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Last Updated : Apr 18, 2016 05:17 PM IST | Source: CNBC-TV18

See loan book doubling in next 3-4 years: DCB Bank

The growth momentum of the bank will continue to be supported by stable asset quality and branch expansions, said Murali M Natrajan, MD & CEO, DCB Bank, in an interview to CNBC-TV18.

Murali M Natrajan, MD & CEO, DCB Bank, is very hopeful that the growth momentum of the bank will continue to be supported by stable asset quality and branch expansions, said Natrajan in an interview to CNBC-TV18.

"If you continue to remain faithful to our strategy of retail and SME banking and small ticket, then asset quality should remain stable," he said.

The bank, in April, opened its 200th branch.

The bank's profit in January-March quarter increased 10.4 percent year-on-year to Rs 69.5 crore, driven by net interest income and other income but higher provisions limited growth.

Natrajan is confident of the bank further doubling its loan book in the next 3-4 years. The bank has been consistently growing at 20 percent-plus in its loan portfolio.

The bank is also ready to be part of the Unified Payment Bank (UPI), said Natrajan.

Below is the verbatim transcript of Murali M Natrajan’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.

Sonia: Can you start by telling us about the asset quality itself, what does the trend look like? This time around you had write-offs that aided in lowering your gross non-performing assets (NPAs) but in the quarters to come, do you see further reduction in gross NPAs?

A: Let me talk about the Q4 gross NPA and net NPA performance, we had strong recovery, we had limited slippage and even if we had not sold a part of our gross NPA to asset reconstruction, our gross NPA would have been 1.92 percent which would have been lower than last quarter which was 1.98 percent and net NPA would have been 1.01 percent. So, we sold about Rs 58 crore, about 37 accounts to asset reconstruction company; that also helped further improve the asset quality.

The reason why our asset quality had been stable is because we are focused on retail and SME banking. Corporate banking is only 15 percent of our total approximate Rs 13,000 crore exposure. In fact corporate banking has fallen by about 20 percent this year. If you look at the opening stocks versus what we ended up, it has fallen by 20 percent. Even in the limited corporate loans, we have two-three accounts which continue to show some stress. One or two commodity accounts are showing some stress.

However, all in all we are confident that if you continue to focus on our asset quality and remain faithful to our strategy of retail and SME banking and small ticket, asset quality should remain stable.

Latha: When you say stable, would you say that there will be a reduction in the amount of slippages or at least they will grow at a very minute pace?

A: In this environment it is very difficult to say that asset quality will not deteriorate. All I am trying to say is that it will be within our expectation; that is a hope. We are taking all kinds of care from underwiritng to recovery efforts, to having better analytics. The way we have been focusing for the last six to seven years on retail, SME and small ticket loans has helped us to have stable portfolio quality.

If you look at our growth, our loan book has grown by 23 percent. Look at what was our loan book in March 2013. It is approximately Rs 6,500 crore. We have doubled approximately in three years. If we continue to work the way we are working, we think that we can double our book in about 36-42 months without compromising on asset quality.

Latha: You reacted very aggressively to the payment bank licenses and the small bank licenses in particular. However, now with the unified payments interface (UPI) coming in, do you think the opposition or the competition from digital players is reduced? How would you assess your chances now compared to what it was a year ago when the payment and small bank licenses were announced?

A: Just because we reacted to some small bank and payment bank licenses does not mean that we ever assessed our chances of succeeding any less. In UPI, we are amongst the top banks that have enabled in the first place itself on UPI, so, we are UPI ready. How it will pan out, time only will tell.

It is a path breaking technology that has been launched by NPCI. I would also like to point out that DCB Bank recently was the first bank to have Aadhaar enabled ATM. We have done a pilot launch in our 9th floor office for staff and some select customers. So, we are making tremendous amount of efforts to be on the cutting edge on technology.

I would also encourage investors to go through our investor desk which is there on our website and on BSE and NSE to see what kind of efforts we are putting on technology to be right there to fight any of the emerging competition.

Sonia: I just wanted some more colour on the credit growth of the bank which stood at 23.5 percent. This is much higher than the 10 percent that you saw in the previous quarter, where are you seeing higher or more amount of green shoots coming in from and do you think this 20 percent credit growth can be maintained in the first half of FY17?

A: I don’t know about the green shoots and all. If you see consistently we have been growing at 20 percent plus on the loan book. If you see our press release announcement, without conserving corporate bank on both years, retail, SME, agri inclusive banking has actually grown by 36 percent. We are concentrating on small customers, we are concentrating on mortgage, we are concentrating on secured lending; that is where the growth is coming from.

Plus we have put in a lot of effort, last year our staff strength was about 3,300, we ended this year at about 4,300. So, there is a lot of capacity getting built. We were at 160 so we ended at about 198 and then we inaugurated our 200th branch on April 15th in Hyderabad. So, we are now at 200 branches. So, as we grow branches and capacity on frontline, we expect growth momentum to continue.

Latha: Your net interest margins (NIMs), you have done much better on year-on-year (YoY) basis at nearly 4 percent. You could maintain that?

A: The Q4 recoveries were very strong, slippages were in control. We have already launched our marginal Cost of Funds based Lending Rate (MCLR) which is slightly lower than our base rate. Competition is very tough. I don’t expect us to maintain this kind of NIM. There would be pressure on NIMs to the extent of about 25 basis points in the coming quarters.

Latha: You said you have added a lot of branches; is it difficult to maintain the same level of return on those new branches?

A: We are opening branches predominantly in semi-urban rural areas. 50 percent of our new additions are coming in those areas. It takes about approximately 18-22 months to achieve full break-even on any new branch and it takes about 36-40 months to achieve say 50-55 percent cost income ratio on a new branch.

It takes a lot of effort because you have to put in training efforts, you have to hire the right team, you have to find the right location. So, we are getting better and better at it so as long as our execution is as good as it has been in the past, we expect that we should be able to grow.

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First Published on Apr 18, 2016 10:20 am
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