Private sector lender DCB Bank aims to double its loan and deposit portfolio in the next 3 to 3.5 years, MD and CEO Praveen Kutty said. business line. He said the bank, which will continue to focus on secured loan growth, aims to reduce the cost of deposits and expects slippages to remain stable going forward.
How is business growth going so far in the fourth quarter and your business guidance for the next fiscal year?
As a bank, we focus on the self-employed segment. The majority of our deposits and loans come from this customer segment. We have a presence practically in all of India, except the Northeast. There is no state where we hold more than 20 percent of the assets, so it is a well-diversified geographic portfolio. We have several products for the self-employed segment, including home loans, business loans and working capital loans for small and medium-sized businesses. Almost all loans, except business loans, are composed for the self-employed segments. While some are self-employed in agriculture, some SMEs are manufacturers, retailers, wholesalers, self-employed professionals like plumbers, welders, bakers etc.
We also ensure that our loan portfolio is largely secured and we primarily have the collateral security of residential or commercial properties, and we also have a sizeable gold loan portfolio which is of course secured as well. The ticket size is also low: our loans of ₹3 crore plus constitute just 14 percent of advances. We see growth continuing, coming from mortgages, the gold price rising and there is an increased demand for gold loans.
There is still some work to be done in the area of overdrafts for the SME segment. Microfinance loans are lower than last year due to the recent headwinds. KCC, the tractor book will continue to grow in a similar range, but the core mix will remain largely in favor of secured small-ticket business loans. We grew 19 percent in assets and 20 percent in liabilities; we plan to double our book in 3-3.5 years.
What are you doing to improve the CASA ratio?
Our CASA ratio is over 22 percent. We are focusing on reducing our deposit costs and to this end CASA plays an important role. The interest on our savings accounts is on the one hand as low as 1.5 percent and on the other hand as high as 6.9 percent.
Deposits in high-fee savings accounts are, quite frankly, money coming in for investments that would otherwise have gone to large deposits. It improves the CASA ratio, but not the cost of the deposit. So our focus is to get customers to use the savings account – to follow the flow and sooner or later the float will become a reality. The CASA ratio used to be very important because 4 percent was the maximum return on savings accounts, but now it has become expensive because of the freedom to price them differently. So the CASA ratio may not give the right picture on its own, but the trend line of the cost of deposits matters. Yet CASA remains a cheaper source of funding than bulk term deposits.
Currently, we have streamlined term deposit rates lower and grown deposits by 19.5 percent, reduced the cost of deposits by 10 basis points to 6.86 percent, and maintained the granularity of the deposit franchise. Our top 10 savers now account for 6.61 percent of total deposits, less than before.
Do you have room to further reduce the deposit rate?
We continually compare our bank’s peak term deposit rates with the top three private and top three public sector banks, and we see a convergence taking place. The difference between us and them used to be 89 basis points in March, now it has fallen to 60-65 basis points. The aim is to close this gap even further in the near future.
Your guidance with credit costs..
Our goal is to keep credit costs in the range of 45-55 basis points. What we see is that derailments have fallen to a three-year low, GNPA and NNPA are at a three-year low, and upgrades as a percentage of new derailments have increased to 86 percent. Post-Covid, we haven’t seen this level of upgrades. What happens in the self-employed market is that there can be delays, but what is also very true is the resilience of the customer base, which ensures that loss rates are low.
How do you see NIM moving forward?
The full impact of the 25 basis point repo cut will not yet be fully felt in the third quarter; some of it will be noticeable in the fourth quarter. But I think NIM will continue to improve in the future.
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