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Business News/ Market / Mark-to-market/  Development Credit Bank performs well in a weak economy
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Development Credit Bank performs well in a weak economy

The September quarter earnings beat Street estimates as margins rise to at least a three-year high

Development Credit Bank’s strategy to increasingly secure its advances has meant that asset quality is relatively stable.Premium
Development Credit Bank’s strategy to increasingly secure its advances has meant that asset quality is relatively stable.

Development Credit Bank Ltd (DCB Bank) continues to report robust operating performance even though its pace of growth has decelerated owing to the economic slowdown. Net profit grew 49.5% from a year ago to 33 crore. Operating profit growth at 51.4% has halved from the previous quarter.

The September quarter earnings beat Street estimates as margins rose to at least a three-year high. Net interest margin rose 24 basis points (bps) to 3.68%. That’s a bit counter-intuitive considering that the bank’s low-cost savings and current accounts as a proportion of total deposits have dipped to a five-quarter low of 26.92%.

But the overall pace of deposit-raising continues to exceed that of lending. Deposits grew at 23.1% from a year ago helped by a 59% jump in non-resident Indian deposits; thus DCB Bank did not need to access the money market so much, which explains why it did not seem to be affected by the spike in short-term rates after the central bank increased the marginal standing facility rates to support the rupee in July. Secondly, DCB Bank also raised its base rate by 35 bps over the quarter.

Loan growth fell to 17.73%, the slowest in three years weighed down by slowing growth and high inflation. Mortgages and commercial vehicles were the fastest growing categories at 39% and 41%, respectively. The good thing, however, is that commercial vehicles—a category that is increasingly coming under stress—make up for just 2% of the bank’s loan book. Mortgages, on the other hand, account for 41% of the portfolio, from 36% at the end FY13.

DCB’s strategy to increasingly secure its advances has meant that asset quality is relatively stable. Gross non-performing assets as a proportion of total loans have remained almost unchanged from the June quarter at 3.44%.

Still, managing director and chief executive officer Murali M. Natrajan, in an interview to NDTV, said that stress will emanate in the small and medium enterprises sector, which makes up around 20% of the portfolio as of the September quarter. With cost of term deposits also slated to rise, there will be pressure on the net interest margin. That will act as a cap for any increase in the stock price of DCB Bank, which has outperformed the Bankex this year.

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Published: 16 Oct 2013, 09:51 PM IST
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