A small private bank, a new CEO and plans to stay conservative

The focus will be on current and savings account (Casa) deposits and on overdraft products, Praveen Kutty, who took over as chief executive in April, said in an interview with Mint.

Casa is the portion of low-cost deposits in banks. Savings accounts earn lower interest than term deposits or fixed deposits, while current accounts earn no interest. In banking parlance, overdraft facility is when lenders allow customers to withdraw money from their accounts even where they have little or no balance but levies an interest on it.

At present, over 55% of its loan book consists of mortgages, largely involving self-occupied residential properties. Its loan book grew 19.3% y-o-y in Q2 to ₹44,465 crore.

“For most customers, this self-occupied home is their single most significant possession, often mortgaged to the bank. However, when customers have surplus funds, these often remain in savings or current accounts at other banks, not DCB Bank," said Kutty, adding that to address this gap, the bank would now focus on getting such low-cost current and savings deposits.

As of 30 September, 25.61% of its deposits were in current and savings accounts (Casa), 57 basis points (bps) higher than the same period of last year. 

To be sure, the bank saw its total deposits grow nearly 20% year-on-year (y-o-y) in Q2 of the current financial year to ₹54,532 crore. The pace of growth of Casa deposits (22.6% in Q2 FY25) is already higher than term deposits, which grew 19% in the same period. 

The bank has been conservative in its lending practices, looking for growth in secured segments or those where loans are backed by collateral. Its secured loans include mortgages, loan against property, auto loans, and gold loans.

“We take pride in our conservative lending philosophy and intend to maintain it. While we strive to remain cautious in lending, we aim to be more aggressive in execution speed," said Kutty, who has been at the bank for 17 years, heading retail, agri, and small business banking.

Kutty added that while the bank will continue expanding its secured lending portfolio, it does not intend to venture into unsecured loans at this stage. For instance, it plans to issue credit cards, but against fixed deposits. 

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According to Kutty, the credit cards against fixed deposits will cater to three groups of customers: customers who are currently ineligible for regular credit cards due to income levels or geographical constraints; individuals with poor credit scores seeking to rebuild their creditworthiness; young customers looking to build a credit score in a controlled manner.

Meanwhile, the banking industry is going slow on credit cards. In October, banks added 0.79 million credit cards, compared with 1.69 million last October. The key reason for this slowdown is a recalibration of risks by lenders, Mint reported on 28 November. 

Also Read: Mint Primer: Why are banks issuing fewer credit cards?

Analysts see the elevation of internal candidate Kutty as one that brings continuity to the bank’s operations. “RBI approved Praveen Kutty as managing director of the bank who has been part of the bank leadership team for the past 16 years; thus ensures continuity of the strategy," analyst at IDBI Capital said in a note on 25 October.

In April, the bank’s erstwhile chief executive, Murali Natarajan, retired after 15 years, leading to the elevation of Kutty. 

The bank is promoted by Aga Khan Fund For Economic Development SA which held a 13.95% stake as on 30 September, and Platinum Jubilee Investments Ltd which had 0.78%.

Others are banking on continued profitability and expected promoter support to aid capital requirements. On 18 October, Care Rating reaffirmed ratings on the bank’s ₹1,000 crore certificate of deposits at A1+ and said it factors in “comfortable capitalisation with sufficient cushion over the minimum regulatory requirement".

“The capital adequacy is supported by consistent profit generation and expectation of continued support from its promoter, Aga Khan Fund for Economic Development (AKFED)."

The bank’s total capital adequacy ratio stood at 15.55% as on 30 September, a decline of one percentage point from September 2023.

“The last promoter capital infusion occurred 15–20 years ago. In the December quarter of last year, the promoters announced an infusion of $10 million, primarily as a symbolic gesture to reassure stakeholders during the transition," said Kutty.

He added that the capital infusion is currently awaiting RBI approval and is expected to take place soon. “If we maintain our current growth trajectory, we may require additional capital next year, beyond the $10 million infusion from promoters," he said.

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