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Business News/ Market / Mark-to-market/  DCB Bank trims bad loans
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DCB Bank trims bad loans

The bulk of that improvement comes from write-offs and recoveries

If DCB Bank can continue to grow loans and earnings at the current pace and improve on these bad loan levels, it is a prime candidate for re-rating. Pradeep Gaur/MintPremium
If DCB Bank can continue to grow loans and earnings at the current pace and improve on these bad loan levels, it is a prime candidate for re-rating. Pradeep Gaur/Mint

The most striking thing about DCB Bank Ltd’s March quarter numbers is the massive reduction in bad loans. Gross non-performing assets as a proportion of the loan book fell to 1.69% at the end of March compared with 2.77% a quarter ago.

But before reading too much into the tea leaves that this is a sign of things to come for the entire banking sector, here is a warning—the bulk of that improvement came from write-offs and recoveries.

That said, even on a like-to-like basis there has been a fall in bad loans, according to managing director and chief executive Murali M. Natrajan. Most of the write-offs were in the personal loan portfolio and all these were fully provided for, he said.

The bank has been stringent when it comes to loan recasts. It has a restructured loan portfolio of less than 70 crore. Thus, total stressed assets make up around 2.5% of advances, which shines in comparison with the majority of Indian banks.

Also heartening is the fact that there has been no deterioration in the pace of slippages. Fresh addition to bad loans ranged between 1% and 1.2% of the opening balance and mostly happened in the small and medium enterprises category. That was expected given the state of the economy.

With the latest indicators showing that an economic recovery is some time away, managing asset quality will be a key aim for the bank management. That its retail mortgages book is almost four-tenths of the loan portfolio should help DCB Bank in containing bad assets.

In the past five years, it has become prudent in disbursing non-secured loans, yet has been able to grow advances at a decent 23-25% clip.

But note that the corporate segment, which makes for a quarter of the loan book, and the small and medium enterprises category, another 17%, are susceptible to slippages. Natrajan said some slippages have happened in the latter and he doesn’t expect much more in the immediate future.

DCB Bank is well-capitalized. If it can continue to grow loans and earnings at the current pace and improve on these bad loan levels, it is a prime candidate for re-rating.

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Published: 15 Apr 2014, 09:38 PM IST
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