Release Date: October 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- DCB Bank Ltd (BOM:532772, Financial) reported a 19.49% growth in its balance sheet, with similar growth in advances and deposits, indicating strong financial performance.
- The bank's CASA ratio improved from 25.04% to 25.61%, with savings growing by 27% year-on-year, reflecting effective customer engagement strategies.
- Core fee income increased significantly from INR 114 crore in Q1 to INR 139 crore in Q2, showcasing successful product engagement and customer interaction.
- The bank's gross NPA reduced from 3.36% to 3.29%, and net NPA decreased from 1.28% to 1.17%, indicating improved asset quality.
- DCB Bank Ltd (BOM:532772) has invested in upgrading its technology systems, which is expected to enhance operational efficiency and customer service in the future.
Negative Points
- Net Interest Margin (NIM) decreased to 3.27% due to one-off reversals and a slowdown in the microfinance sector, impacting earnings.
- Operating expenses grew by 26% year-on-year, outpacing the 20% growth in top-line revenue, raising concerns about cost management.
- The bank's exposure to microfinance has been reduced due to a weakening environment, potentially affecting future high-yield earnings.
- The cost-to-income ratio, although reduced, remains high at 64.3%, indicating room for further efficiency improvements.
- There is a structural shift from NIM to fee income due to regulatory changes in penal interest, which may affect long-term profitability.
Q & A Highlights
Q: You mentioned one-offs impacting NIM. Can you elaborate on the impact and future expectations? Also, when will OpEx growth slow down relative to top-line growth?
A: The one-off impact on NIM was due to an RBI circular, which has been fully accounted for in Q1 and Q2. This will not recur. Structural changes in P&L interest will continue. OpEx benefits are starting to show, and we expect further improvements in Q3 and Q4 as we optimize manpower and increase average ticket size.
Q: What is your total exposure to microfinance, and how is the asset quality in this segment?
A: Our microfinance and BC book is 16% of the total, down from 18% last quarter. Asset quality remains stable, with no significant early delinquencies. We took early action to reduce exposure, reflecting in the current portfolio.
Q: How is the cost of funds trending, and what are your expectations for the future?
A: The cost of funds has stabilized, and we expect it to remain flat. We have optimized our borrowing strategy to align with deposit costs, which should help maintain a stable cost of funds going forward.
Q: With the current NIM pressures, what is your outlook for margin improvement?
A: We believe NIMs have bottomed out. With the one-offs behind us and strategic focus on higher-yielding products like LAP and overdrafts, we expect margins to improve. The cost of deposits is stable, supporting this outlook.
Q: Can you explain the significant growth in fee income and its sustainability?
A: Fee income growth is driven by repeatable sources, including increased customer engagement and cross-selling. We have launched a wealth distribution vertical, contributing to this growth. We aim for sustainable fee income growth, with further improvements expected.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
