DCB Bank Limited (DCBBANK) Q4 FY22 Earnings Concall Transcript

DCB Bank Limited (NSE: DCBBANK) Q4 FY22 Earnings Concall dated May. 07, 2022

Corporate Participants:

Murali M. Natrajan — Managing Director & Chief Executive Officer

Bharat Laxmidas Sampat — Chief Financial Officer and Chief Investor Relation Officer

Praveen Kutty — President – Head Retail & SME Banking

Ajit Kumar Singh — Head – Treasury & Financial Institutions Group

Analysts:

Darpin Shah — Haitong Securities — Analyst

Renish Hareshbhai Bhuva — ICICI Securities — Analyst

Mahesh MB — Kotak Securities — Analyst

Uttam Purohit — Perfect Research — Analyst

Amit Mehendale — RoboCapital — Analyst

Jatin Kumar — Alpha Capital — Analyst

Krishnan ASV — HDFC Securities — Analyst

Unidentified Participant — — Analyst

Jai Mundhra — B&K Securities — Analyst

Sunil Jain — Nirmal Bang Securities Private Limited — Analyst

Atul Mehra — Motilal Oswal Asset Management — Analyst

Rohan Mandora — Equirus Securities — Analyst

Hiten Jain — Invesco — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to DCB Bank Limited Q4 FY ’22 Earnings Conference Call. Joining us on the call today are Mr. Murali M Natrajan MD and CEO, DCB Bank Limited; and Mr. Bharat Sampat, CFO, DCB Bank Limited. [Operator Instructions] And there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note, that this conference is being recorded.

I now hand the conference over to Mr. Murali M Natrajan. Thank you, and over to you Mr. Natrajan.

Murali M. Natrajan — Managing Director & Chief Executive Officer

Good evening, all of you. Thank you for joining this call. I’m calling — I’m talking to you from the boardroom where we have Bharat Sampat, our CFO; Mr. Satish, who is our Deputy CFO; Ajit, who is our Treasury and FI Head; then we have Praveen Kutty, who is our Head of Retail Banking; Venkatesh, who is our Head of Operations, HR and Technology; then we have our CRO, Mr. Sridhar Seshadri. So, we kind of have a slightly bigger team and their team members. In the first few minutes, I will give you some highlights of our performance and then we will open up to questions.

First of all, our profit for the quarter is INR113 crores, which is the highest ever that we have achieved in the last two years, probably in the history of DC Bank and we are very happy about that. We sincerely believe that the COVID-related challenges are behind us, although we still have to deal with some part of the NPA and the restructured book. But looking at the collection efficiencies of the book and looking at the way we have been performing on recoveries and upgrades, we believe that we are seeing a pretty strong momentum and performance.

We are very happy to tell you that we have 400 branches now and after some kind of a slow installation of branches during the COVID, we picked up some pace and we would continue to operate in the 25, 30, 35 kind of branches per year and our branches are continuing to show breakeven in about 22 to 24 months. So, the model is intact. We have not changed our strategy. We have strong belief in pursuing small ticket secured retail SME/MSME strategy.

Given that COVID has more or less receded, we are seeing definite uptick in demand in the products and segments that we are operating. And fourth quarter, especially February and March has been pretty strong for us in terms of disbursal and we are continuing to build front-line capacity to put the growth in a higher trajectory. Our intention is to double the balance sheet in — between 3 to 3.5, maybe 3.5 to 4 years, that’s the kind of trajectory we want to put a bank.

One of the things that I want to highlight is that I will again go back to our call maybe some of you were able to attend the call when the pandemic first hit in March 2020, we said very clearly that we have absolute confidence in our customer segment. Our operating profit is strong. Even if we have to make higher provisions, we are confident that we don’t need to raise capital and we’ll be able to withstand this — challenges posed by COVID.

I don’t believe that any bank would have shown almost 100% or high, in fact, in fourth quarter, our recovery upgrade is 100%, above the slippages and the slippages have a large part of gold loans and gold loans is 100% secured. So, barring gold loans, we are more or less back to similar level as pre-COVID in terms of the monthly slippages, while we are continuing to do a strong performance in recoveries and upgrades. So, that is where we are.

Our capital position is strong. We were not able to, in one year, RBI has said that the banks cannot declare dividends. Next year, we took a conservative approach. This year, we have declared a dividend of INR1 and hope that situation continues to improve for us and we are confident kind of activities that we have done and the kind of investment we are putting, we will continue to build from here on.

So, those are some of the few thoughts that I wanted to share with you. I’m happy to take questions.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Darpin Shah from Haitong Securities. Please go ahead.

Darpin Shah — Haitong Securities — Analyst

Yeah, congratulations on good set of numbers first of all. So, a couple of questions. First is on the restructured book. Our restructured book is still flat on a sequential basis. So, if you can just highlight, sir how much proportion of the book has ended the moratorium? What kind of collection efficiencies are we seeing specifically in the restructured book?

Murali M. Natrajan — Managing Director & Chief Executive Officer

The collection efficiencies that we have presented to you in the press release includes the restructured book, which is billed. And customers who are in various degrees of moratorium; three months, six months, nine months, 12 months, they keep coming into the billing cycle and we are still able to achieve pretty decent collection efficiencies, including the restructured and delinquent book. If the restructured book under the RBI guidelines in COVID will remain as restructured even if they are continuing to pay the restructured instalments or whatever the payment plan is. They cannot be moved to a normal book. I don’t think there is any provision to move that into a normal book.

If once they move into some kind of delinquency or NPA, they’re treated like any other NPA and take then the provision recoveries and so on. So, we are pretty confident about our restructured book. I don’t have any concerns. We have not restructured any unsecured book. So, as they come — become — they come out to billing and so on, they have become NPAs. That is not the case we have. We have only restructured secured kind of book, which is largely mortgages and SME.

Darpin Shah — Haitong Securities — Analyst

Any number in terms of billing, if you can go ahead?

Murali M. Natrajan — Managing Director & Chief Executive Officer

We don’t give details on moratorium kind of book. All I want to say is that they’re in different categories of moratorium; three, six, nine, 12, shorter moratorium for commercial vehicles, slightly longer moratorium for home loans.

Darpin Shah — Haitong Securities — Analyst

Thank you, sir. Sir, second question was in our GNPA break up which you provide, I see SME GNPAs are up sequentially. Any specific thing to…

Murali M. Natrajan — Managing Director & Chief Executive Officer

There is nothing to worry about on that. In November 12, RBI Circular, they have said that in the past, customer’s debits and credits have to be matched at the end of the year in the balance sheet. They changed the norm in November 12, saying that every 90 days — every day for the past 90 days the debits and credits have to match. So, there is a whole process of educating the customers on this new norm of Reserve Bank of India. In fact, the regulation itself says, please educate customers and we have been educating the customers that on an everyday basis, they have to clear up the previous 90-day debit. So, we have had some challenges on those kind of customers, but they’re all in good shape. There is nothing to worry about on that.

Darpin Shah — Haitong Securities — Analyst

Okay. Bharat, sir just two data keeping questions for you. If you can provide the break up of provisions and yield and cost of funds for the quarter?

Bharat Laxmidas Sampat — Chief Financial Officer and Chief Investor Relation Officer

The NPA provision — net NPA provision is INR59 crores. As in every quarter, we have made INR3 crores floating provision, INR8 crores is standard assets provision, RBI-mandated standard asset provision and from restructuring provision, there is INR3 crores reversal on accounts which got closed.

Darpin Shah — Haitong Securities — Analyst

Okay. Thanks. And sir, yield and cost for the quarter. You provided margins, but…

Murali M. Natrajan — Managing Director & Chief Executive Officer

Do we provide those information?

Bharat Laxmidas Sampat — Chief Financial Officer and Chief Investor Relation Officer

Yields on Advances is given in the presentation for the quarter, 11.06%.

Darpin Shah — Haitong Securities — Analyst

That is for the full year.

Bharat Laxmidas Sampat — Chief Financial Officer and Chief Investor Relation Officer

Okay. Okay. Give me a minute. Yield on advances for the quarter is also 11% and…

Darpin Shah — Haitong Securities — Analyst

11%?

Bharat Laxmidas Sampat — Chief Financial Officer and Chief Investor Relation Officer

Yeah. Yield on Advances for the quarter is 11% and cost of funds is 6.04%.

Darpin Shah — Haitong Securities — Analyst

Fair enough. I’ll come in the queue. Thank you for this.

Murali M. Natrajan — Managing Director & Chief Executive Officer

Thank you, Darpin.

Operator

Thank you. The next question is from the line of Renish Hareshbhai Bhuva from ICICI Securities. Please go ahead.

Renish Hareshbhai Bhuva — ICICI Securities — Analyst

Yeah, hi, sir. Congrats on a great set of numbers. So, sir, just two questions, one is on the CV portfolio. Okay. So, our total exposure is pretty small, at around 4%. But when we look at the collection efficiency it’s been little stickier around…

Bharat Laxmidas Sampat — Chief Financial Officer and Chief Investor Relation Officer

We lost you Renish.

Murali M. Natrajan — Managing Director & Chief Executive Officer

We can’t hear you.

Renish Hareshbhai Bhuva — ICICI Securities — Analyst

Hello?

Murali M. Natrajan — Managing Director & Chief Executive Officer

We can’t hear you.

Bharat Laxmidas Sampat — Chief Financial Officer and Chief Investor Relation Officer

Could you repeat the question please, Renish. We could not hear you.

Renish Hareshbhai Bhuva — ICICI Securities — Analyst

Is it better now, sir?

Murali M. Natrajan — Managing Director & Chief Executive Officer

Yeah. Now better, yes.

Renish Hareshbhai Bhuva — ICICI Securities — Analyst

Okay. So, I was just saying that on the CV portfolio, while our total exposure is only 4%. But when we look at the collection efficiency of 85%, we’ve been sticky for last four, five months. So, can you throw some light on the current status of this book?

Murali M. Natrajan — Managing Director & Chief Executive Officer

See, Renish, we are only originating INR20, INR25 crore of new loans in commercial vehicles.

Renish Hareshbhai Bhuva — ICICI Securities — Analyst

Right, sir.

Murali M. Natrajan — Managing Director & Chief Executive Officer

So, therefore in some ways it’s a declining portfolio. In a declining portfolio, the good portfolio pays, the bad portfolio is stayed [Phonetic]. Despite that our collection efficiency is coming at about 85%. Second point that I would like to tell you is that more or less the slippages versus recovery is matching on a month-on-month basis in commercial vehicles. And what we believe is — what we believe is that as we see the portfolio, we do the reviews of collection and all. We do see that we should be able to do — continue to do better in recoveries and upgrades, although there may be some slippages. The 85% collection ratio is clearly on account of some — somewhat kind of, because of the declining type of portfolio.

Renish Hareshbhai Bhuva — ICICI Securities — Analyst

Okay, got it, got it, sir. And sir, second question is on the disbursement number, which we provided in the press release. So, I think under co-lending we have disbursed close to 20 billion-odd, so incremental growth in Q4, maybe largely driven by the co-lending. So, if you can throw some light in…

Murali M. Natrajan — Managing Director & Chief Executive Officer

Not necessarily. The co-lending part is largely gold loans. So, gold loans, as you know, has a very high repayment rate. Right? Our growth. Our growth is showing up pretty well because if you look at our mortgage numbers, it is now almost INR1,000 crore we are showing. And we are likely to do far better in the coming months if everything goes well. Right? We also are likely to do well in AIB product, which is KCC tractors and all because we have built some capacities. Of course as you know, quarter one is always kind of a, kind of a, not so great quarter for most banks because of April, because of holidays and so on. But the way we’re building capacities, we are pretty confident that we are putting it in a good trajectory.

Renish Hareshbhai Bhuva — ICICI Securities — Analyst

Got it. No, sir, I just I wanted to get a sense that since it is a big chunky in nature, if we then get this kind of business under co-lending in Q1, then there will be risk on the growth. So, I just wanted to get a sense on that.

Murali M. Natrajan — Managing Director & Chief Executive Officer

See co-lending only one part of our strategy, it is not our main strategy. I don’t believe that any one particular co-lending entity will contribute more than 5% of our entire portfolio. Right? And co-lending, we’re doing essentially at the moment in only gold loans and gold loan itself has certain seasonality and certain characteristics, which is not uniformly high or low disbursal like that keeps happening in gold loans. Like you may have observed that in gold loan companies itself. Right?

Renish Hareshbhai Bhuva — ICICI Securities — Analyst

Correct, correct. Right, sir. Right.

Murali M. Natrajan — Managing Director & Chief Executive Officer

Therefore, see co-lending is only one part of it. We have now — see co-lending and TREDs is two important products that we have added in our suite of products this year. Mortgage will continue to be our mainstay and we expect mortgage currently, which is almost at 48% including AIB, could well go beyond 50% to 54% by end of the year. That’s the way we’re thinking about it.

Renish Hareshbhai Bhuva — ICICI Securities — Analyst

Got it. And sir, just the last question from my side, a bit on the strategy side. So, we have now closed this year on a 1% ROA. What could be the journey from this level of ROA over next two to three years, sir?

Murali M. Natrajan — Managing Director & Chief Executive Officer

Yeah. So, the way we are seeing, I can only talk about how we’re seeing it. We are making investments and we will make investments. Okay? And the investment will be in branches, which we have already said 25 to 35 kind of branches and we will continue to add — because we are doing granular portfolio, we will continue to add front-line staff, which is sales, credit underwriting, operations. Those kind of people will be continuing to add in our book, which always has some near-term impact on cost income ratio or cost to average assets and so on.

So, we expect — and in quarter one, given the interest rate movement, we may not have many opportunities in terms of treasury gains and all this year. I don’t believe any bank would have that kind of opportunities. So, I believe that we are on a path where we should be back to to 50 basis points, 55 basis points on cost to — cost to — cost of credit, because we are seeing pretty decent performance in our recoveries and upgrades and the slippages on the main portfolios, which are essentially SME, mortgages and CV, are pretty consistently kind of coming down. So, we have reasonable level of confidence in that.

As far as NIMs are concerned, we are confident that we will operate in the 3.65% to 3.70%-odd kind of range. If you do a better job on recoveries and upgrades, we may see some uptick in NIMs, but I don’t want to keep betting on that. That is one of the reasons why you see our NIM to be pretty strong this quarter. Right? And — but when we are recovering, because you are having a secured loan book, when we do recoveries, we are able to get the past dues in terms of interest as well, which helps our cause in terms of the interest income and NIM. So, my viewpoint is that in three to four quarters, our intention would be to consistently deliver 1% ROA and at least 12% to 14% — between 12% to 14% ROE. That is our intention as we see the whole thing playing out.

Renish Hareshbhai Bhuva — ICICI Securities — Analyst

Got it. Got it, sir. Thank you so much, sir for such a detail answer. Thank you, sir.

Operator

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

Mahesh MB — Kotak Securities — Analyst

Good evening, and congratulations on a great set of numbers. This is a similar question that we’ve been asking for the last few quarters. If you could kind of give us a perspective how are you seeing the customer segments in terms of the recovery that they’re seeing in their business? And also, if you could kind of give us, looking into FY ’23, you think that the cash flows have kind of fully normalized for the borrower segment that we are working it.

Murali M. Natrajan — Managing Director & Chief Executive Officer

I will ask my colleague, Praveen, of course, we do a lot of hands on reviews on collections. But having said that, Praveen, how are the cash flows? What is the kind of…?

Praveen Kutty will help us on this.

Praveen Kutty — President – Head Retail & SME Banking

Hi, Mahesh.

Mahesh MB — Kotak Securities — Analyst

Hi, sir.

Praveen Kutty — President – Head Retail & SME Banking

So, what you’re seeing right now is that the bounces are slightly elevated as compared to the pre-pandemic level. However, we are clearly seeing the repayment to be at the pre-pandemic level. So, across the self-employed segment, new vintage pre-pandemic book the period in between, we are seeing that the cash flow has come back to what was the normal before COVID hit us, in — specifically, in the secured products that we deal with and we mostly deal with secured products. So, whether that is LAP home loan and the CD that we currently do, you’re finding it is — it’s coming back to normal equally importantly, when — the disbursals that we did, if you were to see the texture and the cash flow, which we have for fresh underwriting, we are saying that kind of segment that we address there, it’s pretty much the way it was pre-pandemic.

Bharat Laxmidas Sampat — Chief Financial Officer and Chief Investor Relation Officer

And Praveen, comment also on the demand that is coming in SME, like enhancement kind of…

Praveen Kutty — President – Head Retail & SME Banking

Yeah. This — you probably know this anyways, but if you see the trade, the trades in our credit bureau is at a never before high. Approval rates are not back to pre-pandemic levels across multiple products, but there is increased demand happening on the — whether you take mortgage or you take — practically, every product, you find that the inquiries have significantly shot up, but approval rates are kind of still lagging behind. And that seems to be a continuing theme as we — as we go along.

Murali M. Natrajan — Managing Director & Chief Executive Officer

And Ajit can comment comment on TREDs. I mean how, what kind of demand are you seeing in TREDs. Ajit, is our Treasury and FI head who tackles the bids in TREDs.

Ajit Kumar Singh — Head – Treasury & Financial Institutions Group

Yeah. For one level of recovery like indicative of recovery is the business that we get kind of bills that get discounted on the TRED and that figure has been increasing during the last financial year like again when you make a best effort, you can discount a bill of INR3 crore or INR4 crore in a day. Now, with best effort, now it comes to INR6 crore or INR7 crore. This goes to show that they are having increasing sales and volume is increasing. So, this is one of the [Indecipherable] indicator of recovery that is happening there. Thank you.

Mahesh MB — Kotak Securities — Analyst

Thanks, Thanks. Murali, just to kind of, just kind of wrapping up this question, if looking at the fact that almost all the business seems to be kind of giving you fairly comfortable sales, do you think the acceleration of the loan book during the course of this year would be a little bit back ended, or you think that you are ready to kind of push the pedal and get into a full-gear beginning next quarter itself?

Murali M. Natrajan — Managing Director & Chief Executive Officer

See, as far as salespeople are concerned, everyone has put a foot to the floor. Like they have pressed the accelerator to the floor without of course compromising on operational risk and credit parameters and so on. I have never seen in banking first quarter to be great. Although, we always try to define — I mean I don’t understand why April cannot be like March, I’ve never understood in all these years. But having said that we have at the moment no hesitation. I don’t believe that credit is concerned with any acceleration of loan book. Of course, we are not changing any parameters. We are not changing any credit policies. Other than we usually keep tweaking based on our own analytics and so on. So, we have no hesitation in just keep moving forward at the moment.

Mahesh MB — Kotak Securities — Analyst

Perfect. Thanks a lot.

Operator

Thank you. The next question is from the line of Uttam Purohit from Perfect Research. Please go ahead.

Uttam Purohit — Perfect Research — Analyst

Yeah. Hello, sir.

Murali M. Natrajan — Managing Director & Chief Executive Officer

Hello, sorry.

Uttam Purohit — Perfect Research — Analyst

Since we are — I have just a couple of questions. Since we are on track in terms of ROE, cost to income ratio at improving trend, can you throw some light on the long-term target to achieve let’s say in our next three to four years?

Murali M. Natrajan — Managing Director & Chief Executive Officer

Fourth quarter, kindly take a look at our results for the last 13 years, actually the last 10 years if you like, fourth quarter has always been very strong for us as compared to the first quarter. There are couple of reasons for that. One is, in first quarter, we normally end up giving salary increase and all, which starts to impact us in first quarter itself. However, the balance sheet growth is not there to support that sudden cost increase, that is the first quarter. At times we get benefit of treasury gains in the first quarter, which helps us to kind of offset this increase in costs in the first quarter. Fourth quarter is always very good because you have the full balance sheet thing and also some of the income comes back ended, especially in the PSLC, which is the Priority Sector Lending kind of income.

So, I would like to believe that the kind of trajectory that we are setting in maybe three to four quarters, consistently we should be on a track to deliver over 100 basis point on ROA and in the range of 13% to 14% on ROE. Maybe there will be some aberration here and there in one of the quarters depending upon some items. Other than that I think on a trend basis, that is what we are likely to see if we continue the same momentum what we are building.

Uttam Purohit — Perfect Research — Analyst

Okay. Thank you, sir. And we have grown our advances by 13% Y-o-Y. Could you help us understand, is it safe to assume similar growth going forward? And going forward, is it led by branch expansion or digital push?

Murali M. Natrajan — Managing Director & Chief Executive Officer

It’s a very big question. We have been investing in front-line people, salespeople, operations people, credit people. So, we are building capacity. Our intention is to double the balance sheet in between three to four years’ time, which means that we are trying to put the bank on a 20% growth rate trajectory. That is what our intention is without any hope we don’t get into any disruptions of any kind. Other than that, it looks like the kind of capacity that we are building now should help us to achieve those kind of growth level. It will be a mix of digital, branch expansion, front-line expansion and so on. So, I can’t put a finger on exactly what will contribute to what.

Uttam Purohit — Perfect Research — Analyst

Okay, sir. Thank you, sir.

Operator

Thank you. The next question is from the line of Amit Mehendale from RoboCapital. Please go ahead.

Amit Mehendale — RoboCapital — Analyst

Thanks for the opportunity. First of all, congrats on good set of numbers. Sir, basically, if we look at last several quarters our understanding is that not only this quarter but even COVID was handled very well by the bank and like you said in the beginning that team has always been confident about the secured book and that has played out and probably this quarter is just a reflection of all the hard work that has been done in past quarters. My question is, although the operating performance has been good, markets don’t seem to be as enthused on the valuation side. So, what would be management’s understanding of the situation in general? That is one. And secondly, do you think is it partly due to slightly slower growth in the loan book in the past several years?

Murali M. Natrajan — Managing Director & Chief Executive Officer

Neither me nor management I believe understands the dynamics of how market things about stocks and understand these things. What we can comment is on our strategy and our performance and our opportunity. So friend, I’m not able to answer that question.

Amit Mehendale — RoboCapital — Analyst

Sure. No problem. Thank you, sir.

Operator

Thank you. The next question is from the line of Jatin Kumar from Alpha Capital. Please go ahead.

Jatin Kumar — Alpha Capital — Analyst

Hello, sir. Congrats on good set numbers. Sir, my question, first question is on the capital. We have put [Technical Issues] to raise INR500 crore.

Operator

Sorry to interrupt Mr. Kumar, but your voice is breaking, sir.

Murali M. Natrajan — Managing Director & Chief Executive Officer

Yes. Would you like to speak directly into the mic or something? Maybe some distortion is happening.

Jatin Kumar — Alpha Capital — Analyst

Is it better now?

Murali M. Natrajan — Managing Director & Chief Executive Officer

Yes. Far better, yes.

Jatin Kumar — Alpha Capital — Analyst

So, I wanted to enquire about the capital raising plan. So, we have raised up capital — capital adequacy right now. So, how urgent do we need that capital? Is it just an enabling resolution?Bharat or Satish, would you like answer that question?

Bharat Laxmidas Sampat — Chief Financial Officer and Chief Investor Relation Officer

It is an enabling resolution. If you see last few years AGM notices, we have been taking it every year because QIP resolutions taken are valid for one year. And if in the event opportunistically, we want to raise capital then it shortens the time to complete the transaction.

Murali M. Natrajan — Managing Director & Chief Executive Officer

Bharat, would you like to comment on our risk-weighted asset and the efficiency of that as well?

Bharat Laxmidas Sampat — Chief Financial Officer and Chief Investor Relation Officer

Also, if you see for last few years, our risk-weighted assets increase in lower proportion as compared to the advances which go up because a lot of our assets being secured come in at a lower risk-weighted assets. So, capital utilization efficiency is very good and that we have targeted for last four, five years. For example, gold loans which you do come in at 0% risk weight. Home loans come in, what, 35%. Regulatory retail comes in at 75%. So, all this helps us in — I mean, we’re not large in corporates and also not large in off-balance sheet transactions. So, these help us to grow, but at the same time not consume capital very fast.

Murali M. Natrajan — Managing Director & Chief Executive Officer

So therefore, given the current capital adequacy that we are in, we are confident that if we maintain a growth trajectory, much of the accruals — profit accruals will help us to achieve the growth. However we do, we’ll look at raising capital, maybe three, four quarters down the line.

Jatin Kumar — Alpha Capital — Analyst

Sure, sir. Thank you. And sir, my next question would be given rates are going up in the system, so how do we think on the NIMs going forward?

Murali M. Natrajan — Managing Director & Chief Executive Officer

We believe our business model operates on a NIM range of about 365 basis points to 375 basis points. We want to reset steady state. This quarter has been very good, primarily because we have done a decent job on recoveries and upgrades, which also helped us in, recovery in some of the interest that we had to forego in the past and also we are doing a decent job in terms of the CASA growth, which is also helping us, slowly bring down some cost of funds as well.

So, we believe that much of our portfolio is re-priceable barring say maybe gold loans and commercial vehicle, tractors. Most of our portfolios are either linked to EBLR or to MCLR depending upon when they’ve been originated. So, there will always be impact of raising interest rates. But we believe that we have gone through those kind of cycles in the past. So, our NIM should be in that range.

Jatin Kumar — Alpha Capital — Analyst

Sure, sir. And any credit cost guidance for the coming year?

Murali M. Natrajan — Managing Director & Chief Executive Officer

We can’t give you a credit cost guidance for a particular year, but what we believe is that in a steady state basis, hopefully, in about two to four quarters, we will be on a 50 basis, 55 basis cost to average assets, which is what has been our performance for many, many quarters prior to COVID. And at the moment, our PCR is at 68% and if you back off the gold loan NPA, it’s actually at 72%.

Jatin Kumar — Alpha Capital — Analyst

So, that kind of PCR we will like to maintain going forward? Whether we want to increase it or…

Murali M. Natrajan — Managing Director & Chief Executive Officer

We don’t have any guidance on what kind of PCR we maintain. All we know is, given our loss given default experience, we believe that we are in very good position in terms of NPA coverage.

Jatin Kumar — Alpha Capital — Analyst

Sure, sir. Thank you and all the best.

Operator

Thank you. The next question is from the line of Krishnan ASV from HDFC Securities. Please go ahead.

Krishnan ASV — HDFC Securities — Analyst

Yeah.

Murali M. Natrajan — Managing Director & Chief Executive Officer

Good ahead, please.

Krishnan ASV — HDFC Securities — Analyst

Hi, Murali. So, my question is to do with just competitive I mean positioning of DCB over the past couple of years and maybe that could hold an answer for what gives investors a little more comfort. Just on how DCB can stay relevant from a three- to five-year perspective. You are making a lot of investments. But are you seeing evidence that a lot of that, I mean 20% growth that you are aspiring to is with existing customers rather than having to run on the treadmill to keep acquiring new customers? The reason I’m asking that is you do a lot of work with your, with your clients, you do a lot of secured lending, you kind of cultivate that credit culture and then somebody is able to pull it away. Is that a risk you see for most mid-size banks, including yourself?

Murali M. Natrajan — Managing Director & Chief Executive Officer

That kind of — if that is the risk that kind of exists for a lot of NBFCs and they maybe thinking that we are eating their lunch after they cultivate the credit, that’s the way the ecosystem works, if you want to call it like that. We have a very clear idea of what we want to target and we have not strayed away from that at all. Our ticket size is 30 lakh, 40 lakh. We do see competition, we see competition of NBFC, we see competition of small finance banks, at times, we do see competition of either public sector or HDFC, ICICI and all.

But given that the size of this segment, the SME self-employed segment itself is large and we have decent product, we have decent experience. We have continuing to improve our sales trends. We are pretty confident that we will remain relevant. And it’s very difficult to answer these questions because they asked the same question in 2009, how are they relevant. We are now standing at INR45,000 crore balance sheet, at the time, our balance sheet was INR5,000 crore. Maybe this question will be asked when we are at INR90,000 crore few years down the line, we’ll still answer the same way.

Krishnan ASV — HDFC Securities — Analyst

I understand. Many thanks. Thank you.

Operator

Thank you. The next question is from the line of Rajeev Arora from Serlin Capital [Phonetic]. Please go ahead.

Unidentified Participant — — Analyst

Hello.

Murali M. Natrajan — Managing Director & Chief Executive Officer

Yes.

Unidentified Participant — — Analyst

Hello. Thanks for the — hi, Murali.

Murali M. Natrajan — Managing Director & Chief Executive Officer

Hi, how are you?

Unidentified Participant — — Analyst

Just want — fine, I’m good. This is regarding this — I just wanted to understand this segmental revenue in the corporate and wholesale banking, there’s some INR29 crore odd loss is there. So, have we made some extra provisions there? Or why is that item coming?

Murali M. Natrajan — Managing Director & Chief Executive Officer

I’m grateful that you look at the segmental this thing, I don’t look at it at all. Okay? I just follow whatever RBI says in terms of how to classify all that and I present it. Okay? So, I really can’t answer that question of yours. You can ask me any other question, which is related to the press release and investor presentation.

Unidentified Participant — — Analyst

Okay. Okay. I got it. Thank you.

Operator

Thank you. The next question is from the line of Jai Mundhra from B&K Securities. Please go ahead.

Jai Mundhra — B&K Securities — Analyst

Yeah. Hi, sir, good evening.

Murali M. Natrajan — Managing Director & Chief Executive Officer

Hi.

Jai Mundhra — B&K Securities — Analyst

Yeah. So, congratulations on a great set of numbers, sir. I wanted to understand, a, if you can share the loan book break up by benchmark? How much is fixed, how much is floating and how much is EBLR linked?

Murali M. Natrajan — Managing Director & Chief Executive Officer

We don’t present that detail. I’m really sorry about that. We have given you a flow chart on — sorry, a pie chart on the various products. So, you can safely assume that mortgages are either linked to EBLR or MCLR. Some part of the mortgage book could be fixed for maybe, let’s say, a six-month or one year because we have just acquired. And then later on they will move to EBLR. As far as SME MSME is concerned, they are linked to EBLR. Kissan Credit Card is linked to EBLR, tractors, CV and all will be fixed rate. Am I right? So, fixed rate. And MFI-BC will be — MFI definitely is a — BC portfolio is anyway a fixed rate. So, that is how it is. So, you can make your estimate on that basis.

Jai Mundhra — B&K Securities — Analyst

Right, okay. And sir, secondly, we have seen a 50% QoQ and similar Y-o-Y growth in disbursement. But if I look at the fee, Y-o-Y it is declined, the core fee and that Q-o-Q is only up maybe 5%.

Murali M. Natrajan — Managing Director & Chief Executive Officer

Year-on-year fee comparison may not be correct because in the first quarter — in the last year we had a lot of treasury gains because the interest rate was moving in the right [Speech Overlap] yeah, the interest rate was moving the right direction for us. Right? So, in this year, the one-time treasury gains are much less than what we had last year and probably, next — in the coming year, may not have anything at all. So, if you back it off core fee income including this quarter is showing a very healthy trend for us.

Jai Mundhra — B&K Securities — Analyst

No. So I was — I was looking at the commission exchange and brokerage. So, we can leave the treasury and maybe exchange transaction. So, even the core EB is down Y-o-Y and is only up 5% QoQ. So, just wanted to check the disbursement that we…

Murali M. Natrajan — Managing Director & Chief Executive Officer

But you have to remember — you have to remember that this year first four months there has been no disbursement at all. Right? We didn’t have any disbursement in the first four months, in the sense, very limited disbursements we had. So, to that extent, the disbursement number also we can only compare quarter-on-quarter of last year as well this year, last year for third quarter, sorry fourth quarter, till about March 25 or March 27, we were still active before which the second wave started impacting us. And not all three is linked disbursal, but I want to say is we have looked at the core fee trajectory and we are pretty confident that it is mirroring the underlying business performance and the customer acquisition.

Jai Mundhra — B&K Securities — Analyst

Understood, sir. And just a general thought on, we are clearly in the rising rate environment. And have you — do you see a change in the behavior of your underlying customer in rising rate, particularly with terms of balance transfer? Is it beneficial or is it that you have to work more harder to for the customer retention?

Murali M. Natrajan — Managing Director & Chief Executive Officer

See, we have managed this business in the last several years in rising rate, normal rate, declining rate kind of situation. And in every situation, there are some challenges come. Sometimes in a declining interest rate also you have challenges where customer wants to quickly do a BALPA [Phonetic]. But in a increasing interest rate situation, you also get some benefit because term deposit side, you want to do a break of his term deposit and go to a higher rate, where you get some benefit of the breakage. So, all these factors are there. It’s very difficult to kind of separate each of these factors. We have an anti-attrition team, which looks at the portfolio. If a customer wants to exit, we have intervention strategies by which we are able to retain a lot of the customers.

Jai Mundhra — B&K Securities — Analyst

Right. And then last question is, sir, on this gold loan that we acquired through co-lending. I mean, who is the predominant co-lending partner and what kind of OpEx or risk sharing arrangement is there? If you can maybe broadly discuss. Maybe who is the predominant partner? Is it digital-only partner or what kind of OpEx or risk sharing is there?

Murali M. Natrajan — Managing Director & Chief Executive Officer

In co-lending, there can’t be risk sharing, that is RBI’s rule. If you take 20% — if you take 80% of it, the loss also, we have to take 80%. There is no FLDG concept and all in co-lending. Right? So, we have gone with gold, gold loan business where we have very reputed partners and the OpEx is very, very limited because we are operating with about team of four, five people and it is purely digital. When I said digital means, the entire loan comes to our book in a digital fashion. However, we have number of checks and balances which are done by us typically to assure that the agreed process, controls, everything is followed by our partner. That’s the way we are running this model.

Jai Mundhra — B&K Securities — Analyst

And would Muthoot be a significant partner here or this is…

Murali M. Natrajan — Managing Director & Chief Executive Officer

No, we don’t want to comment on any particular partner and all.

Jai Mundhra — B&K Securities — Analyst

Sure. No worries, sir. Yeah. That’s it from my side, sir. Thank you.

Operator

Thank you. The next question is from the line of Sunil Jain from Nirmal Bang Securities Private Limited. Please go ahead.

Sunil Jain — Nirmal Bang Securities Private Limited — Analyst

Yes. Congratulations, sir, on a good set of number.

Murali M. Natrajan — Managing Director & Chief Executive Officer

Thank you.

Sunil Jain — Nirmal Bang Securities Private Limited — Analyst

Sir, my question relate to, you got a slippage of the INR378 crore and you said that apart from gold loan, the slippage are now at pre-COVID level, whereas gross NPA of gold loan are more of a similar quarter-on-quarter. So, is that like a lot of loan got linked in during the quarter and got recovered also?

Murali M. Natrajan — Managing Director & Chief Executive Officer

See, in gold loan, we offer overdraft facility, okay, which is a very unique product, which means the customer has to continuously keep servicing the interest. Right? What happens is these are all small customers. We are talking about average ticket size of what, INR2 lakh, right? These guys usually come to us from a NBFC background where they may not have been in the habit of paying their interest on a monthly basis. So, there is a huge amount of education and SMS and messages and all that kind of things we have to do because for this flexible facility of the overdraft, they also have to bring the discipline of paying it on a timely basis. So, that whole process is continuing. We’ve hardly ever had any losses in our gold loan. Gold loan, you make a loss only if you have made a mess of the valuation or you have accepted some spurious metal. Other than that we hardly ever face any challenge on NPA. So, some amount gets recovered, upgraded and then something else goes into the NPA. This just keeps happening on a regular basis.

Sunil Jain — Nirmal Bang Securities Private Limited — Analyst

Okay. And sir, this co-lending gross NPA and all are included in gold loan or where it is included?

Murali M. Natrajan — Managing Director & Chief Executive Officer

I don’t know where it is included. But we have not seen any dramatic problem with our co-lending NPAs.

Sunil Jain — Nirmal Bang Securities Private Limited — Analyst

Okay, sir. Great, thank you.

Operator

Thank you. The next question is from the line of Atul Mehra from Motilal Oswal Asset Management. Please go ahead.

Atul Mehra — Motilal Oswal Asset Management — Analyst

Hi, sir. Good evening and thanks for the opportunity. Sir, I have one quick question, just wanted to check. Sir, firstly, is it possible for banks in India to do buybacks and with or without the permission of RBI or it’s not really possible at all?

Murali M. Natrajan — Managing Director & Chief Executive Officer

What is buyback?

Atul Mehra — Motilal Oswal Asset Management — Analyst

Basically buying back your own stock from the market.

Murali M. Natrajan — Managing Director & Chief Executive Officer

I have no idea about all this, frankly. You’re asking the wrong person. Ask about my bank and the performance, I’m happy to answer.

Atul Mehra — Motilal Oswal Asset Management — Analyst

So basically, it was in the connection that because, we’re trading at significant discount to the book, it is more in terms of efficient from a shareholder perspective to buy our own stock, because like it’s trading at a substantial discount, so it was in conjunction with that, sir?

Murali M. Natrajan — Managing Director & Chief Executive Officer

If you believe — of any stock if you believe there is value, you should just buy it. That’s all I can say. I can’t talk about my stock or any stock for that matter.

Atul Mehra — Motilal Oswal Asset Management — Analyst

No, no. What I mean is can the company buyback its own shares?

Murali M. Natrajan — Managing Director & Chief Executive Officer

I have no idea.

Bharat Laxmidas Sampat — Chief Financial Officer and Chief Investor Relation Officer

Yeah. But Atul, for the bank capital adequacy — it would imply capital adequacy reduction and you can’t reduce capital adequacy without RBI’s permission even for Tier 2, which was due and you are going to redeem, you have to take a prior approval from Reserve Bank, because you redeem here, where I’m not talking about making a call. Okay. If you don’t renewal, you end up in default, but still, you have to take RBI approval area before you redeem. So, RBI is not likely to allow buyback of shares if I understand that correctly or at least at the minimum, we’ll have to go to them. I don’t see that happening.

Atul Mehra — Motilal Oswal Asset Management — Analyst

Got it, got it. Because, sir, globally banks are very well allowed to pay dividends or do buybacks, so…

Bharat Laxmidas Sampat — Chief Financial Officer and Chief Investor Relation Officer

But here we are subject to Reserve Bank of India, sir.

Atul Mehra — Motilal Oswal Asset Management — Analyst

Right, right.

Ajit Kumar Singh — Head – Treasury & Financial Institutions Group

Kind of regulatory landscape that we are in India, generally banks are not known to do that. Like to my memory, the time when I’m working in Treasury. I haven’t seen it. So, Bharat has the answered that question. There is no likelihood of we getting that.

Atul Mehra — Motilal Oswal Asset Management — Analyst

Right. Got it, sir. Thank you and all the best. Thank you.

Operator

Thank you. The next question is from the line of Rohan Mandora from Equirus. Please go ahead.

Rohan Mandora — Equirus Securities — Analyst

Yeah. Hi, sir. Thanks for opportunity and congrats on good set of numbers. Based on disbursement data that has been shared, let me compute the repayment rates in mortgages as it comes from 25% plus. So, is that number correct or is it something that we need to exit in that?

Murali M. Natrajan — Managing Director & Chief Executive Officer

In this call, we won’t go into all those details. I have given you a plan saying the kind of capacity we are building. We are likely to double our balance sheet in three to four years. Whether the disbursement data, 25% [Foreign Speech]. We know that the way we are operating all our metrics seems to indicate that we will, in the area of products and the mix of products we are likely to be in a trajectory of doubling our balance sheet in three to four years and we’ll continue to build the capacity to achieve that.

Rohan Mandora — Equirus Securities — Analyst

Sure, sir. And sir, secondly, we have added a good number of branches in 4Q. But other OpEx is still broadly flattish Q-on-Q. So, was part of that already built in terms of preparation for branch expansion speaking or how should we look at the other OpEx trajectory going ahead?

Murali M. Natrajan — Managing Director & Chief Executive Officer

I think the OpEx will increase, but what is, I think last year we probably had a one-off effect in the fourth quarter on buying off some agri PSLC. We were short — we were not short, but we wanted to be more than adequate on agri PSLC, so we bought that. Instead of that debiting expenses, RBI rules has to, you have to actually debit your expenses. So that one-off, if you remove, you probably will come to a cost increase, which is fully reflecting the number of branches that we are putting.

Rohan Mandora — Equirus Securities — Analyst

Sure, sir. Thanks a lot.

Operator

Thank you. The next question is from the line of Amit Mehendale from RoboCapital. Please go ahead.

Amit Mehendale — RoboCapital — Analyst

Thank you. Sir, whenever we raise equity in future, is it fair to assume that dilution will happen only when bank create at least their one time book? I mean this is similar to the buyback question earlier.

Murali M. Natrajan — Managing Director & Chief Executive Officer

So, the way we are looking at it is that we are working this bank towards the kind of metrics like doubling the balance sheet in three to four year, 100 basis point of ROA, anywhere between 13% to 14% of consistent ROE and hopefully, those kind of performance starts to reflect on whatever it needs to reflect on. At the moment, we are quite adequate on capital. When we see that the growth trajectory and our capital planning kind of comes in a situation where we need to raise capital, we will take a call at that point in time. Right now, I don’t want to comment on what price we will do, what is the dilution. It’s very early to comment on all this because right now we don’t have any plans to raise capital.

Amit Mehendale — RoboCapital — Analyst

Sure. Okay, thanks.

Hiten Jain — Invesco — Analyst

Thank you. The next question is from the line of Hiten Jain from Invesco. Please go ahead. Yeah, thanks. So, I have three questions. First question — the first question is last three quarters, we are seeing a very healthy traction in CASA. So, exactly what’s happening there and how much of it is sustainable or is it driven more by a chunky current accounts?

Murali M. Natrajan — Managing Director & Chief Executive Officer

We don’t have chunky current accounts, neither do we have chunky savings account. We don’t work on chunky account because that will be detrimental to our LCR. So, we are working on retail and natural person in CASA. Praveen, do you want to comment on that? Yeah, hold on, our Praveen Kutty will comment on our approach to CASA.

Praveen Kutty — President – Head Retail & SME Banking

Effectively, our target market, both on the asset side and liability side are SME customers. Mostly, these are proprietary shared small, small type businessmen who contribute to our savings account. We have a, we focus on individual and proprietorships primarily for our current account and savings account. There are a few entities, LLPs and companies come in, but they are far and few in between. We focus on very granular secular small ticket large franchise customers to be acquired and that’s how our — I mean, that’s the ideal way of growing our book. And now that we have messaged in about 400-odd branches, that’s where the momentum is coming from.

There is very limited focus. Actually, there is no organized focus on getting current accounts of large corporates in our radar scheme of things. The other thing that I would point out is that DCB Bank has been approved by Ministry of Finance and subsequently by the — by-RBI. In the agency and government banking, we are, have been granted the approval for collection of CBDT and CDIC, essentially GST and your normal income tax, TDS, TCS, et cetera and for working people. So, work is underway to integrate with the CBDT and the CBIC system, which will further enhance primacy of DCB Bank account over multiple [Technical Issues].

Hiten Jain — Invesco — Analyst

Okay, all right. The second question was, so, while obviously, you’re seeing a very healthy outcome on upgrades and recoveries. But in terms of flow slippages, the gross slippages continue to stay elevated and even at time comment where you said outside gold loans you’re seeing all the other segments returning to pre-COVID levels. So, even if I look at gross ratio [Phonetic] of pre-COVID they used to be lower than what you are reporting this quarter and last two, three quarters. So, how should we understand this?

Murali M. Natrajan — Managing Director & Chief Executive Officer

I don’t know how you are calculating it. What is the basis of your calculation, if you can help me understand?

Hiten Jain — Invesco — Analyst

Yeah, sure. So, the gross slippage number, which…

Murali M. Natrajan — Managing Director & Chief Executive Officer

[Indecipherable] How are you calculating tell me?

Hiten Jain — Invesco — Analyst

Yeah, yeah, I’ll tell you. The gross slippage, just one minute. Yeah. So, I’m just annualizing the gross slippages percentage of previous stage of advances.

Murali M. Natrajan — Managing Director & Chief Executive Officer

INR378 crores, take out some INR100 crores, INR150 crores out of that for gold loans, which comes and goes, comes and goes, because it’s an OD product, right? And I I’ve told you that because these people have to fall in the habit of servicing it on a regular basis. Is it fully secured? It’s a zero capital charge product. So, even if it becomes NPA, next quarter we just collect all three instalments, he becomes upgraded and he starts operating the account. So, the balance that is left would be about hundred and — let’s say, even if we keep it as 200, 200 multiplied by four is 800, 800 divided by, currently we are exiting at 29,000-odd crores. So, that tells me that we are in the range of some 2.5% annualized slippage, which is what it was before. And that is why I made the statement that barring gold loans, we are pretty much back to similar levels at pre-COVID. I hope my calculation fits with you.

Hiten Jain — Invesco — Analyst

Okay. I understand that. So, what’s happening in gold loans. Why — I mean you see this kind of behavior?

Murali M. Natrajan — Managing Director & Chief Executive Officer

I explained to you. What is wrong with gold loan is because if I give a OD product, the customer has disciplined issues at INR2 lakh will kind of portfolio. So, he doesn’t service his loan despite calling, reminding, and things like that. Then he comes and dumps entire three, four months’ interest and upgrades the account and start operating it. So, if he doesn’t do that, we end up selling the gold in extreme circumstances and having the recovery, which we don’t want to do because we want the account, we want him to continue to operate because it’s a high yielding portfolio.

Hiten Jain — Invesco — Analyst

Correct. And this product didn’t exist earlier pre-COVID?

Murali M. Natrajan — Managing Director & Chief Executive Officer

Existed earlier. It existed earlier but what has happened is RBI has changed the norms on November 12. Previously what RBI has said before November 12, is that at the end of the year, the debits and credits should match, not during the — during the year. You can read the Circular on November 12. It also said, please educate customers on this particular aspect. So, we are educating the customer saying that look on an everyday basis, you have to keep servicing, every month you have to keep servicing, not just accumulate that. We have achieved a lot on that yet, on a — we have to comply with the new guidelines. So, on the OD product of gold loan this problem is happening. We hope to lift this in about three, four months when customers will be fully onboard in terms of the practice of paying it on a regular basis.

Hiten Jain — Invesco — Analyst

Correct, correct.

Murali M. Natrajan — Managing Director & Chief Executive Officer

So, no worries on this and I don’t think you should annualize the INR378 crores, because it will be coming to wrong conclusions about our portfolio.

Hiten Jain — Invesco — Analyst

Correct. Understood, understood. And the last question is on your restructured book, so while you said that different accounts have different moratorium, but is it fair to say that all the accounts are paying interest and moratorium is only on the principal?

Murali M. Natrajan — Managing Director & Chief Executive Officer

The moratorium means the guy will not pay. If I give him a three-month moratorium, he will pay nothing for three months. If I give him six months moratorium, he will pay nothing for six months. Then at the end of six months, they will come to the normal billing, whatever we have agreed as the normal billing after the end of this month, they will start getting billed and the collection team will collect. In fact, we have actually collecting a lot of instalments from moratorium customers also in advance and keeping it because those customers are — see many customers are saying, look, I want to remain in moratorium but I want to pay the instalments. So, we are collecting the instalment and keeping it as they come out of the moratorium, we will start applying those instalments.

Hiten Jain — Invesco — Analyst

So, what percentage of your restructured book has not paid a single EMI last quarter?

Murali M. Natrajan — Managing Director & Chief Executive Officer

I have given you all the details on in the collection efficiency. This is all we can disclose my friend, we can’t disclose more than this. Any other bank discloses all that, come to me and show me, then I will try to understand whether we need to disclose that. Okay? Please refer to item number 10 on collection efficiency, we have given you enough data for you to go by.

Hiten Jain — Invesco — Analyst

Okay, okay, all right. Okay, thanks.

Operator

Thank you. [Operator Instructions] Okay. If no one is in the queue then we can close this call, operator. Thank you very much for your help. Thanks everyone for logging into this call. It’s been pleasure talking to you. Look forward to talking to you next quarter. Thank you. On behalf of DCB Bank Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.