Development Credit Bank (DCB) has reported a net profit gain for the second quarter in a row, but its strategy of growing its balance sheet through low-cost current and savings account (Casa) deposits seems to be running out of steam. Operationally, too, things aren’t hot despite a 2.8 times growth in profit in the September quarter from a year ago.
Sure, net interest income grew by 28% from a year ago, but non-interest income—on which bigger banks depend for a bailout in troubled times—fell by 15%. Also, the push for Casa deposits in the preceding quarters has led to ballooning employee costs, which rose by 17% over a year ago. As a result, operating profit was flat at Rs 21 crore.
So, the gains in profit were strictly because of a decrease in provisioning. The bank had to set aside Rs 8 crore for shaky loans in the three months ended September, about half of a year ago. At the end of the September quarter, gross non-performing loans as a percentage of gross advances was 5.75%; that’s a decline of 1.86 percentage points from a year ago and an improvement over the June quarter as well.
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DCB increased its loan book by 1.9% during the three months ended September and deposits, too, rose by 4.6%. That is way better than the 0.76% deposit growth for the system as a whole during the 11 weeks ended 23 September, as the Reserve Bank of India (RBI) data shows.
While the bank’s net interest margin came in at 3.41% at the end of the September quarter compared with 3.1% during the previous quarter, there are some question marks over its sustainability. DCB’s Casa ratio has been slipping over the past couple of quarters. At the end of the last fiscal year, low-cost deposits made up 35.2% of the aggregate. This metric has slipped by over 2 percentage points to 33.16% in September.
The bank has got RBI permission to set up 10 new branches. While that will help in gathering more low-cost deposits, it will increase operating costs as well.
While the DCB stock has outperformed the Bankex in recent times, much will also depend on how the bank will grow its advances and rein in non-performing assets during the slowdown.
Graphic by Sandeep Bhatnagar/Mint
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