run with them for three to four, for three to six months and then after various interventions we figure out that that doesn’t work. So what we have done is we have cut down hard on non producers and have ensured that there is a revised hiring process that’s been put into place which also includes AI based on demographic details so we have enough goods and bads.

One good thing about this exercise is we know the profile of the good performer and also equally importantly the profile of the not so very good performer based on which we have been able to get an employee score which we use for interviews. And now it has resulted in far more delicate cherry picked employee hiring and greater success in terms of hiring them for frontline. So that’s the way you should be looking at it. The main cuts have all come in the frontline sales but we should be seeing an increase happening. We still have growth ambitions and we can’t forever keep cutting and expect to grow.

There will be, we will increase it. I don’t see us being in the 10,800 kind of levels for going forward. But I remember you were on the call in September 2024 when I said we are at 10,900, sorry, 11,910 people. I don’t see us crossing this line either this year or next year. Hold on to that. So maybe about 600, 700 or more people we can expect to see being hired in the company. They will be across assets and liabilities. Some of them will be for the new branches that we are opening. But the process of selection has improved significantly and machine learning has certainly helped.

Unidentified Participant

Got it. And secondly, how is our thought process evolving around branch addition? Because last couple of years if I see bulk of the growth is coming from existing branch network. So at some point do we have to go back to branch expansion phase.

Praveen Kutty

To maintain the growth rate?

Unidentified Participant

I mean how should we look at it now?

Praveen Kutty

At least for some time addition of more people to the existing branches will give us the growth that we want. So while we are saying we will be people centric, we will need to hire people. It makes so much of cost sense and franchise sense to have more feet on street working on existing branches. Anyway, most of the deposits come from the 1012 top cities you need and most of it is digital. So why you need new branches if you want to go to newer cities. But having said that, we expect another 25 odd branches to come in this year.

Ideal number would have been 35 so that we can close here at 500 branches. But I would tend to think that we’d be closing around somewhere around 485 to 490 branches this year. Is that critical for growth? Perhaps not. I still believe that more people in existing branches will help us grow. Unless you want to go into a completely new state. If you want to go into an Assam or a. Or a Jammu for instance and put up new branches there probably. But otherwise we are fairly well distributed. And think about this. Field force is what we really require because with ULI coming in and DC bank is a part of Unified Lending Interface right? There are.

There is land record systems are digitized in seven seven states so far. So there is less and less need for paper and the bank is going more and more towards paperless. You still will require an office space for employees to be and reach out. So you it may make sense to have a third floor, fourth floor space where you can have retail asset folks sitting in there and soliciting customers for loans for deposits. Honestly you don’t require more branches for fee income, third party distribution income. We are well represented in the big cities. We don’t require for assets, mortgages, etc.

We do require but at the present moment in time it will be more people in existing branches that will more than happily satisfy upwards of 20% growth demand. Probably 5 to 10 branches on a yearly basis is 20 to 25. That would be a more realistic number. Last year we did about 20 branches if I remember right and we should continue around that. 465 would look like 485 to 490.

Unidentified Participant

And just what would you highlight as your top priorities from next two to three years perspective?

Praveen Kutty

And what are the major challenges that.

Unidentified Participant

You see going forward?

Praveen Kutty

For dcg the number one challenge is to change the mindset. We have been playing this game like an ndfc. It’s high time we stopped doing that. We’ve been doing home loans lap. We’ve been doing CASA TD somewhere not remembering that these are self employed customers who have surplus needs, deficit needs, risk protection needs and trade finance needs. We have kind of labeled them as HL Customer Lab customers. We’ve been running like a fillet, shut it, forget it business. It’s high time we change that. These are customers who have given their life’s biggest aspirational asset which is their self occupied home as a collateral to the bank.

But when he shuts down his shutters in the night and goes from his Kirana store, the surplus balance is not kept with us he may need some money at some point in time because of inventory reasons or because there is somebody chasing him. He takes a hand loan or takes it from an ndfc. Why wouldn’t he come to us? India is a very episodic country. Some earthquake happened, some fast happens, something happens, accident happens, risk protection not done through us. Everything that he has is either imported from China by his wholesaler or by himself. The trade finance transaction is not done through us.

I think high time that we changed the way we did business in our bank to becoming a full service provider, financial solution provider for the self employed customer which will cover his surplus needs. You can read it as casa. His deficit needs. You can read it as overdraft facility. His protection needs. You can call it tpd. His trade finance needs. Exactly. Trade finance. And these customers willy nilly will bank with us if you were to ask for it. The only problem is organization structurally and mindset wise we are still in the nature of thinking customer as a product and not as a full fledged customer who has normal leads like you and I have.

And once we do that we will be very different bank because we’re not concentrated in one state like many other banks, not a single state. We have more than 20% representation in terms of assets. So we are very well diversified. And if we just convert our mindset and that work is happening. And that is my single minded focus. The second is what to eliminate paper. I’m frankly allergic to paper. I believe paper is a cause for ops, errors, turnaround, time issues, hands offs cost. Paper is a sin. And I want to eradicate paper from our bank.

That’s my second priority in life. Apart from these two. I don’t have any other priorities.

Unidentified Participant

Sure. Thanks for answering the questions.

operator

Thank you. Next question is from the line of MB Mahesh from Kotak Securities. Please go ahead.

Praveen Kutty

Hi Mahesh.

M.B. Mahesh

Hi sir. How are you?

Praveen Kutty

Very good. How are you?

M.B. Mahesh

I’m doing Mr. So just so it’s kind of. I’m just kind of running you through some numbers time. If you’re going any going wrong after 300 and let’s say the incremental slippages that you have done this quarter. Is it fair to assume that maybe about 120 crores extra has come from the Gold loan portfolio? The way you’ve done it is that you have.

Praveen Kutty

You know it’s a very difficult question to answer Mahesh, on the right away because in Gold loan what happens is. I’ll give you a classic example. It slips in April. We do nothing. It slips in May, we do nothing. Some of it will recover and then it again slips in the April recovery, will slip again in May and then it goes back. So you have a moment happening where up and down moment of gold loan happens. If I were to look at it. Hang on. What the pages.

M.B. Mahesh

I’m just trying. Sorry, just before you answer that, I’m just going to go with your presentation numbers. 4.59 slippages for. For one queue and 3.1 excluding a gold loan. So when you work, work the numbers backward using the loan base. As with with gold loans and without gold loans the number which comes out is roughly about 120 crores of X as compared to the last quarter. Like for example last quarter your slippages was about 78 crores in gold loans. And this quarter it’s about 200 crores in gold loans. The delta in slippages of the 215 roughly about half has come from gold lumps.

Is this number.

Praveen Kutty

The number is 196.34.

M.B. Mahesh

Yeah.

Praveen Kutty

Okay.

M.B. Mahesh

Yeah. So I don’t have the second symbol. So let’s go with this number. So after 215 crores you said while this unsecured BA mortgages etc has contributed, the delta contribution of this is roughly about 100 crores. Is that a fair way to see this?

Praveen Kutty

Would that be fair? Yeah, one second. I’ll just recheck this. Cold right.

M.B. Mahesh

190. Yeah. So roughly about 95 to 100 crores incrementally has come from these DA assignments Etc.

Praveen Kutty

From the others.

M.B. Mahesh

From all others.

Praveen Kutty

All others. The specialized element for us is the unsecured. Sorry, the secured da which is all.

M.B. Mahesh

Part of this hundred crores.

Praveen Kutty

It’s part of it.

M.B. Mahesh

And this entire most of it you have provided this quarter.

Praveen Kutty

No, no, no, no, no, no, no.

M.B. Mahesh

Okay.

Praveen Kutty

This quarter slippage we have taken what is required. What we have done is we have all, all NPA stock as of March 31st which are currently NPA is 100 taken as long as they’re unsecured. Da. Or it is MFI.

M.B. Mahesh

Perfect. Let’s go with the next question then. See if gold loans is still highest with pages. Why is disbursements under gold loans also very strong this quarter? What is it that your your consumers are demanding gold loans and yet I understand the credit cost argument.

Praveen Kutty

So there is a. There is a 35 crore 8 crore increase in your gold loan NPA. Right? 27 crore becoming 35 crore.

M.B. Mahesh

No, no. I’m asking for. Why are you. When you have seen disbursements in gold loans being so strong for this quarter as well. And you see flippages also higher on the other side. I see consumer segment exceptionally weak today. That’s what I’m just trying to correlate what is happening.

Praveen Kutty

There is a slippage in that segment and the repayment happens at the threat of auction which is why the retailers are coming through. And your net NPA is the way currently it is with me. Or should I explain again?

M.B. Mahesh

No, it’s okay. I’m just trying to see is the consumer really in a very bad position. And that’s why you see this gold on demand going up. Just trying to correlate that part of it.

Praveen Kutty

You should look at the slippage and the recovery. Right. See on a portfolio which is pretty large, there is a 8 crore incremental NPA happening. The gold loans net net NP, the gross NPA for gold loans has moved from 27 crore to 35 crore in the quarter as a 8 crore increase. So the right answer to your question and there’s a conjecture because I haven’t thought about in that way is that there is high slippage, high recovery happening on gold. Whereas on unsecured DA or on MFI similar movement back is not happening. And a lot of the reason why we will have a problem in the slippages is because of the famous November 12 circular.

So is it an inability of that customer? Is it inherent weakness of the customer? I would rather say it is the discipline of the customer. Because most of our customers come from the big muthus and the manapurams and the ifs where they are looking at bullet loans which they repay supposedly in 9 to 12 months. So. So and then they come here where interest servicing has to happen quite regularly. It is not something that they are quite, quite used to. So it takes time.

M.B. Mahesh

Okay, thank you sir. This is very useful.

Praveen Kutty

Right.

operator

Thank you. Next question is from the line of Gaurav Kochan from mlp. Please go ahead.

Praveen Kutty

Hi Gaurav.

Gaurav Kochar

Yeah, hi. Hi sir. Good evening. So just a few questions. I think just taking cue from what Mahesh was speaking about. Going by this, the ex gold slippages at least we believe should start moderating from Q2 onwards. Bulk of it has come in this quarter. And is it fair to assume given that the size of the book is pretty small as you highlighted that the trajectory of slippages should start normalizing in the coming quarters?

Praveen Kutty

Yes, we believe so. I mean we believe two things. One, the slippage ratio by itself has to improve and the second is for the first time in many, many quarters we saw the recovery as a percentage of the fresh slippage going down to 70% and that’s not something which we quite like. So there are two areas where we are currently focused upon in quarter two from a portfolio quality perspective. One is to reign in the fresh slippage and the second is to improve our recovery to fresh lipid percentage also.

Gaurav Kochar

Okay, understood. So at least the normalized run rate of 350, 400 crore that we were seeing, we should revert back to that from, from next quarter onwards. Is that a fair understanding?

Praveen Kutty

I’m sorry, 350 you’re referring to us.

Gaurav Kochar

Got it, got it. Second question is with respect to the margin. So I understand that the rate transmission on your, on your customers, on your loan customers would have happened at different point in time in 1Q but so has the cost of deposits. So your deposit repricing also at least on Saab was also done in phases in the, so full benefit of that will also come in the second quarter. So the delta change, the question is that the delta change that we saw, and I mean you managed in this quarter pretty well. If I go by you know, nine basis point kind of margin moderation and going forward in 2Q we believe based on our calculation now correct me if I’m wrong, that the bulk of the benefit of your liability repricing, which is your SA repricing will come in the second quarter and that you know, if there are no further rate cuts in let’s say the next quarter, is it fair to assume that the delta change that we saw in this quarter on your margins second quarter we should be better than this?

Praveen Kutty

I’m not going to give you a yes or no answer, but I’m going to give you some numbers.

Gaurav Kochar

Sure.

Praveen Kutty

We have about 48,000 crore term deposit book.

Gaurav Kochar

Okay.

Praveen Kutty

And let’s say 14,000 odd crore of savings book current account. We leave out the discussion because there is no point in discussion and that’s been as flat as ever. So savings account we have done something and you’ve seen that the impact happens at the exact time we impact the change. The term deposit. Typically if you were to look at the bank’s sweet spot in terms of highest and that’s an indicator of where quite a lot of the deposit concentration could be is somewhere between 15, 18, 24 months. Okay, that changed over a period of time, but it’s somewhere in that region.

Now imagine over the next few months, some of those 15 months will get over and will come up for repricing every month, something will come up. So just, just humor me on this. Into the 48,000, for ease of calculation, let’s take 45,000. 45,000 divided by 15 months is 3000, right? 3000 will come up for renewal in this month, 3000 will come for renewal next month, 3000. Likewise for the next 15 months, 3000 will come up for anyone, theoretically speaking, each other. The repricing will be at the new rate as compared to what it was 15 months back.

The difference between the 15 month rate 15 months back and the rate currently, you can, you can either guess or you can go back to the records and find out. And that will be a good enough way for you to see how the impact will be, assuming there are no further rate cuts and no further management actions on the cost of deposit. So that’s why I said I don’t want to give yes or no, but this is a good way of figuring out. In fact, that’s what we also do to, to estimate and forecast.

Gaurav Kochar

Right? Right. So I’ll ask this, I’ll try to ask this differently. That of the 100 basis point rate cut that that has been, that RBA has done, is it fair to assume that more than half of it is passed? Sorry, the 75 basis point break that we’ve done in this quarter and is it fair to assume that more than half of it is done or less than half of it is done?

Praveen Kutty

I wouldn’t be able to comment, but just look, when you add the dates in which the announcement was made, that will give you some sort of indication as to, as to what it will be. There was a 25, there was another 25 and there was a 50 at different points in time. So obviously the full impact of that does not happen in Q1, which is obviously everyone knows, because June 6th is when the announcement happened. So the full impact, you will see that happening over a period of time.

Gaurav Kochar

All right. All right. Shifting to the divestments in this quarter, if I look at, on the mortgages, not just quarter on quarter, but I’m looking at YOY numbers, the YOY number was down in mortgages. So is it a conscious sort of a call that you know, because you’re, you’re trying to do more of LAP within mortgages and perhaps slowing down home loan within that. Is that a conscious strategy? And if that is the case, then by when do you expect the absolute number to kind of start seeing growth?

Praveen Kutty

Is it a conscious thought? Yes, it is a conscious thought, but not for the reason that you said so what we have done actually is that we have upfronted, we brought forward to quarter one short term loans and fixed rate loans. Okay. We tried to do more of that and I’m not saying we want to do less of mortgage but the whole idea was just look at it this way. In April you do a 15 year mortgage and then there is a known rate cut of 25bps happening and another 50bps happening in the Sheikh in the nearby future.

Even if it’s a semi fixed loan, two years later, 75bps will get reduced. If the same loan in the same demand and supply price is a product of economics of demand and supply, the customer is willing to pay that money. You would. We thought that after the rate cuts have been passed fully or after the big rate cuts have been passed fully, if you have to take on board with customer then those customers don’t have an impact of this, of the rate cut. So what the customer is willing to pay is what the customer continues to pay.

Gaurav Kochar

Are you with me?

Praveen Kutty

So effectively in a very crude way, most of the co lending and gold were done in April and May and towards June more of the mortgages were done. So there is less disbursal of mortgages in Q1 of this year as compared to the Q1 of the previous year.

Gaurav Kochar

Got it. So from here on it’s fair to assume that this will pick up from second quarter onwards.

Praveen Kutty

Yeah. And so to your other question of LAP versus home loans. Steadily we have been improving or improving is the wrong word. We have been doing more of LAP loans to from a sourcing perspective but you know, it’s a large universe. Right. The percentage of a month sourcing to the total book will take time for it to convert it into the total book. But for the last maybe even nine, ten months I think three, four quarters. Three quarters definitely.

Gaurav Kochar

Right, right, that’s good to know. And just last question from my side on the overall 1% ROI guidance that you’ve given apart from credit cost moderating to under 40bps as you guided, what are the other levers we see? I think opex you’ve controlled quite well. It’s down to 2.54 on assets this quarter. Is there further use left and if yes, apart from credit cost, any other line item where you think you need to work on to get to that 1% ROE and by when can you expect the 1% ROI?

Praveen Kutty

So I’ll tell you four parameters, two of which are arm’s length, which are within arm’s length. Sorry and one which is a bit of a guesstimate. Okay. So let me take you through that. We close NIM at 2.99% on average assets. So that’s why there’s difference.

Gaurav Kochar

Right.

Praveen Kutty

2.99%. I expect that to be 3.2. Okay. Fee. Fee would be. In our opinion there will be some. This one offs will go away at some point in time. So over the full year probably 1.1 is A. Is a right number to go with you. With me so far. So total revenue 4.3 is a number which we think is realistic. Right. I’ve taken a lesser fee as compared to quarter. Quarter one. Okay. Right now cost to average assets. I think 250 is a good number to get. In reality it will be probably even lesser than that.

But let’s take 250. Okay. So if you take 250 then your. You’re at 430 minus 251, 1 181.81 180 pay please reduce 45 bits. Okay. You’re at 135. 135 into.074 your thereabouts one. Okay.

Gaurav Kochar

Right. Right.

Praveen Kutty

Now just close the loop. The only unknown variable with regard to time is the nim.

Gaurav Kochar

Okay, thanks.

Praveen Kutty

The rest I have absolutely no doubt. I think they’re near there there there about some better. So three of the four parameters. One is very short of on the first parameter. As you can see we are working and we are working quite hard and we’re getting some results in terms of managing the limb.

Gaurav Kochar

Right.

Praveen Kutty

So I don’t want to make more forward looking statements but this is exactly where we want to take it to. If you were in the call last year also and we promised you that we’ll bring the cost to RV assets below 250. I think that we are seeing that on provision costs 45bps is a good number to go with on fee. There are few one timers I know but there may be even few one timers coming forward also. That’s still okay. But overall 1.1 I think is well within grasp. It’s actually we are ahead of the game right now.

But for the full year 1.1 is there. The question to us is how well can we control our cost of funds and manage the yield. Get the right kind of product mix to ensure that the NIM goes back by about 21 bips from 299 of today to a 320. Genuinely. Is it achievable? I think so.

Gaurav Kochar

Right. Okay. Thank you so much for answering all my questions and all the very best.

Praveen Kutty

Thank you very much.

operator

Thank you. Next question is from the line of Akshay Badlani from HDFC Securities. Please go ahead.

Akshay Badlani

Thank you for taking. Hi. Hi. Thank you for taking my question. So you know as you were indicating that we are moving towards your more short tenure and fixed book. So if you could just help with you know your eblr, MCLR and fixed rate mix. So you know how it has changed in the past few quarters.

Praveen Kutty

Okay, I can tell you that hasn’t changed much. Okay, that I can tell you. But we can’t reveal what fraction is what. See the short term, long term discussion was primarily a pre rate cut discussion. Now that all the rate cuts that we know of has happened already, life will go back to the normal stuff. We will still do long tenure loans. They will be in ideal world we will be doing a two year, perhaps a three year semi fixed loan. It will be linked to eblr and that’s the way life will continue because that’s the way life has already been there also we are very comfortable with it.

This whole doing the short term in April and May was a very practical kind of thing. So that when it comes to renewal we will be able to charge what the customer can pay. To be pure economics in terms of demand supply of loan versus demand of loan versus supply of loan. That’s why we focused on three month, six month kind of deposit kind of loans. If you were to look at the disbursal chart, it is there in one of the investor slides you see that corporate loans, 1200 crore of disbursal has happened. I mean you may wonder.

We are always very effusive in terms of corporate. We always said it will be about 10% of the asset base, etc. That’s what you always said, 10%. But the fact is 1,200 crores in one quarter. Look at the growth, it’s a 200 crore growth. Corporate book has increased only by 200 crores. So what are we doing? We’re doing a short tenor kind of thing because when it comes to repricing you still are able to command a decent pricing. But had it been a longer term alone then by law, by nature you have to pass on 100 basis points if you are on EDMR.

So it is a very short term tactical. I don’t see that that’s not the way we’ll grow the bank. Our normal 50%, 54% of the book will be mortgages, SME will be the way to go. And the only change I’m really, really looking at and driving is to be a complete banker to the customer. That’s our opportunity. And if, if, let’s say some law comes in that you can’t add a new customer. Absolutely. Okay. We should be able to meet our balance sheet growth numbers as well as the PNL number just by focusing within. There is so much of wealth within.

Akshay Badlani

Got it. And just my last question was around the deposits. So like a CASA has, you know, dropped to 23% now and you know, with the rates that we have cut, you know, that will probably, we’ll see the impact of that going forward. So how confident are we of still accruing that deposit volume that we need for our credit growth, which is 20% or so? How elastic do you think our deposits are with other variants?

Praveen Kutty

So it’s not easy. But I’m not looking at CASA per se, but we have a plan on bringing down the cost of deposit. Okay, let me give you a simple example. One time treasury gains, there’s a chance that it will not be there next year. Okay, let’s assume, let’s play a hypothetical game. Let’s assume it’s not there. Where will that come from? Where will the incremental bottom line come from? I don’t think it will be from cost income because this year is about cost income. Cost to average assets get to 250. That’s the stated area.

45 bits to 55 bits provision is a stated area. We are there and the only game in town is nim. And the biggest lever we have there is the cost of deposit. I think the bank has matured enough to attract and acquire liabilities without having to be the highest or one of the highest interest rate provider in the industry. We have reached that level of maturity is my belief. So I really think that not for this year, but for the coming years, 27, 28 and beyond, we would be clearly demonstrating that you don’t need premium pricing to grow 20% on our kind of balance sheet size.

That’s an availability that we are developing. You’ve seen a glimpse of it in the cost of deposit reduction in quarter. One swallow doesn’t make a summer, but we would probably. I’m also seeing it, I was closely watching it. If we continue to do, to grow the same way to bring down the COD in a calibrated manner or the next few quarters, then the belief will come well within the system as well as outside the system. So primarily cost of deposit reduction is A very important factor for us. We’re driving it. CASA is not what CASA used to be.

CASA is not a really good indicator of low cost funds. CASA probably is but SAA is not. Because at the higher end it’s so easy to get large ticket term deposit equivalent lying in SA and boosting up the CASA to a higher level. I think caution deposit is a truth casa not necessarily the truth.

Akshay Badlani

Got it. Thank you. Thanks so much for answering.

Praveen Kutty

Not at all.

operator

Thank you. Next question is from the line of Aditya from Securities Investments Management. Please go ahead.

Aditya Khandelwal

Yeah. Hi sir. Thanks for the opportunity. Yeah. So firstly while we have nationalized our employee base so. But the loan growth has been majorly coming from you know, co lending and assignment. So. So in the last one year if I look at your loan book more than 50% of the growth has been contributed by co lending and assignment. So just wanted to understand are we really seeing improved productivity? Because you don’t need many employees to grow your co lending and assignment book. And now as you grow your organic book would OPEX cost now mirror loan growth or they would be lower than advances growth.

Praveen Kutty

That’s honestly true. In fact I would like you to relook at that. On a small base co lending has increased year on year, you know about one and a half times that. I completely agree with you. But our organic growth is has been significantly high. What you can do is which page can he look at? 21 page number 21 is a good indicator for you. You can have a look at it and you can compare with what we gave in the corresponding quarter. You will see that there is a significant increase, much more than significant increase in organic book growth.

And that’s where the benefit is coming from. Co lending book is a good book to have but that doesn’t drive our campaign. Okay, leave that aside. Our co lending book at the end of the year will be 15% or less of the total asset book. So 85% will be non co lending, normal organic kind of book and co lending will be of 50 odd.

Aditya Khandelwal

Yeah. So. And now one of our steps you want to improve our NIMs and ROA was to increase the share of you know, working capital and OD loans. But now if I look at your SME book that has been stagnant for a year, year and a half we have talked about the advantages of you know OD product as the same cannot be offered by competitors mbscs. So ideally the scale scale up should have been quite fast in this segment. But that doesn’t seem to be happening for us. So if you could just help us understand what issues are we facing in scaling this SME book and when do you see it picking up?

Praveen Kutty

Okay, so it’s sort of vertical takeoff. So effectively I know we have been speaking about this. We have looked at, we’ve hired a person who is looking at the SME segment who is also going to look at a segment of 3 crore to 10 crore because a lot of customers in SME is graduating to a higher exposure level. And we saw that there is a gap where our corporate banking is too big for the customer to come into and our MSME book is not equipped enough to handle it. So because of the erosion happening, that’s a gap which we want to fill in.

And so we are, that area is going to see an action coming. We have a full fledged team, 6 city locations where 3 to 10 crore of SME will be fully secured. SME will be handled so that erosion because of exposure will go away. That’s number one. Number two is that we have changed the structure in the company to ensure that close to 100,000 plus mortgage customers are being given a OD facility. Out of the hundred thousand odd people. The eligible customers are being given an OD facility. So it may not come in the SME book at all because it’s a separate book but itself.

So it will come in mortgages itself. So there are different action plans happening. Am I happy with the speed of growth? I’m not very happy with it. That’s why in the previous, if you heard that when I spoke to a previous person when he asked me what are my three priorities I could tell them only two. One is to get this moving. It’s not easy because anybody you hire from the market or anybody who’s in the system are a product of the system which is a vertical suit which is based on. I am a lap, I am an hlrm.

No one looks at it as an RM for a self employed. So it’s taking time. I don’t see that giving us big results right away. But over a five year time frame that will be bigger than the mortgage book that we currently have. It’s a huge proposition. It will take its own time and this will be the. If you were to take a 10 year with the bank, this would be the game changer for the bank.

Aditya Khandelwal

Understood? Okay sir. And now sir, one question on construction finance. So we have been seeing strong growth in this book, you know, for the last few quarters. So if you could just elaborate what is attracting you to the segment and what kind of controls are we building here? Because I believe these will be bulky loans as against our focus on granular loans. So how are you trying to balance the risk and return in this segment?

Praveen Kutty

So we have built on this capability over a period of time. We’re very comfortable with the levels of mpa, the level of DCCO in this particular segment. The construction finance book that we have is primarily looking at smaller ticket size compared to our kind of loans. So can I ask you, are you.

Aditya Khandelwal

In Bombay or are you elsewhere in Bombay?

Praveen Kutty

Right. So the kind of concentration finance that we do is the, is the, is similar to a south Bombay home loan. Okay, genuinely, I’m not even trying to joke. So these are peak exposure about 1012 crore which is typically what a midtown Bombay single home loan will look like. We have an expertise in it. These are in the periphery. We enter at a stage where there is comfort one odd cases we have, we have NPAs, we work out of it. But, but there’s an expertise we built over a six seven year period. We’ve been through two credit cycles, we’ve been through pandemic with this CF book, comfortable with it.

There is expertise in sourcing and also in remedial management. Our recoveries of NPAs within the CF book has been decent. So I’m bullish about it. Would be happy to even to get the book to grow by let’s say 30 odd percent is something which we are, which we are reasonably comfortable with.

Aditya Khandelwal

Thank you sir. So just last few questions first on the fund infusion by the parent, what is the status? And secondly sir, TSLC income. So we had good amount of TSLC income coming two years back. So do you expect it to come going forward? So how is the market for pslc?

Praveen Kutty

The PSLC for small farmer, marginal farmer is good but we are not in surplus. So that is it’s more a pain area for us than a happy area. So on general PSA the demand is pretty low because most people have it. There’s not too much of money made on it. Even on agripsl it’s better than general psl. But on agripsl the rates are not something which can give you substantial fee income. But on small farmer, margin farmer definitely there’s an opportunity. Do you want to grow your microfinance book at this point in time for that opportunity? Perhaps not.

So if you were to ask long term, at least in the short term is it going to get some, are we going to get some PSSE income? Don’t think so. For the Rest of the year or even for the next year. Okay.

Aditya Khandelwal

And for fund infusion by the parent, what is the status?

Praveen Kutty

Okay. We had to submit. Okay, let me, let me tell you the full story. We had submitted a whole host of papers to Reserve bank of India. And at that time we had the untimely and unfortunate demise of the key promoter. The key individual behind the promoter company. The promoter company being Aga Khan Fund for Economic Development. And the key person behind it was the Aga Khan. He passed away last year. And then there was succession. The new Aga Khan has come in. So we had to redo the entire process. We completed that with the full set of activity.

Now the ball is in the Reserve Bank’s court. We’re expecting an approval to come in hopefully before our next conference call of September results. We should, we should not only have the approval but also have the money in hand. It’s a small number but it’s a good symbolic thing to happen. Because it will be the first time in close to 20 odd years that the promoter is infusing money. And secondly it probably will take the promoter contribution to above 15%. Both of which are symbolically a big thing.

Aditya Khandelwal

Thanks for answering your question sir.

Praveen Kutty

Not at all.

operator

Thank you. Ladies and gentlemen, due to time constraint we will take this as the last question for the day. I would now like to hand the conference over to Mr. Praveen Kutty for the closing comments.

Praveen Kutty

Thank you very much. Thank you for all those questions. Relevant. All as usual. Relevant, thought provoking. I hope I have been able to provide you with candidates answers on all the questions that you asked. If you still have any doubts on questions feel free to email or reach out to Meenakshi, Ajit, Ravi or me. Happy to answer if you want to kind of chew over this and come back. Happy to answer any questions that you may have provided they are not upsi with a caveat. So look forward to the next meeting in about three odd months time.

And if you meet up in any of the analyst meets you could come back with any of the questions that you probably have on our call. Thank you very much. Look forward to meeting you. Bye bye.

operator

Thank you sir. On behalf of DCB bank, that concludes this conference. Thank you all for joining us and you may now disconnect your lines.