To reach 300 branches by Sep; focus on profitable growth: DCB Bank

He said DCB's approach has been that of profitable growth and now they have branch network to aid this growth. So would not worry about capital raising at least a one year, he said. The bank raised Rs 397 crore through qualified institutional placement (QIP) in April 2017.

Talking about the NPA issue faced by the banking industry, he said banks never understood the project finance and so bad debts arose out of these project loans. According to him, RBI should take top 50 project finance loans and try to resolve them.

Below is the verbatim transcript of the interview.

Sonia: The first question I wanted to ask you is the government's ordinance that had passed to empower the RBI to deal more effectively with the bad loans situation in the industry. What did you make of all the news flow and do you think it is enough to solve the malaise in the banking space?

A: Something had to be done and what has been done is probably very effective and it would make an impact. Getting the RBI involved in that process, though a central bank ought not to be doing what we are asking it to do, but it is essential at the moment to try and sort out the very severe problems that exist. And personally, I see a lot of these problems going back to my old days in infrastructure where banks never really understood project finance and most of these bad debts arise out of project finance loans. And what they ought to do is really take the top-50 of these and try and see whether they can resolve them quickly.

Latha: Would you say that you are smelling enough growth in the economy itself so that growth will provide a bit of a palliative for the banking sector?

A: In a way, we are fortunate that we do not have the growth momentum which will require huge amounts of funding which allows the banks to sort themselves out. I am not seeing net credit to the commercial sector has fallen consistently and I do not see gross capital formation taking place in the private sector as much as one would like and both these trends are down. But I am seeing the results, these last quarter results yet, they are all coming out over the next few weeks.

But what I see is there is a lot of traction where there is government spending. So I think it is very critical for government to push that growth process, to initiate it. We are seeing a lot of activity in the east. Cement has done extremely well in April. Tippers, trucks, construction equipment is doing well. So I am seeing a little traction which I have not seen for a long time.

Sonia: Are you also seeing any moderation in new stressed loan creation either for PSU or private sector banks?

A: I think so. I think we have learned our lessons. DCB learned it many years ago, so in this whole cycle, we have avoided the sorts of problems that other banks have faced. Our non-performing assets (NPA) are 0.79 and falling and we have controlled that very well being retail. And I see a lot of banks also looking at retail segment in a bigger way, staying away from project financing and the big ticket items. It is best to be prudent in times like this until things start to improve.

Latha: It was a fear about a couple of years ago that with the rush of payment banks and other payment technologies, small banks may not have much of a place under the sun, but events have proved otherwise completely. We were talking to RBL the other day and Vishwavir Ahuja was saying that he has made a virtue of technology, he has done a lot of analytics to get his micro, small and medium enterprise (MSME) piece in order and provided the backend for a lot of the fintech guys. What is DCB's plan of action?

A: DCB has done this years ago. When I announced our massive expansion programme, I did that only because I knew that the matrix that we had developed for branch opening on a neighbourhood concept was well entrenched in DCB. In fact the market hit me very badly at that time, if you remember, when our share prices fell from Rs 120 to Rs 80 or something, when I announced an expansion and that was very strange.

And now, a year and half later, we have 260 branches going on to 300 later this year. Our cost income ratio has not been affected. All the branches are functioning perfectly well. The retail growth has grown up dramatically, current and saving account (CASA) is up. In fact, this actually puts the growth of DCB onto the anvil so that these branches over the next 2-3 years will produce the growth we are looking for.

Latha: Inorganic moves?

A: No, I think we are much concentrated on building the bank and its culture. I keep telling my people that I cannot be the biggest bank, I cannot be the best and the most prolific bank in the market, but I want to be the most admired bank. And what we are doing is building a culture, building an interior operation, and internal operation which is, I hope second to none. So, that process will continue over the next 2-3 years and I do not want to disrupt that.

Sonia: It is interesting. You went back to that time when you went forth with that branch expansion. It takes a lot of courage to go ahead with such a massive branch expansion plan amid so much apprehension. But I want to talk a little bit about that. As of FY17 end, you have about 260 branches, if I am not wrong. Will the pace of branch expansion continue and what are we looking at over the next 1-2 years?

A: No, by September or later this year, we will be at the 300 level and thereafter, we slow down dramatically because this first phase has to be absorbed. We have to ensure that the performance of the branches are actually ticking in the way we would like. It would need some time to absorb and to optimise these branches. So, this pace will not continue at all. It will reduce substantially, maybe 10-15 branches a year for a while. So, our strategy was one go, let us do it, give the bank its size and reach which is very important and 300 is a good place to pause.

Latha: You have just raised capital, how long will that last? What kind of growth advances, margins do you see in FY18?

A: DCB's approach has always been profitable growth. We have got the branch network now through which this growth can happen. We are sticking to our strategy of SME and hopefully the economy will improve as time goes by. We are prepared for that growth and it actually provides a stable setting for DCB where we do not have to worry about capital for at least a year.

Sonia: You did speak about the retail part of the industry picking up quite a bit. But I wanted to know more about SME because that is a segment that you cater to as well and that was the biggest hit post demonetisation. Has there been a significant growth in the SME portfolio?

A: No, they were hit and they were cash strapped though their business models were perfectly okay, but I think you are seeing a revival coming back. I am quite optimistic about the SME sector as we go along.

Latha: If you do not mind, you have been an observer of the Tata Group from near and far. What has changed and is the change for the better?

A: I do not really want to comment on the Tata Group. I have obviously been involved with the Tata Group and with great admiration I have been involved with it. Everything improves as you go along and it is after the issues we have been through in the last 3-4 months, everything is settling down and the companies are well on their way to continuing on their path of growth and diversification. So, it is all happening. Nothing is stalled. That is nice because at the board level, we all feel that we are back to business as usual.