DCB Bank Limited (DCBBANK) Earnings Call Transcript

Sorry, Jay, that's not the right assumption. There has been a flow-through in MFI also. So, you had a MFI flow, you had -- actually, even gold, the flow was higher, even though the net impact is low, there has been a higher slippage and higher recovery. But clearly, across multiple lines, that's why in my commentary also, I said we're not happy with that high slippage. 4.6% is not a good slippage ratio, right? Our non-gold 3.1% is not it. We want to get it down to a 2.5% kind of level.

Right. Okay. So sir, what I'm trying to understand is that -- I mean, see, what we have seen is whenever any product segment starts to show some deterioration, it does not end up in -- it does not end in 1 quarter until unless there are some very drastic measures that are there or there was some event-specific thing which deteriorated, right? So, for example, so what have you done, let's say, in the last 90 days that will make you believe that incremental credit cost will only be 40 basis point because it looks like what has caused the trouble in this small ticket DA either you would have stopped them doing, that is number one. Or you have some very strong recourse from the DA partners that will insulate you? Or how is it that this is the first quarter or maybe the beginning of the deterioration in this segment. The outstanding book is also around INR 2,500 crore. Then how do we get a confidence that incrementally, it will only be 40 basis point credit cost?

So, let's go by this. One is that from a slippage perspective and a credit cost -- and secondly, from a credit cost perspective, okay? The confidence that -- which we have as management is based on the fact that the pool is small, okay? The second is, imagine a situation whereby we were not prudent and did not provide 100% on the MFI book and the unsecured DA book, we probably would have had a credit cost similar to what we had earlier. So, we would have had a higher slippage and similar credit cost. So, credit cost, I'm not considering it, just that we had accelerated the provision, taken it to a 59-odd bps level. So, even if we had done nothing, just by not taking the incremental provision, our credit cost would have been the same. That's why there is confidence that next quarter also will be -- next few quarters also will be of a similar nature. So, I do not -- all we have to do -- sorry, Jai, fully listen to me. All we have to do is not do any accelerated provision and the credit cost will remain at the kind of levels that we have. That's why we have a confidence to commit in the public what we think the future credit cost will be. So are we doing anything special to do that? No, we're not doing anything special to do that. Normally, our credit cost will be that in quarter -- anyway, we'll have a discussion when the next quarter results come in. I remember this conversation to see what the credit costs are.

Right. Sir, my point is unsecured NPA, you have to provide 100% within 4 quarters, right, within a year.

Correct.

So, it does not matter if you accelerate, don't accelerate within the year, you have to provide, if there are slippages.

Right.

Now this is the first quarter where you have seen slippages rising in the unsecured DA book. You may choose not to provide fully. But within FY '26, if there are slippages, you will have to provide 100%, right? So, I mean the point is if the slippages does not stop, then your credit cost cannot remain at 40 basis point.

Jai, only assuming that there is an unlimited quantum of unsecured and unsecured DA and MFI. It's a very limited amount. We have a limited amount. So that is why even if the worst-case scenario, if you were to estimate, it will be below 45 bps credit cost is what I say. Had we had a 10% or 9% or 8% unsecured DA and MFI book, then what you say probably is true. But since the universe of such loans are small, even in a worst case scenario, if you were to repeat or even worsen, your credit cost will still be lower than what it otherwise is. Are you with me or should I explain again?

Yes. No, no. So that is right. I mean that is fine that even if the situation remains like this, you are confident that slippages -- I mean, credit cost will be…

It will increase by 8 bps again, 37 becomes 45, we are still okay.

Yes, yes, correct. And sir, do you have any reports because this would be originated through partnership when you have such -- let us say, it looks like a very high single-digit kind of a slippages here. Do you have any reports or not meaningfully?

What -- okay, we have following things which we do and we have actually done. One is, we look at the collection efficiency of the originator. We look at whether the same customer is paying other loans and not the originator. These are things which are in our capability. And added to it, it is a question of speaking to the originator and telling them where the gaps are. But guess what? The collection focus on this will be very limited because it's a small book. We don't have that -- we don't -- neither do we have the ambition or the ability to overfocus on that because it's a small book.

Right. Okay. So, I'll take that there is no recourse, right? It's a business as usual thing that you would have entered into.

We'll soon see because we're taking 100% provision, you'll see writebacks coming through.

No, sir, actually, I am not worried about the write-off because INR 175 crores, right? I mean, we have been very [indiscernible] write-off.

Write-back, write-backs, whatever provision we have taken, the write-back of the provision.

Okay. And sir, on the fresh stress formation at the bank level and maybe within these product, the quantum is small, maybe 5%, 6% of the overall bank. But are you seeing anything trend or I mean, you have mentioned that the slippages, even if they were to remain here or increase also, it is under control. But I'm saying how should one look at the trajectory only? Is this like that the slippages like in MFI, we have had last 3, 4 quarters cycle, right? Now banks are saying that the slippages from second quarter onwards should improve materially. What is your sense in this unsecured BA book? How quickly or shortly or longer can that be the cycle, if you have any comments there?

Personal opinion is that the pain in microfinance will continue. It will take at least in 2, 3 quarters. Just because overall at a industry level from 6.8%, it has come down to 6.2%. 6.2% itself is a big number. So, I don't know. I don't have any very positive view on the microfinance industry at this point in time.

Right, sure. Okay, sir. And changing track, sir, on your cost of deposit, really a good job on the funding cost and this thing. Now we have cut the [ SAR ] rate, sir, I mean, in the month of July also. Any ballpark number of rupees crore savings through because you have cut in the multiple buckets, and it is very difficult for us to calculate how much interest savings would that be? If you have any ballpark number that basis the current balance, this could be the...

Jai, I think you should just compare the periodicity and the quantum of the rate cuts and see its impact on NIM. And you can compare with our competition also. When a rate cut of this magnitude happens, how much is the NIM impact for competition? How much is it for us? And then look at it for this quarter, look at it for next quarter, look at for the quarter later, you will see the efficacy of the management action coming there.

No, no, I'm not doubting that. I'm saying, sir, if you have any rupees crore number for cost of savings, I mean, benefit because of the cost of saving cut across card rates.

It is. We calculate it, but how does it matter when the NIM is the real indicator, right? I'm not even saying cost of fund or cost of deposits. The NIM is the true indicator of how that is behaving. So, you can take -- see, look, you took a hit of 30 bps on yield on advances, right? And 16 bps has been covered by term deposit -- sorry, by deposit rate cut. And just think through this. The real impact of the term deposit rate cuts, you will get over a 13, 14, 15 month period only. So what you see now is only the -- only one small part of the iceberg because you haven't -- ours is a long term deposit. You know that our sweet spot in a term deposit is some 15 months or 18 months or somewhere there. So, this benefit is going to flow through to the bank all through to quarter 2, quarter 3 of next year. So it's a space we are closely monitoring and managing.

So, if I were to summarize this, sir, so then assuming there is no further rate action by RBI, you are fairly confident that NIMs are -- NIM should not deteriorate too much, should be stabilized here, right, at least in the very near term? Is that the message?

No, that's…

Assuming no rate cut, no rate action.

No, that's not the way to look at it, Jai. Because in the first quarter, at different points in time, we have had a rate cut. The full impact of that has not really been taken into account because some rate cut happened on June, some happened in April, and I'm giving you hypothetical dates and numbers. So, it all didn't happen on April 1. So, it happened at various points in time. So, for you to know, not for me to know, for you to know, it will take you one more quarter to really get to know what the full impact of the rate cut has been. And then with every passing month or day, we see incremental benefit of TD rate cuts coming through.

Correct, correct. Okay. No. So I was saying that, of course, there will be yield impact and you have also cut the SAR rate and you have managed the, let's say, the balance sheet, IBPC fairly well. So, the outcome should be that if there are no more rate action from RBI, ideally the NIM should stabilize. Is that a correct thesis or not necessary?

I'm saying, no, that's not theoretically not correct because you haven't seen the full impact of the rate cuts because some rate cut had a 2.5 month impact. Some had a 1-month impact. So, you haven't had a 3 full month impact because the Governor has done a 3 tranche rate cut, are you with me? Not for us and for everybody else also, for the industry also. It is -- had all the rate cuts happened on April 1, what you say is true. The rate cuts happen over a period of time, 3 separate rate cuts. So, the full impact of the NIM, I don't think is seen in the industry yet. But in quarter 2, definitely in quarter 3, you will get to know the real impact of the rate cut and its impact on the yield and advances.

Next question is from the line of [ Varun from Bandhan Life ].

Just which are the areas in which employee count is falling? And how should we look at it?

The fall in employees primarily on the front line. And the way you should look at it is that -- I mean, I consider them a wrong hire. We shouldn't have had them in the first place. So effectively, these are non-producers, which we take time in understanding the 45-minute interview or a 1-hour interview doesn't allow us to see that. So we run with them for 3 to 6 months. And then after various interventions, we figure out that, that doesn't work. So, what we have done is, we have cut down hard on non-producers and have ensured that there is a revised hiring process that's been put into place, which also includes AI based on demographic details. So, we have enough goods and bads. One good thing about the excises, the profile of the good performer and also equally importantly, the profile of the not so very good performer, based on which we have been able to get an employee score, which we use for interviews. And now it has resulted in far more delicate cherry-picked employee hiring and greater success in terms of hiring them for frontline. So that's the way you should be looking at it. The main cuts have all come in the frontline sales. But we should be seeing an increase happening. We still have growth ambitions, we can't forever keep cutting and expect to grow. There will be -- we will increase it. I don't see us being at 10,800 kind of levels for going forward. But I don't know whether you were in the call in September 2024, when I said we are at 10,900 sorry, 11,910 people, I don't see us crossing this line either this year or next year, hold on to that. So, maybe about 600, 700-odd more people we can expect to see being hired in the company. They will be across assets and liabilities. Some of them will be for the new branches that we are opening. But the process of selection has improved significantly and machine learning has certainly helped.

Got it. Got it. And secondly, how is our thought process evolving around branch addition? Because last couple of years, if I see the bulk of the growth is coming from existing branch network. So, at some point, do we have to go back to branch expansion phase to maintain the growth rate? I mean, how should we look at it, yes?

See, at least for some time, addition of more people to the existing branches will give us the growth that we want. So, while we are saying we will be people-centric, we will need to hire people. It makes so much of cost sense and franchise sense to have more feet on street working out of existing branches. Anyway, most of the deposits come from the 10, 12 top cities. You need -- and most of it is digital. So, why you need new branches if you want to go to newer cities. But having said that, about -- we expect another 25-odd branches to come in this year. Ideal number would have been 35 so that we can close the year at 500 branches. But I would tend to think that we'll be closing around somewhere around 485 to 490 branches this year. Is that critical for growth? Perhaps not. I still believe that more people in existing branches will help us grow unless you want to go into a completely new state. If you want to go into an Assam or a Jammu, for instance, and put up new branches there, probably. But otherwise, we are fairly well distributed. And think about this, field force is what we really require because with ULI coming in and DC Bank is a part of unified lending interface, right? There are – there is land record systems are digitized in 7 states so far. So, there is less and less need for paper and the bank is going more and more towards paperless. You still will require an office space for employees to be and reach out. So you -- it may make sense to have a third floor, fourth floor space where you can have retail asset folks sitting in there and soliciting customers for loans. For deposits, honestly, you don't require more branches. For fee income, third-party distribution income, we are well represented in the big cities we don't require for, assets, mortgages, et cetera, we do require. But at the present moment in time, it will be more people in existing branches. That will more than happily satisfy upwards of 20% growth demand.

So, probably 5 to 10 branches on a yearly basis is…

Take 20 to 25. That would be a more realistic number. Last year, we did about 20 branches, if I remember right. And we should continue around that 465 would look like 485 to 490.

And just what would you highlight as your top priorities from next 2 to 3 years' perspective? And what are the major challenges that you see going forward for DCB?

The #1 challenge is to change the mindset. We have been playing this game like an NBFC. It's high time we stopped doing that. We have been doing home loans, LAP. We have been doing CA, SA, TD, somewhere not remembering that these are self-employed customers who have surplus needs, deficit needs, risk protection needs and trade finance needs. We have kind of labeled them at HL customer, LAP customers. They've been running like a fill it, shut it, forget it business. It's high time we change that. These are customers who have given their life's biggest aspirational asset, which is their self-occupied home as a collateral to the bank. But when he shuts down his shutters in the night and goes from his Kirana store, the surplus balance is not kept with us. He may need some money at some point in time because of inventory reasons or because there is somebody chasing him. He takes a hand loan or takes it from an NBFC. Why wouldn't he come to us? India is a very episodic country. Some earthquake happens, some fire happens, something happens, accident happen, risk protection, not done through us. Everything that he has is either imported from China by his wholesaler or by himself. The trade finance transaction is not done through us. I think it's high time that we change the way we did business in our bank to becoming a full-service provider, financial solution provider for the self-employed customer, which will cover his surplus needs. You can read it as CASA his deficit needs, you can read this overdraft facility. His protection needs, you can call it TPD, his trade finance need, exactly trade finance. And these customers will nearly will bank with us if you were to ask for it. The only problem is organizational structurally and mindset-wise, we are still in the nature of thinking customer as a product and not as a full-fledged customer who has normal leads like you and I have. And once we do that, we will be a very different bank because we are not concentrated in one state like many other banks. Not a single state, we have more than 20% representation in terms of assets. So, we are very well diversified. And if we just convert our mindset and that work is happening, that is my single-minded focus. The second is, want to eliminate paper. I'm frankly allergic to paper. I believe paper is a cost for observers, turnaround time issues, hands-offs, cost, paper is a sin and I want to eradicate paper from our bank. That's my second priority in life. Apart from these 2, I don't have any other priorities.

Next question is from the line of M.B. Mahesh from Kotak Securities.

Sir, just so -- just kind of running through some numbers. Just trying to know if you're going wrong. Of the INR 300 crores, let's say, the incremental slippages that you have done this quarter, is it fair to assume that maybe about INR 120 crores extra has come from the gold loan portfolio? The way we have done it is that you have last year, last quarter...

It's a very difficult question to answer, Mahesh, on the right away because in gold loan, what happens is, I'll give you a classic example. It slips in April, we do nothing. It slips in May, we do nothing. Some of it we recover and then again slips in -- so the April recovery of -- will slip again in May and then it goes back. So, you have a moment happening where up and down movement of gold loan happens. If I were to look at it, hang on, would you, can you – what are the co-lending slippages?

I'm just -- sorry, Praveen, just before you answer that, I'm just going to go with your presentation numbers, 4.59 slippages for 1Q and 3.1 excluding gold loan. So when you work the numbers backward using the loan base as with gold loans and without gold loans, the number which comes out is roughly about INR 120 crores of extra slippages as compared to the last quarter. For example, last quarter, your slippages was about INR 78 crores in gold loans. And this quarter, it's about INR 200 crores in gold loans. The delta in slippages of the INR 215 crores, roughly about half has come from gold loans. Is this number right or not?

Mahesh, that number is INR 196.34 crores.

Yes. Okay. So, I don't have the second number. So, let's go with this number. So, of the INR 215 crores, you said while this unsecured DA mortgages, et cetera, has contributed, the delta contribution of this is roughly about INR 100 crores. Is that a fair way to see this?

Would that be fair? Yes. One second, I'll just recheck this. INR 190 crores is gold.

INR 190 crores, yes. So roughly about INR 95 crores to INR 100 crores incrementally has come from these DA assignments, et cetera.

From the others, from all others -- all others. The surprise element for us is the unsecured -- sorry, the secured DA.

Which is all part of this INR 100 crores?

It's part of it.

And this entire, most of it you have provided this quarter?

No, no, no, no. No, no, no. This quarter slippage, we have taken what is required. What we have done is, we have -- all NPA stock as of March 31, which are currently NPA, is 100% taken as long as the unsecured DA or it is MFI.

Perfect. Let's go with the next question then see, if gold loans is seeing higher slippages, why is disbursements under gold loans also very strong this quarter? What is it that your consumers are demanding gold loans and yet slippages is high? I understand the credit cost argument.

So, there is a INR 35 crore -- INR 8 crore increase in your gold loan NPA, right, INR 27 crore becoming INR 35 crore.

No, no. I'm asking, sorry, I'm asking for why are you – see when you are seeing disbursements in gold loans being so strong for this quarter as well? And you see slippages also higher on the other side. I see consumer segment exceptionally weak today. That's all I'm just trying to correlate what is happening.

There is a slippage in that segment and the repayment happens at the threat of auction, which is why the repayments are coming through and your net NPA is the way currently it is, you are with me, Mahesh? Or should I explain again?

No, it's okay. I'm just trying to see, is the consumer really in a very bad position, and that's why you're seeing this gold loan demand going up? Just trying to correlate that part of it.

So, you should look at the slippage and the recovery, right? See, on a portfolio, which is pretty large, there is a INR 8 crore incremental NPA happening. The gold loans net NPA, the gross NPA for gold loans has moved from INR 27 crore to INR 35 crore in the quarter. That's a INR 8 crore increase. So, the right answer to your question, and there's a conjecture because I haven't thought about it in that way, is that there is high slippage, high recovery happening on gold, whereas on unsecured DA or on MFI, similar movement back is not happening. And a lot of the reason why we will have a problem in the slippages is because of the famous November 12 circular. So, is it the inability of that customer? Is it the inherent weakness of the customer? I would rather say it is the discipline of the customer because most of our customers come from the bigs, the Muthoot's and the Manappuram's and the IFLs where they are looking at bullet loans, which they repay supposedly in 9 to 12 months. So -- and then they come here where interest servicing has to happen quite regularly. It is not something that they are quite used to. So, it takes time.

Next question is from the line of Gaurav Kochar from MLP.

Just 2 questions I think just taking cue from what Mahesh was speaking about, sir. Going by this, the ex gold slippages at least we believe should start moderating from Q2 onwards. Bulk of it has come in this quarter. And is it fair to assume given that the size of the book is pretty small as you highlighted that the trajectory of slippages should start normalizing in the coming quarters?

Yes, we believe so. I mean we believe 2 things. One, the slippage ratio by itself has to improve. And the second is for the first time in many, many quarters, we saw the recovery as a percentage of the fresh slippage going down to 70%. That's not something which we quite like. So there are 2 areas where we are currently focused upon in quarter 2 from a portfolio quality perspective. One is to rein in the fresh slippage and the second is to improve our recovery to fresh slippage percentage also.

Okay. Understood. So at least the normalized run rate of INR 350 crores, INR 400 crores that we were seeing, we should revert back to that from next quarter onwards. Is that a fair understanding?

I'm sorry. The INR 350 crores you're referring to is gross slippage number. Yes.

Got it. Second question is with respect to the margin. So I understand that the rate transmission on your loan customers could have happened at different point in time in 1Q, but so has the cost of deposits. So your deposit repricing also at least on SA was also done in phases so full benefit of that will also come in the second quarter. So the delta change -- the question is that the delta change that we saw and you managed in this quarter pretty well if I go by 9 basis point kind of margin moderation. And going forward in 2Q we believe based on our calculation, now correct me if I'm wrong, that the bulk of the benefit of your liability repricing, which is your SA repricing will come in the second quarter. And that if there are no further rate cuts in, let's say, the next quarter, is it fair to assume that the delta change that we saw in this quarter on your margins, second quarter we should be better than this?

I'm not going to give you a yes or no answer, but I'm going to give you some numbers to think through this. We have about INR 48,000 crore term deposit book and, let's say, INR 14,000-odd crore of savings book. Current account we leave out the discussion because there's no point in discussing and that's been as flat as ever. So savings account we have done something and you've seen that impact happens at the exact time we impact the change. Term deposit typically if you were to look at the bank's sweet spot in terms of highest rate and that's an indicator of where quite a lot of the deposit concentration could be is somewhere between 15, 18, 24 months. That changed over a period of time, but it's somewhere in that region. Now imagine over the next few months, some of those 15 months will get over and will come up for repricing. Every month something will come up. So just humor me on this. Instead of INR 48,000 crores; for ease of calculation, let's take INR 45,000 crores. INR 45,000 crores divided by 15 months is INR 3,000 crores. INR 3,000 crores will come up for renewal this month, INR 3,000 crores will come for renewal next month, INR 3,000 crores -- likewise for the next 15 months, INR 3,000 crores will come for renewal theoretically speaking. Each of the repricing will be at the new rate as compared to what it was 15 months back. The difference between 15-month rate 15 months back and the rate currently, you can either guess or you can go back to the records and find out. And that will be a good enough way for you to see how the impact will be assuming there are no further rate cuts and no further management actions on the cost of deposit. So that's why I said I don't want to give a yes or no answer, but this is a good way of figuring out. In fact that's what we also do to estimate and forecast.

Right. So I'll try to ask this differently that of the 100 basis point rate cut that RBI has done, is it fair to assume that more than half of it is passed -- sorry, the 75 basis point rate cut that we have done in this quarter. Is it fair to assume that more than half of it is done or less than half of it is done?

Look, I wouldn't be able to comment. But just look, when were the dates in which the announcement was made, that will give you some sort of indication as to what it will be. There was 25, there was another 25 and there was a 50 at different points in time. So obviously the full impact of that has not happened in Q1, which is obviously everyone knows because June 6 is when the announcement happened. So the full impact you will see that happening over a period of time.

All right. Shifting to the disbursements in this quarter, if I look at on the mortgages not just quarter-on-quarter, but I'm looking at Y-o-Y numbers. The Y-o-Y number was down in mortgages. So is it a conscious sort of a call that because you're trying to do more of LAP within mortgages and perhaps slowing down home loan within that? Is that a conscious strategy? And if that is the case, then by when do you expect the absolute number to kind of start seeing growth?

Is it a conscious thought? Yes, it is a conscious thought, but not for the reason that you said. So what we have done actually is that we have upfronted or we have brought forward to quarter 1 short-term loans and fixed rate loans, okay? We try to do more of that and I'm not saying we want to do less of mortgage. But the whole idea was just look at it this way. In April you do a 15-year mortgage, right, and then there is a known rate cut of 25 bps happening and another 50 bps happening in the nearby future. Even if it's a semi-fixed loan, 2 years later 75 bps will get reduced. If the same loan and the same demand and supply -- price is a product of economics of demand and supply, the customer is willing to pay that money, we thought that after the rate cuts have been passed fully or after the big rate cuts have been passed fully if we have to take onboard the customer, then those customers don't have an impact of the rate cut. So what the customer is willing to pay is what the customer continues to pay. So what effectively in a very crude way, most of the co-lending and gold were done in April and May and towards June more of the mortgages were done. So there is lesser disbursal of mortgages in Q1 of this year as compared to the Q1 of the previous year.

Got it. So from here on it's fair to assume that this will pick up from second quarter onwards?

Yes. And to your other question of LAP versus home loans, steadily we have been improving our -- improving is the wrong word. We have been doing more of LAP loans from a sourcing perspective, but it's a large universe, right? The percentage of month sourcing to the total book, it will take time for it to convert it into the total book itself. But for the last maybe even 9, 10 months, I think 3, 4 quarters -- 3 quarters definitely, I see an increased LAP percentage on the new sourcing.

Right. That's good to know. And just last question from my side. On the overall 1% ROA guidance that you've given, apart from credit costs moderating to under 40 bps as you had guided, what are the other levers we see? I think OpEx you've controlled quite well, it's down to 2.54% on assets this quarter. Is there further juice left? And if yes, apart from credit cost, any other line item where you think you need to work on to get to that 1% ROA and by when can we expect the 1% ROA?

So I'll tell you 4 parameters, 2 of which are within arm's length and one which is a bit of a guesstimate. So let me take you through that. We closed NIM at 2.99% on average assets. So that's why the difference, right? 2.99%. I expect that to be 3.2%. Fee would be -- in our opinion, these one-offs will go away at some point in time. So over the full year, probably 1.1% is a right number to go with. You with me so far? So total revenue, 4.3% is a number which we think is realistic, right? I've taken a lesser fee as compared to quarter 1. Now cost to average assets, I think 250 bps is a good number to get. In reality it will be probably even lesser than that. But let's take 250 bps. So if you take 250 bps, then you're at 180 bps. 180 bps, please reduce 45 bps, okay? You're at 135 bps. 135 bps into 0.74, you're thereabouts 1, okay? Now so this NIM -- let me complete. I'll just close the loop. The only unknown variable with regard to time is the NIM. The rest I have absolutely no doubt. I think they're near there, there thereabouts, some better. So 3 out of the 4 parameters, one is very sure of. On the first parameter, as you can see, we are working and we are working quite hard and we're getting some results in terms of managing the NIM. So I don't want to make a more forward-looking statement on this, but this is exactly where we want to take it to. If you were in the call last year also, we promised you that we'll bring the cost to average assets below 250. I think that we are seeing that. On provision costs, 45 bps is a good number to go with. On fee, there are a few one-timers I know. There may be even a few one-timers coming forward also. That's still okay. But on an overall, 1.1% I think is well within grasp. It's actually we are ahead of the game right now, but for the full year 1.1% is there. The question to us is how well can we control our cost of funds and manage the yield, get the right kind of product mix to ensure that the NIM goes back by about 21 bps from 2.99% of today to 3.20%. Genuinely is it achievable? I think so.

Next question is from the line of Akshay Badlani from HDFC Securities.

So as you were indicating that we are moving towards more short tenure and fixed book so if you could just help with your EBLR, NCLR and fixed rate mix. So how it has changed in the past few quarters?

Okay. I can tell you that hasn't changed much. That I can tell you, but we can't reveal what fraction is what. See, this short and a long tenure discussion was primarily a pre-rate cut discussion. Now with all the rate cuts that we know of has happened already, life will go back to the normal stuff. We will still do long tenure loans. In an ideal world, we will be doing a 2-year, perhaps a 3-year semi-fixed loan. It will be linked to EBLR. And that's the way life will continue because that's the way life has already been there also and we are very comfortable with it. This whole doing the short term in April and May was a very tactical kind of thing so that when it comes to renewal, we'll be able to charge what the customer can pay. It will be pure economics in terms of demand supply of loan versus -- demand of loan versus supply of loan. That's why we focused on 3-month, 6-month kind of loans. If you were to look at the disbursal chart, it is there in one of the investor slides, you see that corporate loans INR 1,200 crores of disbursal has happened. I mean you may wonder we are always very effusive in terms of coverage. We always said it will be about 10% of the asset book, et cetera, right? That's what we always said 10%. But the fact is INR 1,200 crores in 1 quarter. Look at the growth, it's a INR 200 crore growth. Corporate book has increased only by INR 200 crores. So what are we doing? We are doing a short tenure kind of thing because when it comes to repricing, you still are able to come under decent pricing. But had it been a longer tenure loan, then by law, by nature, you have to pass on 100 basis points if you are on EBLR. So it is a very short-term tactical activity. I don't see that -- that's not the way we'll grow the bank. It will be our normal -- 50%, 54% of the book will be mortgages, SME will be the way to go. And the only change I'm really, really looking at and driving is to be a complete banker to the customer. That's our opportunity. And if, let's say, some law comes in that you can't add a new customer, we are absolutely okay, we should be able to meet our balance sheet growth numbers as well as the P&L number just by focusing within. There is so much of wealth within.

Got it. Got it. And just my last question was around the deposits. So like our CASA has dropped to 23% now. And with the rates that we have cut, that will -- probably we'll see the impact of that going forward. So how confident are we of still accruing that deposit volume that we need for our credit growth, which is 20% or so? So how elastic do you think our deposits are vis-a-vis the rates?

So it's not easy, but I'm not looking at CASA per se, but we have a plan on bringing down the cost of deposit, okay? Let me give you a simple example. Onetime treasury gains, there's a chance that it will not be there next year. Let's assume, let's play a hypothetical game. Let's assume it's not there. Where will that come from? Where will the incremental bottom line come from? I don't think it will be from cost to income because this year is about cost to income, cost to average assets, get to 2.50%. That's the stated area. 45 bps to 55 bps provision is a stated area. We are there. And the only game in town is NIM. And the biggest lever we have there is the cost of deposit. I think the bank has matured enough to attract and acquire liabilities without having to be the highest or one of the highest interest rate provider in the industry. We have reached that level of maturities, my belief. So I really think that, not for this year, but for the coming years, the '27, '28 and beyond, we would be clearly demonstrating that you don't need premium pricing to grow 20% on our kind of balance sheet size. That's an availability that we are developing. You've seen a glimpse of it in the cost of deposit reduction in quarter 1. Swallow doesn't make a summer. But we would probably -- and I'm also seeing it -- I was closely watching it. If we continue to do to grow the same way to bring down the COD in a calibrated manner over the next few quarters, then the belief will come well within the system as well as outside the system. So primarily, cost of deposit reduction is a very important factor for us. We're driving it. CASA, CASA is not what CASA used to be. CASA is not a really good indicator of low-cost funds. CAR probably is, but SA is not because at the higher end, it's so easy to get large ticket term deposit equivalent lying in SA and boosting up the CASA to a higher level. I think cost of deposit is the truth. CASA is not necessarily the truth.

Next question is from the line of Aditya from Securities Investment Management.

Yes. Sir, firstly, while we have rationalized our employee base, so -- but the loan growth has been majorly coming from co-lending and assignment. So in the last 1 year, if I look at your loan book, more than 50% of the growth has been contributed by co-lending and assignment. So just wanted to understand, are we really seeing improved productivity because you don't need many employees to grow your co-lending and assignment book? And now as you grow your organic book, would OpEx cost now mirror loan growth or they would be lower than advances growth?

That's not necessarily true. In fact, I would like you to relook at that. On a small base, co-lending has increased year-on-year by 1.5x. That I completely agree with you. But our, I mean, organic growth has been significantly high. You can -- what you can do is -- which page can we look at?

21.

Page #21 is a good indicator for you. You can have a look at it, and you can compare with what we gave in the corresponding quarter, you will see that there is a significant increase -- much more than significant increase in the organic book growth. And that's where the benefit is coming from. Co-lending book is -- it's a good book to have, but that doesn't drive our campaigns. Okay, leave that aside, our co-lending book at the end of the year will be 15% or less of the total asset book. So 85% will be non-co-lending, normal organic kind of book and co-lending will be about 15-odd percent.

Understand. And now sir, yes, so -- and now one of our steps to improve our NIMs and ROA was to improve the share of working capital and OD loans. But now if I look at your SME book, that has been stagnant for a year, 1.5 years. We had talked about the advantages of OD product as the same cannot be offered by our competitor, NBFCs. So ideally, the scale-up should have been quite fast in this segment, but that doesn't seem to be happening for us. So if you can just help us understand what issues are we facing in scaling this SME book? And when do you see it picking up?

Okay. So it's not a vertical takeout. So effectively, I know we have been speaking about this. We have looked at -- we have hired a person who is looking at the SME segment, who is also going to look at a segment of INR 3 crores to INR 10 crores because a lot of customers in SME is graduating to a higher exposure level, and we saw that there's a gap where our corporate banking is too big for that customer to come into and our MSME book is not equipped enough to handle it. So because of the erosion happening, that's a gap which we want to fill in. And so we are -- there is -- that area is going to see an action coming. And we have a full-fledged team, 6 city locations, where INR 3 crores to INR 10 crores of SME will be -- fully secured SME will be handled. So that erosion because of exposure will go away. That's number one. Number two is that we have changed the structure in the company to ensure that close to 100,000-plus mortgage customers are being given a OD facility. Eligible -- out of the 100,000-odd people, the eligible customers are being given a OD facility. So it may not come in the SME book at all because it's a separate book by itself. So it will come in mortgages itself. So there are different action plans happening. Am I happy with the speed of growth? I'm not very happy with it. That's why in the previous -- if you heard that when I spoke to a previous person, when he asked me what are my 3 priorities, I could tell them only 2. One is to get this moving. It's not easy because anybody you hire from the market or anybody who's in the system are a product of the system, which is a vertical fit, which is based on -- I am a LAP RM, I'm an HL RM. No one looks at it as an RM for a self-employed. So it's taking time. I don't see that giving us big results right away. But over a 5-year time frame, that will be bigger than the mortgage book that we currently have. It's a huge proposition. It will take its own time. And this will be the -- if you were to take a 10-year view of the bank, this would be the game changer for the bank.

Understood. Okay, sir. And now sir, now just one question on construction finance. So we have been seeing strong growth in this book for the last few quarters. So if you could just elaborate what is attracting you to this segment? And what kind of controls are we building here? Because I believe these would be bulky loans as against our focus on more granular loans. So how are you trying to balance the risk and return in this segment?

So we have built up this capability over a period of time. We're very comfortable with the levels of NPA, the level of DCCO in this particular segment. The construction finance book that we have is primarily looking at a smaller ticket size. Compared to our kind of loans -- sorry, can I ask, are you in Bombay or are you elsewhere?

In Bombay.

In Bombay, right? So the kind of construction finance that we do is the -- is similar to a South Bombay home loan. Okay. Genuinely, I'm not even trying to joke. So these are peak exposure of about INR 10 crores, INR 12 crores, which is typically what a Midtown Bombay single home loan will look like. We have an expertise in it. These are in the periphery. We enter at the -- at a stage where there is comfort. One-odd cases, we have NPAs, we work out of it. But there's an expertise we built over a 6-, 7-year period. We've been through 2 credit cycles. We've been through a pandemic with the CF book, comfortable with it. There is expertise in sourcing and also in remedial management. Our recoveries of NPAs within the CF book has been decent. So I'm bullish about it. Would be happy to even to get the book to grow by, let's say, 30-odd percent is something which we are reasonably comfortable with.

Got it, sir. Sir, just last [ 2 ] questions. First, on the fund infusion by the parent, what is the status? And secondly, sir, PSLC income. So we had a good amount of PSLC income coming in 2 years back. So do you expect it to come going forward? So how is the market for PSLC?

The PSLC for small farmer, marginal farmer is good, but we are not in surplus. So that is a -- it's more a pain area for us than a happy area. So on general PSL, the demand is pretty low because most people have it -- there's no -- there's not too much of money made on it. Even on agri PSL, it's better than general PSL, but on agri PSL, the rates are not something which can give you substantial fee income. But on small farmer, marginal farmer, definitely, there's an opportunity. Do you want to grow your microfinance book at this point in time for that opportunity? Perhaps not. So if you were to ask long term -- at least in the short term, is it going to get some -- are we going to get some PSLC income? I don't think so for the rest of the year or even for the next year.

Okay. And sir, fund infusion by the parent, what is the status?

Okay. We had to submit -- okay, let me tell you the full story. We had submitted a whole host of papers to Reserve Bank of India. And at that time, we had the untimely and unfortunate demise of the key promoter, the key individual behind the promoter company, the promoter company being Aga Khan Fund for Economic Development. And the key person behind it was the Aga Khan, Aga Khan the 4th. He passed away last year, and then there was a succession, the new Aga Khan has come in. So we had to redo the entire process. We have completed the full set of activity. Now the ball is in the Reserve Bank's court. We're expecting an approval to come in. Hopefully, before our next conference call of September results, we should not only have the approval, but also have the monies in hand. It's a small number, but it's a good symbolic thing to happen because it will be the first time in close to 20-odd years that the promoter is infusing money. And secondly, it probably will take the promoter contribution to above 15%, both of which are symbolically a big thing.

Ladies and gentlemen, due to time constraint, we will take this as the last question for the day. I would now like to hand the conference over to Mr. Praveen Kutty for the closing comments.

Thank you very much. Thank you for all those questions. Relevant -- all as usual, relevant, thought-provoking. I hope I've been able to provide you with candid answers on all the questions that you asked. If you still have any doubts on questions, feel free to e-mail or reach out to Meenakshi, Ajit, Ravi or me. Happy to answer. If you have -- you want to kind of chew over this and come back, happy to answer any questions that you may have, provided they are not UPSI caveat. So look forward to the next meeting in about 3-odd months' time. And if you meet up in any of the analyst meets, you could come back with any other questions that you probably have on our account. Thank you very much, and look forward to meeting you. Bye-bye.

Thank you, sir. On behalf of DCB Bank, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.