DCB Bank Limited (NSE: DCBBANK) Q4 2025 Earnings Call dated Apr. 25, 2025
Corporate Participants:
Praveen Kutty — Managing Director and Chief Executive Officer
Unidentified Speaker
Analysts:
Akshat Agrawal — Analyst
Aditya Khandelwal — Analyst
Apurv Parikh — Analyst
Suraj Das — Analyst
Varun Bang — Analyst
M.B. Mahesh — Analyst
Jai Mundhra — Analyst
Prashant Kumar — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the DCB Bank Limited Q4 and FY ’25 Earnings Conference Call. Today, we have with us from management Mr. Praveen Kutty, Managing Director and CEO; Mr. Sridhar Seshadri, Whole-Time Director; Mr Ravi Kumar, Chief Financial Officer; and Mr. Ajit Kumar Singh, Chief Investor Relations Officer.
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 start and zero on your touchstone phone. Please note that this conference is being recorded.
I now hand the conference over to Mr. Praveen Kutty, Managing Director and CEO. Thank you, and over to you, sir.
Praveen Kutty — Managing Director and Chief Executive Officer
Thank you. Good evening, everybody. I’ll give you a very quick brief on the Q4 financial performance of DCB Bank.
In continuation of the trend of growth momentum, we have seen a balance sheet growth of 22% for the year. Deposit growth was a healthy 22% and the loans growth was 25%. This growth was achieved out with our savings account growth being 19% and our top-20 ratio declining over the quarter to 6.61%. But it’s not all about growth alone. From a NIM perspective, the NIM is stabilizing at 3.28% from 3.29 in the previous quarter. The bank had a total fee income of INR751 crores for the year and the core fee income for the quarter was never before high of INR161 crore coming in on a previous high in the previous quarter.
The efforts the bank has put into technology and productivity enhancement is started to show signs of our results or our cost to average assets for the quarter came in at 2.54% for the first time in four years, the jaws rate at the growth rate of in operating income over operating cost, we saw that the jaws were widening. The growth rate of the operating income was higher than the operating expense.
In an environment which is challenging, I’m happy to share with all of you that the provision cost is come lower for the year. We have seen that we come at a full-quarter provision cost of 0.33% on average assets. And we’ve seen that the slippage ratios in Q4 have come down to the lowest in the last five quarters. Our — the bank always has had a healthy recovery over fresh slippage. Q4 at 83% of the fresh slippage, you’ve seen that the recovery to slippage ratio is at 83% for Q4. Now we closed the year with a gross NPA under 3%, just under 3% at 2.99% and much lower than what we started the year with at 3.28%. There has been no write-offs during this particular quarter.
Net NPA comes at 1.12%, 1 basis-point higher than what we started the year with. Despite increment weather with regard to unsecured lending, which we don’t do too much and microfinance loans where we do in as much as we need to do agri PSL and small pharma, marginal pharma PSL categorization. The PCR is healthy at 74.48%.
All-in all, we are reasonably happy with the growth momentum, the improvement in portfolio quality and also the path that we have set-in terms of cost and operating leverage, it sets a platform for — for the next few quarters to come.
That’s my opening remark. Happy to hear questions from you. Happy to hear thoughts from you. So, operator, if you can open all the lines and in sequence, if you can have the queries and questions, be happy to take that.
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 and one on the touchstone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use answers 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 SMIFS Institutional Research. Please go-ahead.
Akshat Agrawal
Good evening, sir. Thank you for the opportunity and congrats on a good set of numbers.
Praveen Kutty
Akshat, good to hear from you.
Akshat Agrawal
Sir, my first question is on NIMs. It’s great that you have been able to achieve a stable NIM project with the funded decline. Can you help us understand how are we thinking about the margins from 4Q exit time of 3.29% to a possible part towards business model of 3.5% to 3.65% next two years? And is the strategy of moving from retail loans to business loans still in-place, which could offset the rate cuts impact at least to some extent? And what’s just a driver of yield on advances expansion this quarter. So that was my first question. So I will ask a few more after your point. Thank you.
Praveen Kutty
So, on the NIM, what I want to tell you is that while there is NIM compression and to some degree of NIM stabilization, which is not exactly where we want to be. But to get to where we want to get to, I don’t think we will be moving away from our strategy of secured assets of granular deposits and granular loans. So that side. So within that particular framework, there’s been a — there has been some work which has already happened on immunizing the impact of a rate cut through reduction of savings account rates and so to some degree that we have kind of absorbed the hit on account of repo rate cuts. There is work happening on reducing the cost of deposits. The bulk rates have come down quite substantially since the — since March 31st.
On retail term deposit rate also. There is a — there is a reduction, not very-high, but there’s definitely a reduction which is being affected. So on the cost of funds, there is there is some bit of action that has happened and you — and I’ll tell you, the impact of that will happen over a period of time. So that’s what’s happening on the cost of funds mode. On the yield, we are — we are tweaking — not we are tweaking. We have been consistently tweaking our fresh sourcing within the framework that we have towards high-yielding product. We’re pretty much happy with the lap to home loan ratio in mortgage now as compared to what we were a year back and also as to where we were about a quarter back. So there is a — there is a momentum shift that is happening.
I would tend to think that going-forward, how we are going to address this is that the percentage growth of co-lending-based products where the yield is slightly subdued will be — will be actually on par with the balance sheet, whereas we could — we could have the organic book growth contributing significantly more than what has been contributing till this time. So there is a product mix in terms of organic versus inorganic, so to speak. And also within organic higher yield products is where we are focusing upon that there is a journey which we’ve taken about at least five, four, five quarters back that is continuing and that momentum is there.
Lastly, just to repeat, are we going to get into unsecured lending or higher yield products outside the framework of what we have? Very, very unlikely nicely. Does it answer your question, Akshat? Hello?
Operator
Mr. Akshat? We are unable to hear you. Hello?
Praveen Kutty
Can we go to next caller then?
Operator
Yeah. As there is no response, we’ll move to the next question, which is from the line of Aditya from Securities Investment Management. Please go-ahead.
Aditya Khandelwal
Yeah, hi, sir. Thanks for the opportunity and congratulations on a good set of results. Sir, my first question — sir, my first question is on-net interest income. So you answered it partly in the previous question, but if I have to understand, so our NII growth has been trading advances growth for some quarters now. We saw a 15% growth last quarter, but this has dropped to 10% this quarter. So sir, then do you expect to see both of them converging considering the rate cuts also being undertaken by RBI?
Praveen Kutty
Yeah. So in a way, we are happy with the trend-line. The aberration or the impact that you see of 15% are coming down to 10%. Some part of it is definitely due to the rate cut which you alluded to. While we have tried to address that through lower-cost of fund, obviously, the impact on cost of fund will trail the repo cut and on a — on an ongoing basis. So when would this — when would the net interest income match with the — with the top-line growth? The effort that like I told you in the previous question, the effort that we’ve taken on the cost of fund will be a slow — slow-burn fuse whereas the yield improvement within the framework that we are currently doing, you’re actually seeing the benefit of that happening.
I just want to take you through a trend-line if you — this will give you some indication how the momentum is going. If you were to look at our number months. If you were to look at the growth in terms of hold-on balance sheet growth at 22% and 15% is the is the increase in net interest income right. This is this was 20% last quarter. But if you were to see the trend and if you were to extend it to March ’24, you’re moving from single-digit in March ’24 June ’24 and September ’24 to 15% and 15% and 10% in the last two quarters. So — and the 10% impact is primarily brought in by the repo cut. So from a trend perspective, underlying perspective, we are happy with the way the momentum growth is happening. And the yield and cost of fund activity that we are undertaking would help us get into a convergment mode, more than where it is today.
Aditya Khandelwal
Understood. So now, sir, as per expectation, you’re expecting one or two more rate cuts. So this convergence of loan growth and NII growth, this would have — this would have a lagging effect. So this would take a little bit more time to converge because of these rate cuts. Would that be a fair assessment? That will be a fair assessment.
Praveen Kutty
But I will tell you, if more rate cuts were to happen, our ability to pass-on that by reducing the savings account, et-cetera will be limited. So as of now, it’s okay, but any future rate cuts, the ability to reduce instantaneously the cost of fund by reducing the savings account rates would — that option would be limited for us.
Aditya Khandelwal
Understood. So consequently, we had targeted ROE of 1%, so NIM was a big piece to help us get to that 1% ROE. So would it be fair to see that ROA target would also get delayed or we have — do we have any other levers in the P&L to offset that?
Praveen Kutty
I have a look at two levers or maybe three other levers which are there. So we have a fee to average assets of 1.18 for the quarter and 1.09 for the full-year, which is which is the higher than the indications that we’ve given on what our fee income will be. Within the fee income also the core fee income is a never before high. And consistently that has been on a higher-level. In our mind, that’s a lever which had remained stable at a very low-level for a very long period of time. But let me take you through the last five quarters of core fee income growth starting from March ’24. INR118 crore, INR114 crore, INR139 crore, IN 141 crore, INR161 crore. Last 3/4 have been our highest-ever and the next quarter has been kind of replacing the previous quarter.
So — and I’m not even talking about the total non-interest income, we talk about the core fee income only. Similarly on non-interest income, 136, 143 205, 184 219. To my mind that is some level of consistency. So that lever is something which we believe we have we lifted from the from the averages of the last two years or three years in NFC and there is enough belief in the system that the momentum will continue. The second point, which we need to consider is one-off provisions. As a bank, we have always said that our model sustains 45 bps to 55 bps of provision cost.
While I myself have said that that’s the way it would be. We are closing this year with a close to 31 bps of credit cost and the quarter was about 33 bps of credit cost. So you — even in an environment where NFI loans that the bank has is going to set the problems. We can’t deny that. But the fact is despite taking accelerated provisions, the overall provision number is healthy at 33 bps for the quarter. So that definitely is a moment and a second lever which is working.
The third lever is obviously when NIM compression happens, what can you — what can you immediately do to curtail the impairment issues that we have and that evidently is cost or there has been a consistent reduction in our cost-to-income as well as our cost to average assets. Our cost to assets for the quarter has come at about 2.54%. The go-to, which we have spoken about, albeit in a yearly sense, it is about 2.5. So these are within touching difference of where we want to be.
Fee to average is higher than what we had predicted, provision cost to average as we are lower than what we had projected ourselves to be to reach a 1% ROE. Cost to average asset, we are at 2.54 for the quarter, 2.5 is where we want to be. So yeah, in one area in the NIM, there is an impact. But on the other three, the bank has been punching above its normal averages, which has been demonstrating for the last few years. Over the last five quarters, you can see there is visible movement in a positive way in all the three lines for — across the last four quarters.
Aditya Khandelwal
Understood, sir. Thanks. Sir, next question was on loan growth. So yeah, our loan growth has been around 24% 25% this year. While our ROE is around 12% to 13%. So sir, by you know, like when do you expect you will need to raise capital considering our current capital adequacy? And secondly, sir, setting the share price now is currently below our book-value. So if we raise capital at current valuations, it would be dilutive to existing shareholders. So how do you plan to address the same?
Praveen Kutty
I just wanted to look at our car in a year where the bank has grown by — grown its advances by 24.7%, the capital utilization during the same time period and I’m hunting for — page number?
Unidentified Speaker
55.
Praveen Kutty
Yeah. The capital utilization in the same-period sorry, 32 capital adequacy ratio. Yeah. If you were to see the capital, yeah, our capital adequacy ratio has moved from — Tier-1 has moved from 14.53 to 14.30, 23 bps utilization for a 25% advances growth. Okay. And even now, obviously, if you were to look at 14.3 it is a — it is well-above what we believe is a go-to-capital kind of mark. On a total capital basis, you are at 16.77% so there is enough in the tank for the growth ambition and consistent growth of a similar nature, if we can continue to do it, the — we are very cautious about the capital consumption, which is why your RWA is well within 50%, I mean, well below 50% also for the last few quarters.
So, yeah, would you want to raise capital? Yes. At some point in time, you have to raise capital. Would you want to raise it at this particular level? Perhaps not. We have three consecutive good quarters under our belt. Maybe we’ll have a few more consistent good quarters under our belt and then we go to the market and we probably will go to the market at a rate which is more reflective of the intrinsic strength of the bank than what it currently is today.
Aditya Khandelwal
Understood, sir. Thank you so much for those invitations. I’ll come back-in the queue.
Operator
Thank you. The next question is from the line of Apurv Parikh from Equita Securities. Please go-ahead.
Apurv Parikh
Yeah, hi, sir. Very good evening and congrats on the second. Yeah, hi, sir. Sir, I think you already touched upon if I heard you correctly, you said on co-lending that the percentage growth of co-lending products would be subdued as compared to the balance sheet growth. Did I — yeah.
Praveen Kutty
Yeah. As compared to the current — like next year, the co-lending growth will not be at the same level as the previous year.
Apurv Parikh
Okay. So, can it be considered that — does it have some bearing of the current RBI guidelines on to the co-lending where a weighted-average rate should be applied? And how — and subsequent to the guidelines coming into place, how do we see the whole product dynamics for us or the profitability getting impacted? Is it because of the guideline that we are going slow into the core ending or it is just that we want to grow organically given organic capabilities?
Praveen Kutty
It is basically NIM, right? Look at it this way. Yeah. If you were to do a loan originated by somebody else, you necessarily have to give a sacrifice and that sacrifice usually is net interest margin. So — and we make our budgets pretty much early and this — there’s not a — there’s not a reaction to what RV has come up with. Where the strength of the bank is in its origination in this portfolio quality. While co-lending helps the way we look at co-lending, honestly is that you get into a segment that you don’t otherwise get into, you get into geography that you wouldn’t otherwise get into or you get the product that you don’t otherwise get into. It’s a very good petri dish to do your experimentation and to figure out what works, what doesn’t work.
And it also helps boost up some revenue in that sense, specifically if your quality, that the credit underwriting template is good. So that’s the reason why we do co-lending. It helps us understand the things very well on a risk-sharing basis and it also helps the overall growth. But to depend upon it for your balance sheet growth may not be a great idea because it — while it is very cost accretive, it may not be great in terms of NIM. So philosophically, we had decided in our budget also that we would grow at the same rate as what we want to grow the balance sheet, not more that now seasonal variations may happen. There’ll be some quarters will be growing higher, some quarters will be growing lower, but over a period of the year, the organic — or the inorganic growth should be ideally in-line with the organic growth.
As regards to the RBI guideline, next, I think we should wait for the final guideline to come in before commenting on it. Let’s see how — what it comes through. And if you’re asking my personal opinion, I think anything which benefits the customer is beneficial for the lending institutions. So it will expand the market. It’s a good — on the blended rate level, it’s a good thing to happen. I mean if you can — if that will allow the lots more of customers to come into the organized fold and maybe I’m talking only from a gold loan or perspective. It will — it will help a much more customers to come in on-board and the customers also can take a — take the benefit of a blended rate. Yeah, that’s the way I personally see it. But honestly, let’s wait for the final guidelines to coming before we comment on what really would happen on the implementation of the final guidelines.
Apurv Parikh
Sure, sure, sir. And the second question is on to the NIM. So obviously, we are into a statement as early gentlemen is kind of suggested that we are — market is expecting one or two rate cuts to happen. So we broadly, I just want to understand that how the ROAs and obviously explain the levers to a certain extent. But if you look at that already taken a 25 basis-point on your savings account, but still obviously, you mentioned that retail term deposit rate cuts might be in-place.
But up till this date, I don’t think that they have been now all the other banks, they’ve already taken a retail TD cuts onto this — all the larger banks. And considering the fact that TD is an integral part of our maybe liabilities acquisition process, how do you see — I mean, as you already mentioned that there might be limited scope of kind of reducing savings if the repo cuts are consistent. So how much — so what is the strategy maybe going for the year the TD and acquisition? If this rate were to absorbed into the name and protection, what is the wind protection will be the priority.
Praveen Kutty
So, first of all, out of a INR50-odd crore book, there is only a certain segment of the book which is EBLR linked and floating, right? So the impact is there. Of course, it is there, but it’s — it is limited to a sliver of the portfolio or not to the entire portfolio. That’s point number-one. Point number two, we have already made rate cuts on our savings account. Otherwise, why would the NIM fall only by 1 basis-point in-quarter four? There are some immunization actions that we have already taken. Will we continue to drop the savings account rate just to accommodate the — of any future repo rate cuts are very unlikely. But what has happened is that we have reduced our non-callable retail rates. We — the bulk retail bulk term deposit rates have already been reduced, which has got immediate impact. Retail is a slow burning fuse. So the — any cuts that we do today, you will have a benefit of that coming through over a 15 — 12 to 15 month period.
So, there is an action plan there is a game plan on that which has already been implemented from the time the previous rate cut happened when 650 went down to INR625, will it — will the playbook remain the same for future rate cuts? Obviously not, because there is a limit to which it can bear. There is the rest will come in when the TD maturities happen, you will see the — we hope to see the reduction happening structurally. And we are confident that similar growth to what seen will happen. So I don’t think growth will be a problem because there is a conscious southern saltward movements for the deposit rates going-forward. But the key is this, at which point in time will the next set of rate cuts happen. The later it happens, the more beneficial of the bank, the earlier it will happen, the less beneficial it will be for the bank.
Apurv Parikh
Yeah. Sure, sir. And if you can probably quantify yeah, okay. Understood, sir. And maybe just can you help quantify your maybe floating-rate book mix that is possible?
Praveen Kutty
Because that we — I’m not too sure that’s public information. So it’s not just floating-rate book alone, it’s — you have NCLR, EBLR, even old BP base rate. So there are multiplicity, albeit in small quantities and you also have within that floating and fixed. So there’s a whole variety of benchmarks which are still continuing in the system. System it is. It is something which the bank monitors is very conscious about and we but it’s not publicly announced.
Apurv Parikh
Thanks.
Operator
Thank you. The next question is from the line of Suraj Das from Sundaram Mutual Fund. Please go-ahead.
Suraj Das
Yeah, hi, sir. Thanks for the opportunity. I joined a bit late. Just to recomp from the first question, did I hear it correctly that you were saying that your margins have more or less peaked in this cycle and hence probably, I mean with the rate cut, next year margins and year-after the margins could moderate from the current levels.
Praveen Kutty
Hi, Suraj, good to hear from you. And let me just tell you what we are what we articulated earlier. The NIM for this quarter comes in at 3.29 as compared to 3.3 for the previous quarter. And during the — during Q4, a repo rate cut of 25 bps happened from 650, we lowered it down to INR625. Despite that, we have had a — the impact — it’s not a full impact, but the impact on the book has been about 1 basis-point so-far.
Why is it only 1 basis-point? It’s only 1 basis-point because it has got — it has impacted part of the portfolio and not the whole portfolio. And the second bit is that there are some affirmative actions the bank has taken to ensure that margins are protected. What were the — what are the actions taken? We had proactively reduced some of the servings account rate around the time the rate cut happened so that simultaneously there is a save on the margin.
In the future, when there are rate cuts, can you continue to do this, perhaps not or perhaps not the same degree as what we did earlier. So the stabilization, what we talked about is that if you were to see the trend-line of NIM, it was on a downward trend. Now what you’re seeing is that it is kind of — let me tell you what the NIM — NIMs were looking like in the last five quarters. 362, 339, 327, all down then 330 and 329. So that’s why I said there is a stabilization happening.
As far as the future is concerned, the bank is doing two things. We have already spoken to you about what’s happened with savings account rates, which got an instant benefit on the cost of funds. And secondly, on bulk rates, bulk deposits mostly are 12-month in nature. So there has been a fairly cut to the bone on the bulk deposit rates. And on retail rates, specific — on specific retail rates have seen a downward movement.
But the last part, which is our largest book is a retail book and we’re happy to have retail book which is that large. But the impact of those — any interest-rate cuts that we have done and we are going to continue doing in the future will have a slow burning fuse, right? You will not get the immediate margin benefit of that right away. You will get it as the book matures and the rebooking happens. So that’s on the liability side. On the asset side, there is focus on two things. There is a product mix change.
If you were to see the last year, we’ve gone — we got almost INR7,000 crore co-lending book. We’ve built-up a INR7,000 crore co-lending book, roughly about 100% growth in co-lending for the matter. That’s not going to happen in the future. We will have a more in-line with the balance sheet growth happening in co-lending also. And that’s about, I mean, in-line with the doubling on the balance sheet in about 3.5 years’ time. So that will be the kind of growth rate that we’ll be seeing on the balance sheet as well as on the growth.
Where will the incremental growth come from if there is — if a similar kind of growth is not going to come, it is going to come from organic products. Organic products will definitely have a higher yield than the standard co-lending book. And we believe it will not come with higher incremental cost because we — those results, those incremental organic loans will come from — from the existing set of people that we have and from — and that will come from enhanced technology deployment that we have done and also improved productivity.
So, it will have a marginal cost impact, but not major cost impact. So that’s one-product mix change. The second product mix change is that there is a needle movement from home loan to lap. Mortgage is the largest book, incremental sourcing of home loans is less and of business loans is higher. Business loans will give you anywhere between 150 to 250 basis-points higher yield. So that that’s a journey we started about five quarters back. We’re seeing the results of Vietnam. We’re happy with the way things have moved not only over the last one year, but also over the last 1/4. So these are the various fixes that we are doing, which will help us improve our NIM, not just maintain, but improve our NIM. And how well we execute, you will get over the next two, 3/4.
Suraj Das
Thank you so much for the elaborate answer. Sir, on that mortgage home loan to lap, that journey is still on, right? There is still room. I mean in the sense that probably on the outstanding book, your home loan share would be higher versus the incremental disbursement, your home loan share is lower, right? So that journey will still give us some benefit in terms of margin. Is that a fair estimate?
Praveen Kutty
There is enough ceiling room available to do more of lab and less of home loan with the same number of people. There is enough more to do. And while incremental disbursals are skewed in favor of business loan, over a period of time, we’ll see the portfolio also going into that particular level. It has a capital impact, but then you see our risk-weight is very conservative at less than 50%. So there is enough — there is enough the benefit you get of higher yield really offsets the incremental capital requirement you will have for lab which is higher than that’s required for home loans.
Suraj Das
Sure. And sir, on the core fee, I mean, as you are speaking that core fee, obviously, we have seen sequential improvement for last four, five-quarter continuously. Right now, I think 4th-quarter it is something like 95 basis-point as a percentage of your assets. So the question is how far you can improve it? And then if there is still room to increase, I mean what are the levers? I mean which products or from which area you will think that the core fee can further improve.
Praveen Kutty
For whatever it’s worth, quarter-four is always a good quarter for third-party distribution and it’s been a good quarter for us from a third-party distribution perspective. Having said that, will we be able to replicate Q4 in Q1 on third-part distribution may not be. But will it be better than the previous quarter one, one tend to think so because there is robust momentum that is being built-up. So third-party distributions is a very key element. When we have met also, we’ve spoken about engagement being key, overdraw transaction accounts being key, wholesome banking of meeting all the banking needs of a customer rather than just a product per customer is the key.
So, what we are seeing the beginnings of is that the greater engagement is resulting in greater transaction is resulting in a higher opportunity for-fee income. We haven’t even scratch the surface on this,, okay. I really think there is — there is more to come. But you’re seeing the beginnings of that coming through trade fee income, you are seeing incremental processing fees coming through. And also there is a structural advantage we’ve got where NIM suffered and fee increased on account of penal interest being replaced by penal charges. But end-of-the day, you still have the collect.
Yeah. So, you’re seeing that momentum happening. On the non-core fee income, yes, we had a good treasury year. So the flip side of this of the NIM compression possibly is a potentially higher treasury gain in the if it were to happen. But then honestly, our energies are going into ensuring that the core fee income consistency and growth continues like it has for the last four or five quarters, keep that going. Whether that is renewable, that is that is predictable and that is — that consistency is what we are aiming for.
Suraj Das
Sure, understood. And sir, last question, I mean, in terms of this capital raise, I think due to some unfortunate events, events with the plan got delayed, I think now you’re doing the paper sort of again. So I mean, do you think this can happen this year or it might take longer?
Praveen Kutty
I’m so happy that your window has moved to a year and not a quarter. Yeah, right. Yeah. So that activity that paperwork activity has happened. Possibly, I mean, we are looking at quarter two for that incremental money to come in. But what is more heartening is that, look, any business which can grow by 25% with a 23 bps usage of capital, I think that is a fairly efficient — capital-efficient model, right? And this includes the proposed dividend also, right? It includes a proposed dividend also. So that’s it. Including the proposed dividend, we are talking about 23 bps when growing by 24.7% year-on-year.
Suraj Das
Fantastic, sir. Thanks. Thank you so much. That’s all from my side.
Praveen Kutty
Not at all. Thanks very much.
Operator
Thank you. The next question is from the line of Varun Bang from Bandhan Life Insurance. Please go-ahead.
Varun Bang
Yeah. Thanks for the opportunity and congrats for good set of numbers.
Praveen Kutty
Thank you. As always, good to hear from you.
Varun Bang
So, firstly, as we start focusing on higher-ticket lab, I think we’ll have more competition from larger banks and we can’t compete with larger banks on yield. So how do you find niche areas for ourselves? And secondly, when you — when we talk about better yield on advances, would that mean the risk profile of business will also change?
Praveen Kutty
The risk profile will not change. We are conservative, we are proud to be conservative. We really believe that the hallmark of a bank is — is the ability to manage its portfolio health. So that’s a very clear answer,? So we don’t expect us to dilute credit quality for anything including NIM. That’s not going to happen. So that’s one. Second part is where-is a competitive advantage? More than 50% of our loans that we get and the loans that we lose out in terms of balance transfer happens to NBFCs and small finance banks. Okay. It doesn’t happen to normal private sector banks. It doesn’t happen to big banks like you said. It doesn’t happen at least in a material way to public banks.
So, 50% of where we get the customers from or where we are customers, we lose our customers to on the asset side or on the installment lending side is to NBFCs like Mota if that is the way it is, what is the moat that we have? And the moat that we have is clearly how do we move from a fill it, shutted, forget it kind of product to a customer engagement product. What is it that DCB Bank has which this 50% of the customers or 50% of the competition does not have.
And the answer to that is neither innovative nor mind-blowing. It is something which has been there in the industry for ages, overdraft accounts. We are going hard on overdraft accounts of or for as a solution for deficit needs of our small and medium business owners why overdraft because our customers intrinsically instinctively understand interest paid versus interest-rate you are because you have the moat of a OD facility you can you can charge a higher-rate of interest because the customer can park surplus funds in those particular accounts and enjoy a lower interest cost to himself or herself. This customers understand very well.
We are really going big-time on business loans, which are of an wardraft nature. Customers are liking it. They are benefiting from it more importantly. And if we continue on this journey at a similar kind of growth rates in over the next few quarters, maybe even years, we will find that as matters stand, the relative white space that we have would continue. You can compete with the largest of the largest NBFCs because you have the moat of an overdrap product. So clearly, where-is the — where-is the contested area? What can you do to make it easier for your frontline and for your customers, what is the specialization that you can build-in? I tend to think it is overlapped.
The other benefits, since you already asked about it, the other benefits of going-in the strategy is that our customer attrition levels get lower, in order of create engagement, which creates transactions which creates cross-sell benefits, which will — which improve our core fee income, renewable core fee income. It also shows that the lifetime of the loan, the currency, the life currency of the loan with us improves significantly. There are multiple benefits that we get-out of this. So I’m glad that you asked the question. We are very, very, very clear about it in our strategy of what we are pursuing with whom so that the competitive advantages come to the fore.
Varun Bang
Got it. Got it. And one question on opex. If I see last four, five years, the opex per branch has increased from INR2.5 crores to INR3.5 crores. So just want to understand what all investments have we incurred and what is the right way to look at it because while the advances and deposits for branches have seen material improvement, the profitability has not improved because of higher opex per branch. So if you can just help me understand what is the right way to look at it, yeah.
Praveen Kutty
Overall operating expense?
Varun Bang
Yes. So simple math, total operating expenses divided and divided by number of brands.
Praveen Kutty
That’s — that’s not necessarily a metric that we look at. So the way we look at it is, there are two big items there. There is an employee expense and there is other expense, mainly within the other expense are technology-related expenses that we incur which have long-term benefits. And I want to spend some time on the employee expenses. If you just spend some time on employee expenses of Q2, Q3 and Q4. If you don’t have the figures right there, let me tell you, it’s INR235 crores in Q2 to INR31 crores in Q3 and INR232 crores in Q4. During this time period, the bank has been growing roughly Q-o-Q, 5%, actually more than that. Yeah. So what we have done and you remember this in Q — when the Q1 results came out — or Q2 results came out in a similar kind of discussion meeting has said that the number of people we will have in the bank will not exceed the current levels for the rest of the year as well as for next year. I we’re very clear about that.
When we ended the year, we had 11,057, 11,051 customers. 11,057 customers, which is lesser than the loyal customer — I’m sorry. Oh, sorry, why missing us, very customer-centric. It’s the employe centric. So employees, right, which is lower than the number of people — number of employees that we had during the course of the year. There will be some increase for the — in the current year, but it will still be less than the number of employees that we had and the maximum number of employees that we had in the last year. So where — so this reduction of number of employees, not reduction growth of employees, an absolute reduction in the employees, how — why is it happening? Two legs to it. One is productivity increases happening. Two is where we have tried and worked out an improvement and we’ve seen that not happening. We are failing — we fail faster.
We move on from them quicker. And the third is there is so much of tech improvement happening, both from a offering perspective and much more importantly from an adaption from the customer’s perspective, which is resulting in a lowering of cost. Just one single example, a statementing or any kind of paper stationery going out in the market is getting — not only getting — has gotten replaced by electronic communication, links, you know, my dogs where the information is being stored, all is helping us improve our opex. But there is technology spend, there is cybersecurity spend. We are spending quite a lot on improved customer-facing technology, better backend technology and also in terms of enhancing the cyber security. And this will continue in the future as well.
Operator
Thank you. The next question is from the line of M.B. Mahesh from Kotak Securities. Please go-ahead.
M.B. Mahesh
Hey, hi, good afternoon.
Praveen Kutty
Hi, Mahesh. How are you?
M.B. Mahesh
All good, sir. How are you? Couple things in FY ’25, what is the full impact of the interest fees that you have reported?
Praveen Kutty
Your voice is kind of coming in. Can you kind of repeat yourself come closer to the speaker, your mic?
M.B. Mahesh
Yeah, I can hear you. Can you hear us?
Praveen Kutty
Yeah, now we can hear.
M.B. Mahesh
So, FY ’25, what is the full-year P&L interest fees that was collected?
Praveen Kutty
Let me put it this way, Mahesh. There is a 5 bps reduction of NIM and a similar 5 bps improvement in the fee to average rates, which has happened. The absolute amount is actually in-line with the with the balance sheet growth, which you usually see. There is no real difference between 2024 and ’24, ’25 as far as the fee collection is concerned, it’s in the same proportion. But that is slightly less, slightly less why because earlier P&L interest was accrued, you didn’t have to collect. But now the P&L charges, unless you collect, you cannot account for it. So it is slightly on the lower side as — but if you want — I don’t know if it’s publicly available…
M.B. Mahesh
That’s fine. That is — no, that is fine. Just wanted to understand the materiality of this number.
Praveen Kutty
It is hardly anything, hardly anything.
M.B. Mahesh
So, second one is that if I heard you correctly, your commitment is that your observation is that over the next couple of quarters, despite yields moving down, margins will improve led by cost of deposits. Is that how we are saying this?
Praveen Kutty
No, that it will not. Any further repo rate cuts will hurt the bank. What we have, we are — we have managed. But the later the repo rate cut happens, the better it will be for the bank. If it were to happen immediately, the impact of what we are doing on the portfolio, what we’ve done on the portfolio will realize over a longer period of time. So the later the rate cut, the better it will be for the bank from a margin perspective.
M.B. Mahesh
Okay. So just to confirm, we’ve done 50 so-far, but your expectation is that on the — in the base-case, we should be able to hold-on to that margin?
Praveen Kutty
To the current level of margins. Yes.
M.B. Mahesh
Sure. Okay, that’s fine. The final question, you said co-lending is a bit margin-dilutive. Is it also ROA dilutive?
Praveen Kutty
Do we give…
M.B. Mahesh
I just wanted to understand — no, just trying to understand, if you’re reducing co-lending, does it improve ROE or does it reduce ROEs? That’s it.
Praveen Kutty
Yes, theoretically, I’m not talking about the BC Bank at all, let’s talking theoretically. If you’re talking about co-lending and you’re talking about a fairly secure co-lending where provision will not come and hit you, then it will be ROA accretive. And with a product which requires less capital or low capital, it is hugely ROE accretive.
M.B. Mahesh
Okay, perfect, perfect. Thank you.
Praveen Kutty
Not at all.
Operator
Thank you. The next question is from the line of Jai Mundra from ICICI Securities. Please go-ahead.
Jai Mundhra
Yeah, hi, sir. Good evening.
Praveen Kutty
Hi, Jai. How are you doing?
Jai Mundhra
Very well, sir. Thank you. Most of the questions have been answered. I just wanted to check on your — I mean, we have a small proportion of MFI loans, either through BP or direct. Was there any slippages in contribution to this quarter? And hence with — yeah. So the question is, sir, with situation improving, do you see some delta coming from MFI slippage as we move into FY ’26?
Praveen Kutty
Honestly, I don’t see any improvement. At least our portfolio, there is no improvement. It’s a small portfolio, so we are okay with it. We have taken accelerated provisions on it, but I don’t see an improvement.
Jai Mundhra
Okay. And sir, on gold loans, is there any change in the way you are doing business after this RBI circular and possibly scrutiny and you know or there is no change as such.
Praveen Kutty
Absolutely no change. Where whatever was mentioned in some form or the other or even perhaps even higher, we are — we are — for organic book, okay, I’m not talking about co-lending at all. I hope you’re not referring to co-lending guidelines. On the gold loan proposals, we are on our organic own book, they’re pretty much the same.
Jai Mundhra
Okay. And is there any on the co-lending side, sir? I mean, because the guidelines are very comprehensive. They also talk about…
Praveen Kutty
There is a draft guideline which has come in at about 15 18 month points. Jay, I would suggest let’s wait for the final guidelines to come in to see what changes have to be made or what the impact positive or negative will be. Currently, it’s draft guidelines and at some point in time, I’m sure the draft guidelines will become proper guidelines and then probably we’ll have a conversation on that front.
Jai Mundhra
Sure. And sir, treasury income, right? So this year, of course you have the Treasury department seems to be having a very good job. Was there any one-off, do you include — I mean, is this only trading gains or you include some ForEx-related activity here? And is it likely — I mean, is there any offset available within this treasury income or you think that it can sustain at, you know, if I look at as a percentage of assets around 20 basis-point is there any more details there?
Praveen Kutty
Usually, and I’m giving you a general answer here. Usually when you are in a rate cut environment and NIM suffer and you make gains on your investment usually. So I’m sure has done a reasonably good job. The inventor has been favorable. So while you take the stick for — on the NIM compression, there is some benefit you get on the on the investment piece as well. Will it continue in the future will if rate cut continues if yield if bond yield drops yeah I mean they can’t predict it, but frankly our focus is more on the core field we’re happy with the treasury gains and we welcome it.
But even within treasury, you know the yield on investment is a very, very important factor more than the — not more than as much as the gains that we make on a — on the fee line basis. The second part of that is that, yeah, fine, treasury has contributed. I’m not grudgingly accepting it and whole largely generously accepting it. But you just see the core fee income growth and that’s over a period of — and don’t look at it over last quarter or the quarter before last — look at over the last five quarters is a consistency of that core fees and growth which is coming in. So — and these are trends, right? So it’s honest around us to keep improving the trends. And we welcome windfall gains as it comes in. But the key is, of course the core fee income.
Jai Mundhra
Okay. And I said this, I think last quarter we were still awaiting this PMA by 2.0. I think during the quarter, the final guidelines have come in. Would you have any comment on the implementation of those guidelines? I mean, I mean, how those guidelines benefit the core mortgage business or is still in the…
Praveen Kutty
So, we’re very happy with it for multiple reasons. One is that the max interest-rate on that is 11.5%, which if you were to look at it is almost on par with the yield in advances that we’re currently getting at 11.54%. Secondly, the book stays with you, the customer stays with you for at least five years is guaranteed. Thirdly, the incentive for the customer to remain current, non-delinquent is very, very-high because the subsidies spread over equally over the five-year period. So the cost — from a priority perspective, he or she will default this as the last loan and not otherwise because the subsidy that you get is substantive, fourth, this is a loan which has got a max size of INR25 lakh and that is like the sweet-spot for us, the middle of the bat kind of area for us.
So, it’s something which we know, we understand and we are very comfortable with new to credit customers, right? We don’t — we don’t — I mean, we do rely on bureaus, etc. But the bank is very, very comfortable with assessing new to credit customers, first-time homebuyers. We have done — we’ve gone through two, maybe three credit cycles, good times, bad times, ugly times, and they’ve all rebounded mostly. So it’s an area of skill for us. It’s an area of expertise for us and we will — we continue to focus on it and you’ll see that we’re promoting it big-time. So you’ll see P&LI being a very integral part of our growth plan for the next foreseeable number of years.
Jai Mundhra
No. So the only flip side is, sir, does this tilt the favor — I mean, does this tilt the balance in favor of mortgage? I mean the home loan versus LAP or this is just an enabler and you will — you are confident that even the lab growth will be higher than this home loan growth?
Praveen Kutty
So just think about this. If you had to replace a chunk of the current home loans with the PMI loans that you will have a yield enhancement coming through, you will have lesser collection cost. You will have lower provisions you will have lower capital cost and you will have you will have a customer longer with the bank for a longer period of time with the bank, right? And most likely — and this is our belief, we are done. We just started this exercise. Our belief is because subsidy concern and just imagine for an Indian normal Indian middle-class person. Owning a house is the ultimate destination. It is a height of the height of purpose for most people.
I mean, that’s like a revelation for most people, right? And here is a bank that is helping you get the — you’re funding a house and you’re getting a subsidy for that, it’s a big leg-up. And that’s perhaps the only asset he or she will get being made during his lifetime and it’s definitely the single most priced position the person will have. So and if you are a banker who is giving that particular loan for life he or she will be your first port of call for any of the financial needs, surplus deficit needs, insurance needs, trade needs, don’t forget, all most of our customers are SME customers, right, and trade, insurance protection, these are things that they definitely will want to have. And combine it with what I spoke to you not to you in general earlier, engage with the ski to the bank.
Why this is a less contested area, while it’s a moat area is because we will do the engagement. And for this PMI customers also, it’s not — this whole engagement concept is not limited to overdraft or to CASA. It’s the way we do things. It will be the DCB way of approaching engaging a customer. So that’s the way we see this. It’s not that lap will suddenly go down and most of it will get replaced with. No.
Jai Mundhra
Right. Sure, sir. And lastly, sir, if I may ask, you know why you mentioned that in this quarter we have made some affirmative action on — and we saw that the savings rate was also cut in the month of Feb. But still the cost of deposit has gone up at a pace which is slightly higher than the earlier quarters. I would have thought that because you have cut, I mean there — I mean what explains this rise in still cost of deposits. This is only TD or you know the repricing is still higher, how should one look at it?
Praveen Kutty
So, maybe you should look at it as an opportunistic move rather than a strategic one or you had a 24.7% increase in advances. These advances were coming in with that accretive to ROA, even if it meant that it was being funded by higher-cost deposits. Is that the way we will go? Perhaps not. I’m not particularly happy with the two consecutive quarters where the advances growth has been higher than the liabilities growth. That’s not the way we want to run this bank. Not that the CV ratios is alarming, it’s an 85%.
But the fact of the matter is that it’s important even at a higher-cost to get these liabilities going because assets that we’re getting were truly accretive in a cost sense, in a credit sense and in a customer sense. So is that the way the trend-line? No, that’s not the way the trend is going to be. So it’s an opportunity which we had in the last two quarters and I don’t think that’s the way we’ll be growing the bank.
Jai Mundhra
Sure. Sir, I actually wanted to highlight one thing. I mean, you have the lowest — you had the lowest tar rate across all banks up to INR1 lakh rupees you were offering 1.75 and now we have got it down to 1.50 of course, you would have seen the behavioral thing, etc. But I mean, it looks like that you may be achieving only a few basis-points, but you run the risk of having the lowest SA offering by any bank possibly in the last few decades. I don’t know. I mean, does it I mean is this substantial or you think the people have become very in elastic — absolute in elastic to offer such low-rate of SA in the initial bucket?
Praveen Kutty
So, there are two sets of two sets of people that we cater to in a savings account. There are people who use savings account for their basic transactional purpose, right? If you would take a statement of a savings loan customer, your statement or my statement three, four years back, you would find there are few transactions. Now it will run into four, five phases, because there is a huge amount of UPI transactions happening. So customers need a savings account for transactions. That’s one set of customers. Then there are other set of customers who have huge chunk of surplus money, which they want to park for an uncertain number of days waiting for an opportunity, waiting for an investment, waiting for something to happen. So that is actually a term deposit masquerading as. It is not even — I mean for — it looks like, talks like size, walks like SAF, but it’s not — it’s not SAR at all. It’s a term deposit artificially sitting in this and boosting our CASA ratios, etc. It happens in most banks, it happens in our bank also.
As long as customers are using it for — for transactional purpose. And that’s why, again, I’m coming to that with engagement and transaction, use a bank account for the purpose versus the bank account is being made, right, for making a payments, for getting a receipts, et-cetera. Those set of customers, it’s their price inelastic. But if you’re the same breadth, you have customers who are using a — who want to utilize their investment and we are happy with that. I mean, there’s nothing wrong. I don’t — I’m not passing a value judgment here. But you’re catering to both such customers and how are you doing that by having a spectrum of rates, which is as low as 1.5 currently and perhaps even as high as 7.98% APR, right.
So you cater — basically, what does the customer want? They’re catering to that customer’s need, right? And are you the lowest rate at the lowest end? Why not only you look at — you look at our savings account, the lower-end of the savings account rate over the last two years, yeah, we’ve been at — we’ve been there. And why would we even lower it further unless we had some experience.
Jai Mundhra
Right. No, a fair point, sir, and I think this now I acknowledge your point of people using savings account, not for saving, but for transactional and this is okay. Great. Thank you, sir.
Praveen Kutty
That’s what you want. I mean, you have UPI transactions, you need the facility of instant transfer, you need to be — you need a — you need a safety factor, the comfort that your money is safe, your — the fact that there is instant transmission happening in case there is an issue that you’re able to solve it quickly, you’re not caught in a web of phone banking labyrinth where you can’t come in, you can’t get-out, right, that kind of chucker view situation you can’t have — you need people who can speak to — there’s a whole element of service element to the whole thing.
When things go right, it’s great, but when things go wrong, how fast you respond, there are very important factors in customers’ life and most people are intimidated by finance. So that’s the customer-base that we are catering to. And for that customer, a lot of things are important and interest-rate may not be the highest amongst that.
Jai Mundhra
Yeah. Sure, sir. Thank you and all the very best sir.
Praveen Kutty
Thank you very much.
Operator
Thank you. The next question is from the line of Prashant Kumar from Sunidhi Securities and Finance. Please go-ahead.
Praveen Kutty
I can’t hear your voice if you can hear mine.
Prashant Kumar
Hello, am I audible?
Praveen Kutty
Prashant, you’re audible now.
Prashant Kumar
Yeah, thanks for the opportunity, sir. So my question is on technology front. Although the bank has shown some details on digital initiatives. And can you give just some more color on technology upgradation and what is the percentage cost incurred on technology development to total operating expenses?
Praveen Kutty
I’m not sure we can answer the second question. We have the numbers, but we probably can’t answer that, Prashant. But let me give you a flavor of what we’re doing on the on the technology front. Let’s talk about some less was the right word. Less sexy stuff. We’ll talk about core banking system okay it’s functional, it has to be robust, it has to be — have the capacity. We have upgraded our core banking system, Finnacle a year before last.
Last year, we upgraded our installment letting program of Fin1 is state-of-the art one which we have implemented now. Third item is treasury management system, TCS. We upgraded it to in June of last year, we have totally four core banking systems, three of them are up and running. We’re not a flashy advertising kind of stuff. This is like backend which has to work which ensures that what we all take for granted happens. So the core banking system upgrade has happened across the bank. Big, big scale movement has happened on this. That’s the first part on the on the storage computation infrastructure piece, which you have up and running.
The second piece I want to talk to you about is on customer-facing technology. Both on the loans, okay, there are three areas which we will focus upon, maybe four, but the three key areas are deposits, loans and payments. You may want to subdivide payments into domestic payments and international payments, but broadly payments. On the deposit side, the account opening is for individuals is paperless. There is virtually no paper happening. It’s cut-down the fraud cost. It has cut-down the — it has cut-down our career cost. It has cut-down the supervision cost significantly. Most of the of the customer acquisition is straight-through. A large proportion of the amendments to the account is straight-through second part is on the loans piece.
MFI lending which we do is entirely digital this right from the customer information coming into the bank to disbursal going into the customer’s own account. The entire journey is electronic. And why we choosing to give an MFI example because you’re talking about volume, large-volume entirely goes — goes as electronic.
Third piece, on secured lending, a lot of progress is being made in terms of digitization, perhaps with the only exception of title search and physical valuation, which continues to happen on an offline mode and not technology line, but as and when titles become digitized in India, you will see a scenario where secured lending also goes through a STP process. And remember 54% of our book is mortgages and that’s a key element in terms of digitization which happened to us. The usage of RBA in within the — within the bank has significantly reduced the manpower or the — now the rate of growth of manpower is not going to talk about.
The actual number of people in the bank has reduced consistently over the last 3/4, last quarter — last 3/4, right. Partly from the advent of usage of technology. Let’s talk about technology of a different kind right now. It is about probabilistic modeling. It is about — it is about using Gen AI to ensure that higher accuracy and lower operating cost comes into play. On phone banking, we have we have instead of writing a SQL query which only a few people possibly have the ability to, you can write-in English you can write what you want and then you will be able to extract information.
Suddenly information has not been the preserve of you, you’re able to identify cuts by writing general English and that’s improving every time there is an error. So there is a built-in ML between there. I’m giving you one small example of what’s happening on the on Genai implementation within the bank. We are using high-quality analytics to determine pursuing of which particular customer for what makes — makes more sense than others. A simple example, there are customers in collections, for example, there are some customers who anyway will pay. There are some customers who anyway will not pay. No amount of effort into those two is going to result in incremental gains for the bank because of people who can’t pay — can’t pay anyways and the people who will pay will pay anyways. Wasting phone calls and activation on them is not going to make any sense at all.
So the entire firepower resources of focus goes into the middle-market, these are customers who can reprioritize. So our ability to predict has improved and more importantly is improving as we go along. So I’m giving you three very different scenarios on the usage of technology. One, the traditional ensuring the core part of technology works, right, where what we take for granted happens time after time, day-after day. There is enough DRDC movement happening, there is enough redundancy being built-in.
There is enough cyber security. I’ve got to tell about it. Our SIEL, again, we upgraded last year. So you have — you have invested extremely heavily on the back-end to ensure things work normally, there is — the computational powers have gone up, the storage powers have increased significantly is one part of it, cyber security is second part of it. Third-part of it is customer-facing technology where paper is banned, right? We have significant reduction in paper is happening. Fourth is usage of technology to make better decisions. So these are four elements of technology, which is coming into play, which is helping the bank. Have we — have we leveraged enough? No way. Is the best yet to come? Of course. Do we have the people — do you have the people skills to leverage it without doubt.
Prashant Kumar
Yeah. So going on improvement in productivity due to, I mean, technology, especially on mortgage and all processing side. So do you think the cost to average asset ratio of kind of 2.4 or 2.45 is achievable in near-to-medium term on a sustainable basis.
Praveen Kutty
So, we are working very hard. It’s a part of the agenda. You see how the last — look at the cost to average has for the last four quarters…
Prashant Kumar
Because on you had mentioned that…
Praveen Kutty
And look at it next quarter also. Usually Q1 is when the cost-to-income is at the, right? That gives an indication. I mean that the trends usually forecast the future.
Prashant Kumar
Okay. That’s it from my side.
Praveen Kutty
Thank you very much.
Operator
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Praveen Kutty for closing comments.
Praveen Kutty
Okay. Thank you very much even extremely appreciate your questions and we hope to ensure that we continue to be consistent, predictable and boring. Look-forward to meeting you next quarter with hopefully an even better set of results. Thank you for all your questions and look-forward to meeting you maybe next quarter.
Operator
Thank you. On behalf of DCB Bank Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.