DCB Bank Limited (NSE: DCBBANK) Q3 2026 Earnings Call dated Jan. 23, 2026
Corporate Participants:
Unidentified Speaker
Praveen Kutty — Managing Director & Chief Executive Officer
Analysts:
Unidentified Participant
Akshat Agarwal — Analyst
Aditya — Analyst
Jai Mundhra — Analyst
Presentation:
operator
Ladies and gentlemen, good day and welcome to the dcp bank Q3FY26 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 then zero on your touchstone phone. From management, we have with us today Mr. Praveen Katti, Managing Director and CEO Mr. Sridhar Shishadri, Whole Time Director Mr. Ravi Kumar, Chief Financial Officer Mr. Ajit Kumar Singh, Chief Investor Relations Officer. I now hand the conference over to Mr.
Praveen Kutti, Marda and CEO DCB Bank. Thank you. And over to you Mr. Kutti.
Praveen Kutty — Managing Director & Chief Executive Officer
Thank you. Good evening ladies and gentlemen. Welcome to D.C. bank’s quarter three earnings call. the outset I would like to run you through the headline numbers. The customer Advances have grown yoy by 18.46%. Customer deposits have grown yoy by 19.54%. And profit after tax has grown yoy by 22% despite a one time impact of 26.87 crores. We’ll come to that in a minute. Consistency, predictability and repeatability. I keep saying this every meeting, every interaction with all of you and as well as the management team. This continues to be a key cornerstone of our business strategy.
And you’ve been seeing the results of this over many quarters. Now. I’d like to give you some finer details and texture on both the top line and bottom line numbers. NIM continues its upward momentum clocking 3.27% for the quarter thanks to reduced cost of deposit which now stands at 6.86%. That’s a 10 basis point drop in the quarter. It’s pertinent to note that the net interest income as a percentage of total asset for Q3 this year is higher than the net interest income for Q3 of last year. And Q3 of last year, remember was prior to the rate cut cycle.
The fee growth continues to be encouraging and what’s more, the core fee income at 182 crores led by third party distribution, trade, finance and processing fees is looking robust. On the cost front we have taken an impact of 26.87 crores on account of the new labour code. Despite this, our cost to income is at 61.84. This is lower than Q3 of last year. And cost to average assets is the same as of Q3 of last year. I want to clarify that the quarterly incremental impact of the wage bill would be Marginal. Also, what is pertinent to note is that we have grown 18.5% in advances and 19.5% in deposits with less number of employees than we had in Q3 of last year we had 11,339 people.
Same time last year we have 10,981 people. Now. Our focus on organic sourcing vis a vis DSA source, business vendor renegotiation, impact of digitization and improved use of AI is helping us rein in the cost. The jaws are widening with income growing at 16% and expenses including the one time growing at 15%. This has resulted in the operating profit growth of 19% YoY on the portfolio quality. Our credit costs are benign at 0.37% much below the minimum stated goal of 0.45%. What is truly heartening for us is that our slippage ratio for the quarter at 3.08% is the lowest we had in 18 quarters.
Our GNP at 2.72 is the lowest we had again strangely in 18 quarters. And our net NPA at 1.1% is the lowest we had in the last 11 quarters. The net outcome is that we have posted our highest ever quarterly profit of 184.74 crores with an ROA of 0.91 and an ROE of 12.73%. Let me talk something hypothetical. It’s interesting to point out that without the one off regulatory expense impact our PAT would have been 205 crores. ROA would have been 1.01% and ROE 14.10%. As far as the future goes, we continue to remain confident about our guidance of 18 to 20% growth year on year.
And the 13.5% ROE in 2627 and 14.5% ROE for 2728. That remains unchanged now. I’d leave the floor open for questions or clarifications. Operator, thank you very much. If you can unmute everybody in the call please.
operator
Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the Touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Akshat Agrawal from Smiths Institutional Research. Please go ahead.
Akshat Agarwal — Analyst
Good evening, sir. Thanks for the opportunity. Hi sir. And Congress on a very good set of numbers. Apologies if I missed part of initial remarks as there was another result call. At the same time. So my first question is on fee. Income momentum which was very strong at 15% QoQ. So if you can provide some insights, what’s driving this? Is it all cores and do we. Think we can sustain this level of momentum? Mostly the core fee income has come from a very decent third party distribution fee income which we got. The asset growth has been good. So the processing fee by definition looks very good. Traditionally Q4 is a good quarter for both third party distribution and also for loan growth. So in the short term I see that coming through. What we are seeing on a go forward basis. I think a fee of 1% of the average assets is something which we should be getting through currently. Let me tell you, we are at 1.1% but on a go forward basis one seems very, very achievable in a consistent basis.
Very well sir, my next question is on margins. So how much of name expansion was related to tax reform? Was it two bips? And how should we think about the. Expansion from here in terms of residual deposit repricing, continued benefit from HL to. BL transition as well as hybrid fixed. Mortgage length moving to floating? And is incremental flow for BL to HL still 60 to 40 or has it improved further?
Praveen Kutty — Managing Director & Chief Executive Officer
Okay, let’s go one by one on this. BL continues to be a large share, even more than 60% of the incremental sourcing. And I think that’s a good call that we took. It is helping us both in terms of income, interest income as well as in terms of bounce rate as well as the NPAs. Number two, there are mixed activities happening on the margin front. The full impact of CRR is not boxed in yet.
That’s a positive for Q4. What is not so very positive is that the full impact of the 25 basis point repo cut has also not been boxed in. And you will see the full impact coming in in the coming quarters. You’ve seen the 10bps reduction in cost of deposit. You would also seen our borrowings come down dramatically. And I want to pay attention, I want you to pay attention to both these items. Because we have a long duration term deposit, our belief is that until Q2 there is clear visibility of reduction through repricing. So the challenge we have is if we continue to renew term deposits the way we do, then we’ll see the benefit of it coming in all the way to quarter two of next year, probably even quarter three.
So that’s one element, the second element is we had a borrowing, total borrowing of 8,400 odd crores now it is about 4,700. It is just repricing our ability to get lower cost of deposit by giving away borrowing which is more expensive is coming into play very quickly and that’s also one of the reasons why if you see the balance sheet is growing only 14% whereas clearly we are growing our key areas of customer deposits and loans and advances at a much much higher pace. So in short we see this movement of NIM, the upward movement of NIM should continue definitely till Q1 Q2 unless some repo rate action is done by RBI in the coming in the near future.
Akshat Agarwal — Analyst
Right sir. So on the follow up on that, the tax defense part was it 2bps. This quarter and the hybrid fixed mortgage like moving to floating, how do we see about that for all these customers?
Praveen Kutty — Managing Director & Chief Executive Officer
I mean it exactly follows that the pattern has been following for the last n number of, you know, right. Over the last two years we haven’t changed that. So in every, every month we see some bit of repricing happening on the, on the fixed to floating conversion. But that’s very marginal, very, very marginal which comes in right sir. And the tax refund this quarter, is. It 2bps for impact this quarter of the 4 bips? I’m sorry, are you talking about the taxation impact tax refund sir, there’s a Note in, there’s a 4 crore of tax interest on tax rather not a tax refund. Yeah, of course.
Akshat Agarwal — Analyst
Right sir. And my last question is sir, on asset quality, roughly like 73 million floating.
Praveen Kutty — Managing Director & Chief Executive Officer
Provisions were added this quarter. So is it all for the expected ECL implementation and what kind of recurring impact are we likely to see as a bank? We want to get to 1% or less NNPA as soon as possible. So we are doing all that it takes to ensure that net NPA comes down to 1% or below and we’re sure about the direction how soon we stay we’ll get to know soon enough. So if you see it’s a bounce rate coming down, slippage coming down, gross NPA coming down, net NPA coming down. So it’s all Gross NPA is a net outcome of all these activities that you’re doing.
So we’re very clear it’s not meant for ecl. It’s just that you see our recoveries and upgrades as a percentage of our fresh flow. It is 86%. That’s like we have never touched that before and we intend to not only touch to continue that and maybe even go better with the improved new vintage bounces and new sourcing portfolio quality. So it’s got nothing to do with Eclipse, right? Sir, thanks a lot for answering my.
Akshat Agarwal — Analyst
All questions and congrats again. Thank you very much.
operator
Thank you. The next question is from the line of Aditya from Securities Investment Management. Please go ahead.
Aditya — Analyst
Yeah. Hi sir, thanks for the opportunity and congratulations on. My first question is on nims. So for NIM improvement, you know has majorly I think come from higher CD ratio and balance sheet improvements which you mentioned which you have undertaken under borrowing side. Because if I look at your spreads they seem to have dropped Q oq. So yield on advances has fallen at a faster rate than the cost of funds this quarter. So going forward with 25ish rate cut impact going to be seen in Q4, when do you see, you know cost of funds falling at a, you know, faster rate than the yield or advances?
Praveen Kutty — Managing Director & Chief Executive Officer
So I want you to look at the COD cost of deposit on a base of almost 65,000 crores. On a 65,000 crore base you’re dropping 10 bips and you were to compare it with average assets where there is a drop to 10 point average average yield drop by about 10.98%. So Web, the momentum which we’ll get will be from continued cost deposit coming down. If you were to see the fall in cost of deposit is sharper than the fall in cost of funds which basically means that the impact of cost of borrowing is much lesser.
Aditya — Analyst
Yeah I understood that point sir. But if I look at your yield advances, so they have fallen by 13 bips this quarter as against a drop of 10 bips in the cost of deposits and the 25bps rate cut impact to be seen in Q4, do you see the yield on advances falling faster than the cost of deposits in Q4.
Praveen Kutty — Managing Director & Chief Executive Officer
As well the full impact of the 50bps rate cut which happened in the previous quarter is taken in Q3 the full impact. So what you’re seeing is a lagged impact for the 25 basis point repo rate cut which you saw which happened in Q3, the impact you will see happening in Q4 the full impact you will see happening in Q 4. So it’s a lagged impact which you’re seeing from a yield reduction perspective. Whereas the NIM growth is fully predicated on our term deposit and our savings account interest rate going southward. And we have clarity on we have done this playbook once, not once, twice the last two quarters we’ve seen this happening and we are confident that we’ll be able to grow as we grow 19.5% at a lower cost of deposits 6.86.
And third thing which is very important I want to tell you is on granularity our top 20 has gone down to 6.61. So it’s all the three. And many of you who have been in the investor day presentations that Ravi and I did, we said that it is not two out of the three or one out of the three. It is all the three together all the time. So we are very confident that our cost of deposit will come down, the growth rate will continue in the 18 to 20 range and in addition we will also be able to maintain the granularity.
Aditya — Analyst
Understood sir. And also if I look at your growth and deposits this quarter, a large part of growth has come from bulk deposits. So should one consider this as a one off or considering the rate reduction we have done on the deposit side, there has been some impact on garnering retail deposits.
Praveen Kutty — Managing Director & Chief Executive Officer
You would see that our ratio of retail to bulk remains the same at the portfolio level and there is no reason to believe that it will be any different. So I don’t see a big change in bulk deposit versus retail deposit. Having said that, the reduction of rates on both is on par. I mean the reduction in the rate of interest of both bulk deposits and retail deposit Q3 over Q2 is practically the same. So you’re getting the benefit from both retail and bulk deposit repricing.
Aditya — Analyst
Understood sir. And so just lastly on this advanced growth there is this others under the advances book which have grown strongly this quarter. So what is this book?
Praveen Kutty — Managing Director & Chief Executive Officer
It’s a 2,000 crore book. It is not, it’s not, it’s not a large book. It’s a 2000 crore book once again which is a mix of all, all things. Page number, sorry page number 21. So yeah, some loan against term deposit, those kind of things have the largest component here will be about a 600700 crore of loan against term deposit. So this is a mixed bag of whatever is not mentioned in the other products.
Aditya — Analyst
Got it. And so mortgages have been flattish now for the last three four quarters. So when do you see that returning to the normal level of growth rates which we expect from BCB?
Praveen Kutty — Managing Director & Chief Executive Officer
I think 12.4% is our YOY growth on mortgage. We have really curbed DSA sourcing. We are running a higher organic book and more importantly our HL growth have been curtailed and has been and there’s far more BL that we are doing. I would tend to think that mortgage will come back to a 18% plus growth similar to the bank growth in the next full year. And the reason for that is simple. We have, you know, people take time to get used to the new way of thinking and implementing that. We have done it consistently for the last nine months.
So we would tend to think for the. I mean I plan for the whole of next year mortgage growth will be higher, equivalent or higher to the bank’s asset growth.
Aditya — Analyst
Thanks for answering questions and all the best.
Praveen Kutty — Managing Director & Chief Executive Officer
Thank you very much.
operator
Thank you. The next question is from the line of MB Mahesh from Kotak Securities. Please go ahead.
Unidentified Participant
Just couple of questions.
Praveen Kutty — Managing Director & Chief Executive Officer
Yeah, go ahead.
Unidentified Participant
There is no response from the line.
Praveen Kutty — Managing Director & Chief Executive Officer
No, no, there is lot of response. I could hear Mahesh.
operator
No, sir, the person has left the queue. We’ll move to the next question which is from the line of Suraj Das from Sundaram Mutual Fund. Please go ahead.
Unidentified Participant
Hi sir. Congratulations on the good quarter. So just one very much. Yes sir. Just one question, sir. On the RWA it has jumped almost 8090 basis point. Q just wanted to check if this is a function of the loan mix or there are anything else. Our RWA is well below the 50% mark. So I don’t know. One second. Just hold on. I’m just kissing. Probably because of the moment.
Praveen Kutty — Managing Director & Chief Executive Officer
I think this is a scale issue because the graph, this moment of risk is 40,000. Yeah, One second. So I just checked this out. The RWA movement is 5% which is similar to the overall growth of the book. So it is grown in similar terms to the asset growth, the QQ asset growth. Sure, sir. Probably on a 7% asset growth we have had a RWA increase of 5%.
Unidentified Participant
Sure, sir.
operator
Thank you. The next question is from the line of Jayam Mundra from ICIC Securities. Please go ahead.
Jai Mundhra — Analyst
Yeah. Hi. Good evening sir. And thanks for the opportunity and congratulations on a steady quarter. I believe that if I remove this one off staff cost provision then the ROI would have been around one more than one. Around 1%. Right. 1.01.
Praveen Kutty — Managing Director & Chief Executive Officer
Right. So I mean what you had said in the strategy meeting that you know we are very much on that 1% mark. So except for this one off we would have been there. Right. And hopefully margins, asset quality, there’s no imminent pressure as such. Right. And as you said the third party income should be slightly better seasonality. Hopefully Nim should also be stable if not improving or maybe improving. So that assessment looks fair, right? It looks reasonably fair. But I Don’t want to comment on a quarter four as much as. Yeah, that over the next few quarters. That’s exactly the way we see it. And also secondly, in the strategy meet I spoke more about 13.5% and 14.5% ROE and not about ROA, but the same way 1.01 ROE also translates to 14.1% ROE in this current quarter. So they are related, honestly.
Jai Mundhra — Analyst
Sure. And secondly sir, if you have, I mean you have multiple savings rate, right? And depending on your customer profile and those rates have also changed given the competitive dynamics. Is there, I mean do you have the blended number of. Let’s say what is the blended savings rate cost for us and maybe how that has behaved versus last quarter or maybe last two, three quarters.
Praveen Kutty — Managing Director & Chief Executive Officer
So Jay, there is one way I can answer that without having to reveal more than I need to, which is kindly look at the cost of fund reduction. Q1 to Q2. Sorry, Q1 to Q2 7.18 became 7.01. Our cost of deposit moved from 712 to 696. That’s a 16 basis point reduction. You seeing that? Yes. Whereas in the current quarter there is a 10 basis point reduction. And you can imagine why. Because in Q2 we reduced the savings account rate and saving on rate is not like every time you make that cut, you can’t cut deeper than what you’re cutting currently you’re at 1.5% at the lowest end of the scale. So the difference honestly between the delta of 16bps and 10bps is the impact of savings account cut. So one way of looking at it for the future is that you’ll get the benefit from TD going forward. There may not be too much benefit coming from a SAR reduction unless there is more repo rate cut happening in the future.
You got me?
Jai Mundhra — Analyst
Yes, yes sir, I got that. Okay. And sir, on SME book, right, so we also have a strategy of moving towards slightly, maybe slightly bigger ticket size and capturing the OD as a tool to protect and retain and maybe acquire more SME customers. So where do I look that SME? Because the SME number that we give in the product mix table, is that the right number to assess that strategy? Because that number of 2249 is qoq.ioi. both parameter is somehow not impressive. So which is the number? Should I include this along with corporate or how is it we are in.
Praveen Kutty — Managing Director & Chief Executive Officer
An embryonic stage, right, where we just put in the people in various locations, we found the credit folks, we are setting up the team now. It is working in four locations. There is another six more locations where it has to come in. So you will see the impact of it happening in about I don’t know, 3 4/4 time. It’s a meaningful impact. I mean so right now it is about getting the right people, putting the right structure. So we got the NSM, we got the RSMs, the people in certain locations. And so it’s a build up.
This, this is a long game, very clearly a long game.
Jai Mundhra — Analyst
Right, Right. Sure. And sir, your mortgage, what is the proportion of HL&BL broadly of this 28000 crore loan book?
Praveen Kutty — Managing Director & Chief Executive Officer
See it used to be 50, 50. Now it is less than 50. 50. Like HL is less than 50. Number one. Number two, if you were to look at a investor presentation maybe about four quarters back or maybe six quarters back, that mortgage used to be 54%, now it has come down to 51%. Okay. So clearly there is an increased focus on the bl, on the lower ticket afford less than affordable housing segment, etc. There is a bit of a withdrawal and there is more focus and growth coming in the, in the bl. So while sourcing has really skewed in the favor of BL which is what the management action for the last two two and a half years was, the impact of it you’re seeing on the portfolio now it’s becoming big enough to being visible in the portfolio.
Jai Mundhra — Analyst
Right. And sir, on your capital raising, I mean any, any sort of a timeline or that, that, I mean you just had this 10 million dollar infusion but from a capital perspective, you have any timeline in mind?
Praveen Kutty — Managing Director & Chief Executive Officer
We have both. The timeline is a timeline based as well as event based. We, we are pretty much clear of how much we want to take and at what, what rate we want to take it. So, so right now there is no urgency for capital but for future growth we require it. And the belief is that if you are able to increase your book value by 5 rupees every quarter for the last n number of quarters and the future also we are reasonably confident about repeating our business in a similar fashion. I think there is, there will be an opportunity coming in.
So at some point in time I really do see us raising capital because our ambition and our growth rate will require capital earlier than later.
Jai Mundhra — Analyst
Sure sir, sure. And last question sir, have you done any assessment of the ECL requirement? Now a lot of banks are, because now it is five quarters away. Either they have been, you have secured book but still have you done any assessment that if you were to transition what kind of additional provisioning or one time provisioning the bank may need to make?
Praveen Kutty — Managing Director & Chief Executive Officer
We have, we’ve been doing it parallelly for Ravi. How long now? Almost four years. Yeah, three, four years we’ve been doing parallel. I don’t see a. I mean it doesn’t keep you awake in the night. Let me put it that way, Jay. It’s more or less in line and with the increasing and improving asset quality, things will only get better. But you will not be able to get a benefit. You will only it’s the higher of the two. So we are focused on getting our portfolio quality right. Like I told the gentleman earlier also that get the NNPA down to one or less and keep moving in the direction when all these things are aligned.
Slippage ratio is down, GNPA is down, NPA is down. So SMA also is down, bounce is down. Just keep getting that right and ECL will take care of itself. But honestly when you look at it, there is hardly anything to worry about.
Jai Mundhra — Analyst
All right, sir, thank you and all the very.
Praveen Kutty — Managing Director & Chief Executive Officer
Thank you. Thank you very much.
operator
Thank you. The next question is from the line of MB Mahesh from Kotak Securities. Please go ahead.
Unidentified Participant
Sorry I got dropped. But just one question. In the past in a slightly difficult deposit environment usually DCB has found it its cost of funds kind of going faster. We seem to head into one such situation. Again if you could just kind of tell us how are you seeing the next couple of quarters on the deposit front?
Praveen Kutty — Managing Director & Chief Executive Officer
I’ll give you a bit of a contextual answer on this, Mahesh. It is as a bank for the last, let’s say about 10, 15 years we’ve been the reason to buy has always been price. That’s changing. That has changed. So close to 3,000 odd employees in the branch banking system are now fighting a battle in the market where the reason for coming to us is not the pricing alone, is not the pricing in itself. So people are finding it a bit difficult. But a low cost liability franchise is absolutely essential for us in the medium to long term.
And I’m pretty much happy with the way the last three quarters have panned out because we got all the three things right. I know I’m repeating this but the cost of deposit, the growth and the granularity, getting it all right is not easy. Getting 3,000 people who always been selling based on we are one of the highest, that’s kind of moving away. And I have the September data. At another December data, the difference between our retail peak rate and the composite highest the peak rate of six biggest banks in India is now down to 60bps.
So we’re converging. So the people are learning, we’re getting there and we’re not losing time or growth while we are making this change. So pretty much confident about, about getting this momentum going. One last thing, I don’t know Mahesh, whether you saw the strategy presentation which we did for the investor day. We have a pretty good base of new customers who have come in for us primarily for low cost forex card purposes. We’re finding that cross selling the savings account and deposit to them is a big opportunity. Half a million customers we have on that base.
It’s not a traditional self employed customers. So we are getting the benefit of that also slowly, but we are getting it. Each incremental month is a better month in terms of higher savings account balance from these NIO customers who are primarily salaried and definitely affluent and high net worth.
Unidentified Participant
Perfect. Second question on the ground, is the demand for the SME kind of products as robust as what we are seeing in the numbers or is this a little bit unsustainable that I’m missing on the ram?
Praveen Kutty — Managing Director & Chief Executive Officer
I think for the customer segment that we are in, there clearly is a demand and I can see it from both sides, us losing our good portfolio customers to competition for a higher exposure or for a lower cost. So there clearly is demand there in the front line. If you see our leads to conversion, we are seeing that there is real competition happening. If you don’t, if you’re not able to disburse in time, customers have multiple offers and they’re going away and increased login is happening. For example, December logins are very, very similar to March login.
March is usually a special month. We are neck to neck on that as far as the logins are concerned. Conversion still is a bit more conservative, but definitely there’s a requirement from multiple regions, it’s not region specific. Across India I’m finding that there is a increased demand and when you speak to DSAs also you’re seeing the same thing happening in this segment. There is competition.
Unidentified Participant
The problem which we see is that. Is that demand a function of, sorry, the growth that one is seeing out there, is it because lenders are more than happy to lend or are borrowers generally wanting to see that credit coming through in their respective companies? That’s the only. That’s the direction of the question.
Praveen Kutty — Managing Director & Chief Executive Officer
Clearly I would think it’s a latter. It is that there is a requirement, there is a hunger.
Unidentified Participant
Perfect. Okay, thank you.
operator
Thank you. The next question is from the line of Rohita Arora, an individual investor. Please go ahead.
Unidentified Participant
Sir. My question has already already been answered. Thank you very much. Thank you. More questions you can ask.
operator
The next question is from the line of Kushwant Pawa from kpac. Please go ahead.
Unidentified Participant
Hi. Congratulations on good set of numbers. Am I audible?
Praveen Kutty — Managing Director & Chief Executive Officer
Thank you Khushwant, you are audible.
Unidentified Participant
I’ve got two questions. One is more immediate and one is more strategic. I’ll ask the immediate one first. I recall, you know, the beginning of the year presentations and we had given this guidance for this year. You mentioned that we should be achieving a ROE. And I’m talking about, you know, when we did March 25 results that this year we’ll be targeting or you know, the guidance was closer to 14% ROE. Now when I look at what we have achieved in nine months and I analyze it, I mean nine months. Based on nine months start, we are around 9.4% count.
And if I analyze it we are close to 12.5, 12.6% ROE. So where do you see, you know, closing this year? Particularly given the fact that, you know, a lot in Q4 is dependent on the fee income. Are we likely to hit our targets for this year or.
Praveen Kutty — Managing Director & Chief Executive Officer
So I want to clarify. The guidance given was 13.5% ROE for 2627 and 14.5% ROE for 2728. We haven’t necessarily given our guidance for this current year. So as far as the progress is concerned, you know, growth of 18 to 20% and you know, we tend to repeat ourselves. I mean if you see the last three quarters you would have seen it’s a reputational. Every quarter is similar to the previous quarter in a top line growth sense as well as in a bottom line. But for next year. Sorry Khushwan, just one more thing. In fact, we do not know that there’s going to be a wage bill impact.
We did not know that there was going to be a rebound. But still we still posted whatever the bottom line that we posted. In the same vein, we are very confident that the 13.5% ROE which we gave a guidance for in 2627, we are reasonably confident of achieving it. Similarly for 2728 as well.
Unidentified Participant
Sure. The reason I asked this was because March is heavy on fee income and you know, given the, you know, I mean other, you know, the usual banking business will play out the way it’s given by growth driven by improving asset quality and driven by retracing of term deposits. But you know you have you know I wanted to check on with you on the confidence you have on the fee income side given the competition that exists and let’s becoming increasingly more cutthroat. So any color on that?
Praveen Kutty — Managing Director & Chief Executive Officer
I really don’t comment on the next quarter but in general the fee looks kind of robust. There is no. And Nim, you heard the story. So every quarter we should very clear.
Unidentified Participant
Yeah.
Praveen Kutty — Managing Director & Chief Executive Officer
That benefit coming through and this exceptional expense of 26 crores. Yeah. Would look more like 1 crore incrementally for quarter. So that’s hardly anything. So.
Unidentified Participant
Understood. On the long term perspective we have seen some articles doing the writers around and you know that you know IID may be considering reducing you know the commissions that are payable on insurance products. So given that fees you know is an important part of our. How do you see in long term impacting us and do you have any thoughts on this that you would want to share from vision two to three years perspective? Because there have been a lot of articles on this and I think some regulatory movement also.
Praveen Kutty — Managing Director & Chief Executive Officer
So third party distribution is a big component in our fee structure. What we aim to what we are doing is that we are building. We are using this time to feverishly build the trade finance volume. Some other investor and analyst had asked this question about the 3 to 15 crore mid segment SME segment that we are entering into. The whole idea is that we have to build a third fourth string in our FIBO and I believe that TF trade finance is an important component. So we have to build it up. That’s an area of opportunity which we have because we do cater primarily to self employed customers who have a trade finance need.
And many people in this call would have heard it ad nauseam. But for a long long time we have been treating customers as products giving Philip, shut it, forget it kind of product when we should be getting into relationship with the self employed customers and meeting surplus deficit insurance and trade finance need for the customer. So that’s something which you started about six months back. The progress is painfully slow. But in this job you got to be extremely patient because nothing happens overnight in retail banking. And we are primarily a retail SME oriented bank. So over a period of time you will see the benefit of it happening.
In about two, two and a half years you will see the snowball turning into an avalanche or we hope.
Unidentified Participant
All right, thank you. Thank you so much and wish you all the very best.
Praveen Kutty — Managing Director & Chief Executive Officer
Thank you very much.
operator
Thank you. The next question is from the line of Ravi Purohit from securities Investment Management Please go ahead.
Unidentified Participant
Yeah, hi. Congratulations on a good set of numbers. Thank you, Ravi. And so most of my questions have been answered. Just one, you know, just wanted to kind of, you know, check. We’ve seen a lot of increase in commodity prices, generally speaking in the last couple of months. And typically what we’ve seen is whenever commodity prices see these kind of increases, you’ve seen working capital across the board go up. So have you kind of witnessed any on the ground increased demand on SME MSME side on credit growth owing to this? Typically you have credit growth either due to higher capex or due to working capital requirements. So if you could just share, what do you see on the ground on credit offtake? Because after a long time we’ve seen aggregate system level credit offtake to hitting about 14 odd percent lately 14.5.
So if you can just share something, what do you see on the ground?
Praveen Kutty — Managing Director & Chief Executive Officer
So for the SME, the self employed segment, we are seeing uptick in the, in, not in the CCOD but in installment loans. So that’s where we see the moment happening. In fact, quite contrary to what you’re saying, we are in a way struggling on the SME book. As you would have seen, it has been stuck at the 2,200 crore level for some time now. So we clearly don’t have a working capital problem in that sense of the word, but we do have a working capital problem in the sense that we don’t have enough of it.
But clearly on the installment lending there is demand happening. There is our business loan portfolio is the kind of login volumes that you’re seeing is indicative of a decent demand and the performance of those customers also are reasonably good. Post pandemic. This is perhaps the best few quarters I have seen in terms of new vintage bouncing.
Unidentified Participant
Okay. And just one thing, you know, over the last one year I think you’ve kind of mentioned at various occasions about our idea to you know, get higher yields or in a sense also higher employee productivity in that sense. Right. So on mortgages for example, our ticket sizes on an average, our idea was to increase the average ticket sizes. Second, was you working on this product for merchant OD’s where we had said that, you know, we were competing with the NBFCs and an OD is a very, very important product. So if you could share, I don’t know, it’s not generally gets covered in our presentation but if you could share on, you know, on both those counts as to what’s been the average ticket size increase that we’ve seen on the mortgage side and how’s the traction been on the merchant OD on the product?
Praveen Kutty — Managing Director & Chief Executive Officer
Let me tell the good story first. Clearly we’re seeing an uptick in the mortgage disbursement. It is marginal. If you talk it from a average ticket size perspective, let’s say approximately 27 lakh going to 32 lakhs. You may say it’s only 5 lakhs, but that 5 lakh actually is a 19% growth, which is what the bank is growing by 18.5%. 19% is what we are growing by. So we are clearly seeing that the increase in tickets coming through and that’s a tick box for us. The BL to HL has been at tick box. Clearly, that has come through very, very, very, very clearly through.
We haven’t been very successful in the OD part and we didn’t expect to be successful overnight also, because what we’re doing is we’re going back to a term loan customer and then getting into the relationship. And the relationship is not built over a phone call. So these are customers who’ve been with us for four, four and a half, five, six years. We haven’t had too much of interaction with them. We’re just going and starting the wooing process. Some amount of relationship is happening, so it’ll take time, but when it works, you will get the incremental benefit coming through for a pretty long time.
So on merchant od, on OD of all sorts, it’s still in the infancy kind of area. I haven’t seen real good progress happening yet, but effort is on and it’s only a matter of time. We should be able to get the benefit of the work that we’re doing. Once the relationship matures, you should be able to get the benefit through. And the benefit is not just od, it is that the relationship will translate to current accounts which are happening. It is translating a bit in trade finance and od, which you spoke about, and it’s happening very well in terms of insurance.
So by the time we get the story right, I would tend to think it will take another 12 to 18 months before it becomes large enough for it to make a difference to our lives. The effort is still on.
Unidentified Participant
Great, Thanks a lot and all the best.
Unidentified Participant
Thank you very much.
operator
Thank you. The next question is from the line of Nitin Agarwal from Motilal Oswal. Please go ahead.
Unidentified Participant
Hello. Yeah, hi, good evening. Thanks for the opportunity and congrats for another great quarter.
Unidentified Participant
Thank you very much. I quite like the another. Very nice to hear that it’s been a very consistent performance. So pretty happy about that. See three questions, Praveen. One is about the fee growth. I talked about it and the effort that the bank is taking. But the growth rate that we are seeing in terms of even the sequential growth, yoy growth all looks very strong. So how sustainable is this? And can one build a fee growth significantly higher than loan growth in the coming years? How do you look at that intention, Nitin?
Praveen Kutty — Managing Director & Chief Executive Officer
It’s a very important question because a lot of people ask me this question in the beginning I used to get totally confused with this question. Now I understand the question much better. So our fee growth is less linked to loans, it is more linked to deposits. So earlier people used to ask me, I used to get totally befuddled by the question as to what is the correlation because I don’t have experience of another bank. But in our bank the processing fee is a component. But look at where the other fees are coming from. You’re getting fee from third party distribution which is more liability linked.
Trade finance largely still liability linked. FX income is DCB remit, foreign remittance, etc. Liability linked. Again penalties and fees are processing fees like is one component. ATM fees again liabilities. So I’m not too sure for us we don’t even link it to the loan growth. Okay, so but this quarter the 15%. Sequential fee growth that we are reporting. So how should one look at this in the coming quarters? Because I believe both deposits and advances you are guiding to grow around 18, 19% run rate around that. Yes, we should see the core fee income continue at a similar rate. I mean we will see unless there is some regulatory action happening which one is not aware of. So unless that is happening, we should be having a fairly consistent growth coming through in terms of core fee income. Let me put it this way Nitin. While we are at 1.1% total income on average assets, 1% is something which at least from a template sense, 1% is what we look at.
Fee income we look at. Thanks Ravi.
Unidentified Speaker
Okay. Okay, got it. And the other question is on deposits. Like if I look at the casa. Well CASA I understand like SA has. Been going down for most banks but. Even on the car front the mix. Has been and like shrinking and car deposits over the years has been very range bound. So I understand that the size of. The bank and those limitations are there. But any initiatives that we are working. On or areas which can help us. To improve our car deposits. Yeah, so good that you asked this Nitin. I mean it’s an area of inefficiency or opportunity depending on the way you look at it. My belief is that the lack of car growth has an impact of course on the cost of deposit, but it also robs us an opportunity in a trade fee, income and our SME book. So it’s all interconnected. So we are aware of it. We have put up a very, very senior resource to drive the current account. And I really don’t believe in the big bank, small bank thing.
I mean it’s about who’s more hungry and who’s more process oriented, who’s more digital and who can get things done. So and anyway, we’re starting from a very low base. So getting current account moving is very, very critical for us. While the term deposit rebooking, related repricing will help us, it is important to add current account to our arsenal. It has been flatlining for too long. So it’s very, very high on my priority list and my team’s priority list. That we haven’t got an action going is another matter, but it is real high priority. It’s got multiple impact on the bank.
Unidentified Participant
Right, right. And lastly on the roa. Now that adjusted for this labor code.
Praveen Kutty — Managing Director & Chief Executive Officer
Impact, we have reached 1% ROA. So while I understand our guidance is more hinged around ROE, but can I take that 1% ROI is now kind. Of a baseline ROE for the coming quarters or do you see any risk to that? See, since the guidance of 13.5 is given, we would like to stick with the 13.5 guidance for the next year and 14.5 the year after. Let me try and answer your question in a slightly less straightforward manner. We said we’d like to repeat our quarters. That’s what we said when the Q2 results came out. At that time, I have absolutely no clue that there’s another repo rate cut happening. We never knew that there was going to be a 26, 27 crore impact happening because of a labor code. We still repeated ourselves at that time. Also people asked, now that you’re shown this, wouldn’t you be able to.
So there could be some headwinds of some sort. We don’t know which headwind. Some headwind will be coming in there. But consistency, we need to. I mean the whole predictability, consistency, they’re not just terms and words alone. Really want to live by it. Is there an opportunity? Perhaps there’s an opportunity, but is there some. You never know, right? It is a bit. Bit. It’s okay to be a bit conservative in terms of estimation. Because, because the promises that that or the guidance that you gave is sacrosanct. And unless something really, really dramatic happened, we don’t want to rainage on that.
We don’t want to go back on that. Got it. So I’ll go by 13.5 and 14.5 for, for the next year and the year after.
Unidentified Participant
Right, right. I got it. That’s very clear. Thanks Praveen.
Praveen Kutty — Managing Director & Chief Executive Officer
Thank you so much.
Unidentified Participant
I wish you all the best.
Praveen Kutty — Managing Director & Chief Executive Officer
Thank you very much.
operator
Thank you. Participants who wishes to ask a question may press star and 1. The next question is from the line of Varun bank from Bandhan Life. Please go ahead.
Unidentified Participant
Yeah, thanks for the opportunity and it is heartening to see hi. Heartening to see the continued steady performance. One question on sourcing. Could you outline the current share of DSA sourcing in the mortgages segment and how do you see that evolving over medium term? And in terms of investments, what investments are needed to build a scalable direct sourcing front end and the way we are looking at building it and is there execution risk in this? Can you share some thoughts?
Praveen Kutty — Managing Director & Chief Executive Officer
We had 18 to 20% plus mortgage book and we’re growing mortgage with 20% in the last year. This year we’re growing by 12.4% so far. So what is happening is while the bank is growing at somewhere between 18 to 20% on assets, we are changing the wheels of a moving train, so to speak. So we have already invested, reworked the strategy. There were three big movements which happened in mortgages. I’m using past tense because it’s already done. Now we are seeing the benefits in some sense coming through. The first change we made was the reorientation of BL and hl.
The second was to increase the ticket size. The third was was to move from not entirely change the skew of DSA originated loans to own originated loans. And most of you have connects to the dsa. We can check it out in the market. Also you’ll get to know that the sourcing, the contribution to DCV bank has come down with any national dsa. You can check it out. You’ll get to know that. So we have already done what it takes. It’s almost nine months now and we’re seeing the benefit of that coming through the lower cost there is what we’ve not seen.
What we’ve seen is a lower cost. What you’re not seeing is the longevity. So we have seen that the non DSA sourced accounts stay with you for far longer than DSA sourced accounts. In some cases you don’t even recover the cost of valuation and legal and account fulfillment by the time the customer forecloses and goes away. And with a zero foreclosure charges in many cases there is hardly any recovery possible. So from a long term perspective, this is the way to go. Do we reveal the DSA and organic. No, we don’t do that. And it’s not limited to mortgage alone.
Even in the other products where DSAs are involved, we’re trying to, while keeping the relationship going, we are trying to lessen the the skew towards the DSAs.
Unidentified Participant
Got it. And on the co lending, we’ve seen a very strong growth in co lending. Is it largely led by gold loans and are we expecting, expecting some regulatory hurdles in co lending model? What is the expectation now?
Praveen Kutty — Managing Director & Chief Executive Officer
So we were 16.22% of the book in co lending in Q2 we come down to 16 and I publicly said that our co lending book as of March 31st will be 15% or lesser. 15% or lesser of the total asset book, we’re comfortable with 15%. There are multiple originators we work with. Of course you’re aware that from January 1st onwards we have had this new CLM1 new rules of co lending coming into play. We see that this will continue from a growth perspective. Our co lending book will grow from 2627 onwards at the same rate as our total book.
So while we grew 108% last year, currently we are at about 60, 65% next year onwards. If the bank is growing by 18% we will grow by 18% on the co lending. If we grow by 20% we’ll be growing co lending also by 20%. So that’s the way we foresee this. And to the question whether largely gold loan. Yes, it’s largely gold loan multiple players but largely gold loan based.
Unidentified Participant
Got it, Got it. Yeah. Thank you.
operator
Thank you ladies and gentlemen. That will be a last question for today which is from the line of Dixit Doshi from Whitestone Financial Advisors. Please go ahead.
Unidentified Participant
Yeah, thanks for the opportunity in Congress for a good set of numbers. So you have been focusing on, you know, improving the efficiency of the people. We have. And if we see last this nine months we have opened only five branches. So going forward, where do you see, do you see that this kind of 18, 19% growth will require new branch or still there is a lot of scope for, you know, improving the efficiency?
Praveen Kutty — Managing Director & Chief Executive Officer
I think it’s both. We will, I don’t know whether we’ll ever stop improving the efficiency. That’s a Continuous thing. No way. I mean there’s no finish line there. So we will still, I mean for us, improving efficiency, going digital war on paper, these are not epithets or slogans. They are real thing. They are like we live and die by it. So it will continue. There’s no two ways about it. But having said that, if you see Q3 to. Sorry, Q2 to Q3, there has been a slight increase, increase in the number of people. While we still lesser than the number of people we had a year back or in March, a slight improvement has happened.
So we will increase it. There will be more investment in people coming in. We will be increasing our branches. Next year we should be touching the 500 branches mark. So that most likely will happen. But increasingly it is, it is not one or the other, it is both. A large proportion of our benefits will come from efficiency improvement from increased digitization. But that doesn’t mean that we will not increase the number of people. We are still people dependent in terms of our growth, specifically assets. So there will be more branches put in and more people put in.
The game changer could be if something like Unified Lending Interface happens where digitization of the land records happen across India and then you could see a different kind of game coming into play. So we are involved in it. Let’s see how that emerges. If ULI is anything like uli, we have a very interesting time ahead.
Unidentified Speaker
Okay. Yeah, that’s it. From my side, I think pre Covid we have doubled our branches and even before getting the benefit of that we were hit by the COVID I think now the real benefit is visible in the numbers. So congratulations for that and all the best for the future.
Praveen Kutty — Managing Director & Chief Executive Officer
Thank you, Dixit.
operator
Thank you ladies and gentlemen. As this was the last question for today, I now hand the conference over to management for closing comments.
Praveen Kutty — Managing Director & Chief Executive Officer
Thank you very much for your patience and hope to kind of interact with you at the end of March or after the March results are declared. In the meantime, let’s go and go back to the grind and ensure that we continue to be predictable and consistent and boring. Thank you very much.
operator
Thank you on behalf of DCP Bank. That concludes this conference. Thank you for joining us and you may now disconnect your lines.