DCB Bank Ltd
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DCB Bank Ltd
NSE:DCBBANK
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Ladies and gentlemen, good day, and welcome to DCB Bank Limited Q2 FY '23 Earnings Conference Call. Joining us on the call today are Mr. Murali M. Natrajan, Managing Director and CEO; Mr. Satish Gundewar, CFO; Mr. Ajit Kumar Singh, Chief Investor Relations Officer; Mr. Praveen Kutty, Head Retail Banking. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Murali M. Natrajan. Thank you, and over to you, sir.
Thank you. Good evening, all of you. I am speaking to you from the boardroom of our corporate office. I have here in the boardroom, Mr. R. Venkattesh, who heads our HR, Technology and Operations. Then we have Mr. Praveen Kutty, who's the Head of our Retail Banking. Then we have Sridhar Seshadri, who is in charge -- he is the CRO of our bank. Then we have Satish Gundewar, who is a CFO. Then we have Ajit Singh, Head of Treasury and Investor Relations. Then we have Meghana Rao who's Head of Operations and then also some of our key staff.
We've had a very good quarter, once again. And we are on track, I would say, to double the balance sheet between 3 to 4 years. When I analyze our performance over the last few years, what I see is that the first year when we started this journey around 2008-2009, we had to kind of stabilize the balance sheet.
From 2010 to 2020, we grew at a CAGR of the loan book at about 22% for 10 years. Then we had about 2 years of COVID where we have grown at an annual rate of 7-odd percent. Now when you look at the growth in comparison to last year, we are at 18% already. And we are confident the kind of investments that we are doing in the frontline and the depth we are creating in our products, process systems we should be able to double our balance sheet between 3 to 4 years.
The second important point is while the slippages are still slightly high, I would say, looking at the collection efficiency, which is pretty much back to COVID-19 stage. I would say -- and then if you look at our upgrades and recoveries, we are doing quite well. Unfortunately, some old corporate accounts slipped this quarter. I would not say that it was not expected, but when accounts going to NCLT, it takes a long time for resolution. And these loans have been with us for more than 10 years, and they've had some challenges recently and then have gone into NCLT.
So the resolution is taking time. But having said that, the retail portfolio, gold loan recoveries and upgrades are doing extremely well. Even the repayment from our restructured book -- as you know, we never restructured any unsecured loans and a very, very miniscule amount of unsecured loans we restructured. So the payment that we are able to get from the restructured book, our collection efficiency is also improving.
So we are pretty confident about our portfolio. We are obviously getting lower -- the benefit of lower provisions. What has been a bit of a surprise for us this year is that we generally have a very decent flow of income from PSLC, but the rates of PSLC have been low this year, so therefore, we are having lower income in PSLC than last year, than our expectation. But our other income like the core fee income processing fee, third-party product distribution, all that is doing very well and compositing for some of the shortfall in that.
So balance sheet on a year-on-year basis has grown at 13%. Deposits have grown at 16%. We are doing quite well on CASA; it has grown by 35%, and we are almost close to 30% on CASA ratio.
Loan book, like I said, it is -- the growth is 18%. Our net interest income has gone up by 27%. NIM is at 3.88%. However, I would like to again guide that our approach is 365 to 375 basis points. The deposit rates are going up, and there is a limit beyond which you can't keep passing on the cost to customers.
Of course, we are following the EBLR and MCLR method as prescribed by RBI. So with respect to our operating costs, it is going up in line with the investments we are doing. As far as we are concerned, we have no surprise with that. We want to bring a frontline capacity. So however, on a year-on-year basis, I don't expect the cost to increase the way it has increased this year over last year and into the next year. So we are creating a platform for us to build this bank to be able to keep doubling every 3 to 4 years.
Our headcount has reached a level of 9,443. Again, it is as per our plan. And what we are finding is that our disbursal volumes are also going up in line with the frontline capacity that we are building. And you can see the disbursal volumes in our investor presentation, which has grown by 49% over the previous year, same this thing and quarter-on-quarter, it has grown.
Again, the growth is led by mortgages within that home loans KCC, tractors, gold loans also have done well. We are doing reasonably well in co-lending and trends as well. We have already talked about the provision. And cost income ratio is high at 64%, but our target is to go below 55%. It will take us some 3 to 4 quarters, but we are on track because we are building the volumes and as a low volume builds up, we don't expect the same level of investments in frontline in requirement for us next year. However, the current year investment starts to kind of delivers well. We have already shown you that disbursals are really stepping up, which is quite good.
The demand is also quite robust. Both gross NPA and net NPA have come down, and we expect to continue to improve this. And coverage ratio has also gone well above 70%. We are strong on capital. I would like to remind that the current year profit is not included in our capital computation. ROE is improving. Again, our target is to reach 14%. And in ROA, our target is to cross 1% on a steady-state manner, which is what we are working towards. Those are some of the few observations I wanted to share with you. If you have any questions, happy to answer.
[Operator Instructions] The first question is from the line of Mona Khetan from Dolat Capital.
Congratulations on a good set of numbers. So my first question is on the slippages. So you mentioned in your opening remarks about this corporate slippage this quarter. But just wanted to understand how large is this quantum? And could we expect slippages to normalize some -- I mean, going forward?
I think 3 accounts or, I would say, 4 accounts in corporate, all these accounts are very old accounts. One account is -- has been with us before I joined the bank and one account has been there since 2010.
Some of these accounts depend on repayment from Quasi government, government agencies, there are delays. In the meantime, they've had some challenges. And these accounts have been doing well, although I would not say that they are strong, but they have been doing okay with us for the last many years.
But some banks have taken that to NCLT and therefore, obviously, till the NCLT process is resolved, we can't get our payment. So I don't expect this kind of slippages from corporate. At the same time, we are working on resolution process, and we are hopeful that in the coming few months, we should get some recoveries on this.
And what would be the quantum for all these accounts together?
You can see that our corporate NPA has grown by about INR 100 crores. So that is a quantum.
Okay. So -- I mean, the INR 350-crore-or-so of slippage would sort of be the normalized number in the interim?
We expect so. See, I would not read too much into gold loan slippages. I've explained that in the previous call also because we give OD product, and customers are expected by the regulation that came on November 14, 2021, in the OD product, including SME kind of OD product, that every day, they have to be servicing the previous everyday 90 days.
[indiscernible] slip into NPA. But again, we can recover all the overdues and bring them back. So I would not read too much into slippages of gold loans. The rest of it, I can say is looking like to us as a normalized kind of slippage.
Okay. So because of this kind of regulation and you having a material gold book, is it fair to say that our slippage number as well as recovery numbers sort of going forward will remain elevated?
Till such time, we are able to discipline majority of the customers to follow the rules completely, yes. Also, we are looking at some alternate products for the customers in gold loans, whereby it can be like some kind of an installment/OD product, we haven't yet fully tested that with the customer acceptance, where they don't have to suffer this everyday 90 days.
See, customers are taking gold loan as an emergency product. It is not necessarily that they deposit all their business receipts into that account. Whereas an SME business and all regular basis, some positives happening. Therefore, they don't get too much affected by this everyday 90 days, no. Even corporate loans get affected by that. So I would expect elevated NPA especially in gold, at least for some period of time.
Sure. And my second question is given that you primarily operate in the 30-, 40-lakh segment, how is the current inflation environment impacting the borrowers?
From -- I can only say 2 things: the demand for loan, when we are talking to our frontline for targets and so on, I don't see any major resistance in terms of us asking them to perform at a higher level. Secondly, the collection feedback seems to indicate that we are not having too much trouble trying to get some overdues at all from customers.
Having said that, these are customers who, if they miss one payment, it's not easy for them to make up 2 payments together. It's not easy for them because of the nature of their income and so on. So I would say that at the moment, I don't see too much challenge on that.
However, we are passing on the MCLR increase and EBLR increase. And I do hope that it doesn't go too much beyond control because then sometimes the debt burden can be impacting some of the marginal customers.
The next question is from the line of Rohan Mandora from Equirus Securities.
This was on Slide #26, where you have given the trends on GNPAs across last 5 quarters. So the kind of improvement that we have seen in the mortgage GNPAs in last 5 quarters, you are not seeing similar trends in SME/MSME. So just wanted to understand, is it because of the customer profile like there's a difference between the 2 or how should we look into the movement in the GNPA number in the 2 segments?
Yes. See, SME/MSME, a lot of the portfolio is working capital and many of them are getting used to this everyday 90-day, what you call as, keeping their accounts in order, right? So the slippages there are mostly because of not being able to keep their interest service on everyday 90-day basis, which is a November 12 circular.
Again, I am seeing improvement in that, but we could do better. I don't see any concern in the portfolio. Post-COVID, things are stabilizing quite well. And even the recovery upgrades are quite encouraging in the SME as well.
Okay. So it would be fair to understand there are new slippages happening, there are upgrades happenings, and it's not that it's mostly a static book?
No, no. There's a lot of movement. Every month, there is some movement and customers are coming and settling or -- and there are customers who after 6 months of having performed and their business done even requesting for enhancement.
It's not that -- so there's no problem with the portfolio or anything. It's just the nature of how they are getting used to this. And let me also tell you that a lot of customers have come out of this COVID, they are performing well. Their business is doing well. But yet, some of the old overdues and all, they are still catching up. And if they don't catch up in a particular month or so, they'll slip into NPA. So I expect -- I mean, I've said this even in the previous call and all, it will take another maybe 2 quarters or so for this to stabilize.
Sure. And just to follow up on this. In the working capital loans that typically do need to service only the interest component. So when you're saying that it's because of daily recognition, daily tagging of the NPAs. Do you want to have some turnover credit happening into the accounts? So while for a mortgage, it's more of an EMI kind of a payment where the outgo is more lumpy in terms of the servicing the loan. So the different-wise SME should ideally have performed better...
[indiscernible] Hold on. In mortgage, if the customer has got, say, 2 installments to be paid and we collect 1 installment, he can pay, he'll still be non-NPA. But in a OD product, like I explained, read the November 12 circular, it says that on everyday basis, the previous 90 days, he should have serviced the interest, right?
So what happens then is if there is even a few days delay, suddenly, you find that while he is a good customer, he has had regular payments, but he has missed that 90-day gap, then automatically he becomes an NPA. So then now he have to service all 3 interest for him to become regular. That's the kind of regulation that we are dealing with. And so I'm not saying it is a wrong regulation, it is just that customers are getting used to that way of doing business.
Sure, sir. Sir, second was on the cost of deposits, it's improved on a sequential basis. So just wanted to understand what is the incremental cost for the 2Q and how should we look at it for the second half?
No, I think the cost of deposits will go up now because -- if you look at the term deposit rates, there is a battle out there going on. The deposits are not that easy at the moment. It is tight.
And so I do expect deposits to go up. I think the mix of CASA [indiscernible] so that is how the deposit -- the cost of deposits have come down. And some benefit also we will get because in a few days, as per our notice, we will repay at amount of Tier 2. So that may have some benefit also. But on the whole, I think cost of deposit, cost of fund should go up.
But sir, just on the incremental cost of deposits right now, how much more is it from the deposits numbers for 2Q?
So I don't disclose all that numbers. That is -- you'll have to wait for our next quarter results to see what that is.
Sure, Sir. And sir, lastly was just on the corporate slippages. Historically, as I understand, what we had indicated is that on the corporate side, the loans that we give is typically less than 1-year tenure loans and what you indicated is these are long relationships that we have had, so was the deterioration in the...
No, no, I'll answer this. These are not -- we started doing short-term kind of loans about 4 or 5 years ago. Before that customers do have OD loans, term loans, all that is there, and they have been servicing. These customers also have been servicing for the last 10-odd years.
Unfortunately, they got into some trouble and then a couple of banks have taken them to NCLT. And therefore, the whole process is taking time. And obviously, if there is no payment coming, we have had to kind of classify that as NPA. So these are -- I mean, like corporate loans, I've always explained for the last several years that there may be a complete [indiscernible] for a long time and currently 1 or 2 accounts do slip into NPA. That is how it has happened.
The next question is from the line of Renish Bhuva from ICICI Securities.
Sir, 2 questions. So one was on the core fee income part, which has been increased sharply to INR 77 crore versus INR 60 crore, INR 65 crore in last 4, 5 quarters. So sir, what is driving that? And one should assume this is the new sustainable range going forward?
Processing fee, third-party income distribution. Again, I've been guiding you guys that we are working with our frontline to improve our fee income, cross-sell and so on. So slowly, we are seeing the impact of this in our P&L, and we hope to improve it further.
Got it, sir. And sir, secondly, on the credit cost guidance. So sir, when we look at the slippages, even the ex gold loan portfolio is still at more than 4%. And when we are guiding at a sub-60 basis point of credit cost, sir, what is the LGDs are you factoring?
No, I can't -- I mean, I've given you a general guidance on LGD. It is all secured portfolio and secured portfolio LGDs are unlikely to cross, especially mortgages, unlikely to cross 20%, 25%. That doesn't mean that, that is our LGD, but we don't see those kind of sacrifices to be made in mortgages and especially in small [indiscernible]. In many lows, we recover from penal charges to P&L interest to everything else when we settle with the customers.
Several of these customers, you see there are upgrades and recovery, right? So I'm guiding this based on what we see as our portfolio. And we believe that our credit costs, which I have indicated in one of this things, should be in the range of 50 basis points. So obviously, we are -- it's being lower credit cost. But I believe that our business model indicates to me that 50 basis points is the model that we will be moving towards.
The next question is from the line of Bunty Chawla from IDBI Capital Markets & Securities.
Sir, Continuing with the gross NPA movement on the Slide 26. Historically, what we have observed that we generally don't believe in write-offs or sacrifies kind of a thing. And it shows the run rate also it was approximately INR 2 crores to INR 3 crores per quarter. But this quarter, it's slightly higher above INR 41 crores approximately. So any strategy change or any outlook change on that part? And also, if you can share this INR 41 crores is belonging to any specific segment or something like that?
That INR 41 crore belongs to various products. And I do believe that the average ticket price on that would not be more than maybe INR 20 lakhs, INR 25 lakhs, which is similar to our similar to [indiscernible] and fully provided, right? So there is no strategy or anything like that. So we just look at some of these loans we review it -- and we see what is the time frame that is required for recordability. And then based on our discussions with the collections unit and all, we take a call maybe this needs to be written-off.
So we don't pursue write-off as a way to reduce our NPA, you know that. And so that's what it is. So this quarter, we have reviewed it and figured out that about INR 35 crore we -- INR 41 crore, sorry, 41 something, that is what we have done. So there is no big strategy behind this actually.
Okay, sir. Okay. And secondly, sir, if you see there has been a still high amount of run rate on the operating expenses continuously happening though we have earlier said there still we are focusing on the branch expansion and all those things. But when is the trigger that employ expense or total operating expenses will have a sustainable growth and higher operating leverage will kick in for us with respect to cost to income ratio?
We are adding people, frontline people, in mortgages, in SME, in KCC, in tractors, in gold loans, and branches and deposits, all these areas, we are adding these people.
Now we have lost some time last year and so on because of COVID, right? We obviously cannot catch up on the entire balance sheet, but we are saying, okay, there is an opportunity, there is a demand in the market. We are seeing very good performance on our credit provisions and so on. We are seeing a decent increase in our NII. Fee income core is doing well.
So we want to make sure that we have adequate capacity for us to be able to double the balance sheet between 3 to 4 years and continue the same momentum. Like I said, between 2010 to 2020, on a CAGR basis, we every year, we have grown our balance sheet by 22 -- I mean the loan book by 22%, right? So we have the ability, we have the product, we have the technology, we have the market, we understand the segment, all that. So next year, I don't expect year-on-year income -- sorry, expense growth to be at this kind of level because we have already reached a platform of capacity that would help us to build our balance sheet at that level.
That was very helpful. Lastly, on the margin per se, if you see still we have got the benefit of declining the cost of funds and cost of deposits during this year and we expect yield on advances, which has increased because of the repricing. But still, there should be some more repricing happening in the next 2 quarters. But on the net interest margin, still, we are guiding, there should be a 3.65 to 3.75. Already, we have touched 3.9 for this quarter. So how I should see for next 2 quarters, net interest margin movement, sir?
This is the most difficult question for me to answer because there are so many moving parts of this. From meeting the agri target to deposit rates to refinance that we get from NHB, the rates moving on that to pricing on our CASA to the product mix to NPA moment, there's so many pieces.
Our business model is we are quite happy with 365, 375 kind of range on NIM, with a 50-odd basis points on credit cost. What is work in progress is that we are building capacity for stepping up the growth, which we are demonstrating to you. And that cost starts to come off. That is one. And the fee income, although we are demonstrating that it is going up. I wish exactly on a linear manner like what we do in spreadsheet, it keeps going up.
Sometimes it is not the way that business works. There are -- like for example, we got some hits this quarter on cost rate. And it not happened, our NPA would have been even far better than still able to manage to get sufficient recovery and upgrades to kind of and our sector book is also performing quite well. So I would say our business model is in the same range. So if you do better than that, and let me assure you we are not working towards reducing the margin towards 370 basis points, okay?
The next question is from the line of Krishnan ASV from HDFC Securities.
Sir, the question -- you just alluded in your opening remarks about at some stage, you will be more responsible -- all lenders, I'm assuming, will have to exercise some responsibility in how much more to exercise the pricing power on the asset side, right?
And this is something I think -- I mean I will try to kind of get grappled with across the system. Does EBLR allow you that kind of elbowroom or does it need a separate dialogue with the RBI to -- or is it usually just in the import nature of business as usual that whenever customers come up for reset, say, annual research, et cetera, this is something that is at the bank discretion that we could move the spread around a little. And when does that take -- I mean, when do you see that stage ideally coming through? Would it be, say, 50 basis points from here if the repo was to go another 50 basis points or does the consumer seem willing to pay even now?
Neither EBLR nor MCLR gives you any way not to pass on the benefit or the increase. It's a very what's called very straightforward formula-driven method. It is audited by statutory auditors, and it is also audited by on a yearly basis by the regulators.
So absolutely, you cannot make any thing. I have seen some banks reduce MCLR or infuse MLR in the multiples of find stuff like that. But if you look at our MCLR, you will see that it is like 14 basis points and 27 basis because we do it absolutely, exactly whatever comes, we are either passing it on or reducing as the case may be.
However, based on the segmentation of the customers right? We do have a right to reduce our credit risk premium or increase the credit risk premium. In case we find it is a risky customer or the customer has got a good track record and so on. That's only flexibility we have. That too we need to have -- it can't be whimsical. It has to have a policy, it has to have a process, only then we can do that.
So I was referring to those kind of customers like rather than affect them by this because they are good customers in a structured manner, not giving some benefit of their good performance.
The second thing is that our marginal customers who maybe not further increasing the rate might actually affect them, in which case, we'll have to segment that and look at how we handle that in collections so that we don't tie them all the edge or give them some kind of education or that they don't push themselves into a corner. That is basically what I was referring to. And these are all stuff that we do as a regular basis.
Understood. And just from an EBLR transmission perspective, could you just advise on how much more room there is given the customer profile that we cater to? How much more...
I don't have the answer, but we have customers who are all high score, what you call as -- our cut-off is what, 700, right? So we don't give loans to low-score customers. So therefore, if at all, there is some other thing, it will be a very small portion of our portfolio.
Understood. Understood. So just one other question on the deposit side. I mean it's fairly evident that there is a scramble for deposits. Are there certain -- I mean your pockets you believe that DCB is disproportionately lower given its own on market share? Are there pools of deposits where you're dispositional lower where you are still not made serious inroads?
I'm not completely understanding the question. In the retail segment?
Or in the institutional segment, do you also plan to participate with the sovereign at all?
No, no, institutional deposits have very different treatment in LCR. All banks have to pursue only retail deposits because if you pursue too much of institutional deposits, then you will end up in having an NCR problem, unless, of course, you are giving a noncallable kind of a deposit. So we are fairly happy with our participation in all these subs. However, our core effort and strategy is to keep on consuming retail deposits.
And in retail deposits also, you can't be a hero. Supposing some of the competitive banks are at, say, 7.25, you can't expect to get deposits at pricing at 6.95%, it doesn't work like that because the market is very competitive. So you had way at the market at that rate. Otherwise, you don't stand a chance to get that deposit. So I would say that generally, the deposit situation is a bit tight. However, so far, we acquired doing quite okay.
The next question is from the line of Gaurav Jani from Prabhudas Lilladher.
Congrats on a good quarter. Sir, I think have changed our disclosure so this was related to deposits. Sir, Q4, the wholesale term number or share was about 9%, could you quantify that for Q1 and Q2 percentage or absolute either?
Which number are you looking at? Which page?
Wholesale term deposit number. So that was 9% in Q4 of '22.
I don't have it here. Where is it here. Which page -- I mean, if you can give a...
So that was -- actually that was the data was in the presentation, so it was taken from there.
It may be in the same rate, maybe it is 10% or 11% like that. That's all. I mean in that range.
Sure. No, just wanted to understand as to how has been the movement of retail TDs over the last quarter basically...
Retail TD movement is okay. But like I mentioned to you that the deposit market is somewhat tight and competitive. Therefore, we have to keep reviewing it almost on a weekly twice basis to make sure that we are right out there to get the momentum on the deposits going, including our [indiscernible] CASA. [indiscernible] CASA has not that problematic.
I think it is going very well for us. But given our ambition for loan growth, we have to be on the we have to be out there to make sure that we provide that liquidity. So so far, we have not faced too much of a challenge. But quarter-on-quarter, there may be some increase in wholesale deposits everything because we have to balance these things because there may be momentum building on retail deposits, we may be taking some 45 days, 60 days extra in the meantime you take a wholesale deposit, noncallable deposit, make up for the liquidity and then build up your retail deposits. So these things we have been doing out of continuous manner.
Sure. That helps. Just technical point also. So for the quarter, would you have seen a retail TD growth of about 5% quarter-on-quarter?
I don't have that number.
Okay. Okay. Sure. Coming to the yield base I mean taking the discussion on yields forward. So I think we have been -- because obviously, product profile, the yield increase over the last 2 quarters on a quarterly basis has been rather slower as compared to the competition, should we expect...
[indiscernible] rather what?
Slower.
I see.
Has been rather -- yes, yes. So at least the numbers signify that or indicate that. But -- so over the next -- over the second half, should we see yields increasing at a faster pace?
We are focused on NIM. Our target NIM, like I said, is 365, 375 basis points. We have a mix of products. Within mortgage itself, we have some 5, 6 different products. Then we have KCC, tractors, then gold loans, there are different pricing for different ticket prices or segments.
Then SME, we have -- so it's very hard for me to exactly say how this will be. We monitor our ease and NIM on a weekly basis to see how we are [indiscernible] and we are quite confident that we'll be able to maintain the NIMs at between 365 to 375 basis points.
Okay. Got that. Sir, coming to the asset quality bit, so if I had to look at Slide 27, you have interestingly mentioned that the restructured pool by March '23 would come down from INR 1,900-odd crore to about INR 400 crore. So that's a huge...
Where are you reading this INR 1,900 crore? Did I say that INR 1,800 crore or INR 1,900 crore is under moratorium, that is not what we have said. We have said that INR 400 crore, the moratorium [indiscernible] INR 400 crore. Not all our restructured is moratorium.
Okay, okay, okay. Got it, got it, got it. My mistake sir, sorry. So coming to the credit cost bit, sir, we have been -- you mentioned in your opening remarks also that we are targeting 50 basis points, so would this be for '23 and are you guiding that for the coming years? I mean [indiscernible] give you the confidence of maintaining that at 50 basis?
On a steady-state basis, we believe the product mix that we have, the segments that we are operating in, the credit structure, collection structure, all that put together should give us a NIM of about 365 to 375 basis points and a composite credit cost of 50 basis point, okay?
We are not big on corporates. Even if we're not big in corporate, you can get here and there, it by some corporate NPAs. So I don't count any noise created by corporate here and there once in a while. Other than that, the basic portfolio, which is a retail and SME portfolio, we believe should operate in that range.
The next question is from the line of [indiscernible].
Congratulations for a good set of numbers, sir. My first question pertains to with understanding on the restructured book, if I recall the last presentation where we guided that the restructured book under moratorium will come down below 700, and now we are guiding that by March '23, it will be 400. So can you bifurcate the book between moratorium and non-moratorium under the restructured category?
And how that overall movement will be?
Hold on a second. I've said that by March, we'll be at 400. Last time, I said it by September, it will be 700. So the moratorium is every year month, so from 700, it will move down to 400 on a monthly basis. That is as simple as that. The rest of it is all build booked.
Okay. So how do we see the movement of overall restructured book by March '23?
The restructured book will remain as restructured. There is no provision in RBI to -- it's a standard restructure. There's no provision in RBI to say that it is not a result anymore. Unless the customer comes and based on the full money in which case, it will anyway or it goes to NPA, it anyway will stay as a restructured book. .
Even there, we are seeing that a lot of customers are closing their account straight into the restructure at the restructure stage itself. And many of the customers after having come into billing and after we have kind of done some corrections, some of them are moving into NPA as well. So the slippages include even the NPAs that may have slipped after coming into billing. So the restructured book will be termed as restructured till such time it becomes 0.
Okay. Once it is restructured, it will continue as it is till the time the customer fully pays is off?
Yes. Yes.
Okay. Got it, sir. And sir, my second question pertains to the growth capital. How are you seeing the growth that you are seeing 20%, 25% kind of run rate that you're talking about for next couple of years? When can we expect that the threshold of capital adequacy will be achieved at which we will look for fundraising. So can you guide on that will be really helpful?
Our projections indicate that at about 15%, 16% growth rate, we will be self-funded, okay? Because for INR 100 of loan, we are only consuming about 60% of -- 60 as the risk-weighted asset, okay? It's a very capital-efficient model, right?
Now unless some weightages are changed by regulation or we change some product mix, which we are not planning to do, at 15%, 16%, we are sufficient. However, our aim is to grow at a much higher faster base. So at least for a year, I don't see -- and you know that the current profit, that is the half year profit, is not included in the Tier 1 computation. It will be included only at the year-end after the audit is completed, right? So therefore, we believe that at least for a year from now, we don't need to raise capital.
Okay. So not in FY '24, maybe somewhere in FY '25, we can think it off?
No, no. I said a year from now.
Okay. Okay. So September '24 -- September '23?
Yes. I mean I'm just saying that at least for a year from now, I don't see -- read all my statements, a, 15%, 16%, I don't need to raise capital because...
[indiscernible] capital.
Right? Second, our aim is to grow much faster, like doubling the balance sheet between 3 to 4 years. Current year profit is not included in the computation. And you all put together, then the market also has to be favorable for us to raise the capital. At the moment, we are pretty strong on capital adequacy. So I don't see an immediate reason for us to raise capital.
Okay. And sir, the last question pertains to what percentage of our total loan book is floating right now?
We don't have that information here, but majority of our book is either linked to MCLR or to EBLR. Last few years, it has been linked to EBLR before that it has been linked to MCLR. And we haven't seen any problem in passing on the increases to our customers.
Okay. So mostly, the book is floating, so we'll not [indiscernible] much of a problem?
Yes, yes.
The next question is from the line of Anil Tulsiram from ContrarianValue Edge.
My first question is on competition. So from next year, the account aggregator system will, I think, become operative. And in addition to that, we already have and co-lending. So just want to know whether these 3 coming together will put any impact on our NIMs and competition have increased much more than in the past?
It's a very difficult topic to engage at this point in time. Even we haven't fully understood the implications of how this accounting aggregator will pan out and what would be the impact and how many would participate and how many -- I think the customers all have to say yes to it, right, each of them. So there's a lot of open items in this. So I don't believe that we can bottom out our discussion here. So you have to give us some more time to understand this.
Sure, sure. Sir, and second last question is do we lend on the basis of informal income or all our loans are based on the formal documented income?
There are multiple products that we have. Let's just take an example of only mortgages. There are multiple products we have in mortgages. At the high end, including income tax difference to P&L, we take, including bank segment, at the low end, for example, if a customer -- I'm just giving you an example, okay?
And this is my favorite example, so I'm repeating this example. The wife is doing tuition. The husband is, let's say, some kind of a motor mechanic or something, and son is doing some small jobs somewhere. We will be able to put together all that income and come out with that burden with which we can actually fund them a home loan, okay? And part of it will be informal, most of it would be formal because we will go through bank statement and other whatever information is available before putting together.
It is very hard to just use only informal income and get somebody's paying capacity, that's very, very hard. I mean I don't think we have any such product. So it will be a hybrid at the low head, but fully documented at the high end.
The next question is from the line of [indiscernible] Capital.
Congratulations on the good numbers. Sir, my question is on the [indiscernible] book in good disbursement. So what has led to this? And also the incremental disbursements are not actually reflecting in the loan book growth in absolute terms. [indiscernible]
Which book are you saying?
Sir, the other inclusive book, AIB.
AIB. Okay. So what is your question that it is not reflected in what?
The loan book growth in absolute terms. So how much of this is actually repayments and how much is...
Year-on-year AIB must have grown at least 18%, 19%. So I'm not sure where you're looking at...
I'm looking at quarterly numbers, sir.
Yes.
[indiscernible] look at the quarterly numbers, so how much of this is actually normal prepayments and how much of this would be takeovers or...
AIB has a number of products, okay? AIB has got tractors, AIB has got KCC, AIB also have retail products like mortgages, SME and AIB has micro finance through BC and AIB also has term loans to MFI entity, okay?
So if 1 or 2 MFI entities have repaid their loan or something like that, that it may be reflecting in these things. But the core retail business of AIB, which is the KCC, tractor, mortgages, BC, that is doing quite well for us on a steady basis.
Okay. Okay. And sir, on the mortgage side, what is the normalized [indiscernible] we see, BT out and BT in also?
There is nothing unusual that we have seen in the last 12 months. Approximately 20% of our book would be from other financiers because customer is trying to arbitrage on this interest rate. When the COVID started easing up, we did see some jump in increase in what you call as out, some increase. But when interest rates are increasing, you hardly find any -- I mean, you don't see too much of a jump in BT.
Could you give a normalized rate, I mean, normalized, what would we see?
No, we don't present that information.
Okay. Okay. And sir, regarding the fees income, do we have a target where we'd like to take this as a percent of our assets?
We want to achieve 110 basis points. That's our target. We probably are at about 90 at this point in time.
Okay. Okay. And sir, 1 last question on the restructured book, I think it peaked around INR 2,150-crores-odd and INR 700 crores is still in moratorium as on date. So for the INR 1,300 crores that has come out of...
INR 700 crores is not on moratorium. INR 700 crores was in September. So October some have already come in. November something will come in, so every month something will fall off the moratorium.
I was actually -- so INR 1,300 crores as in September, how much of it came out in Q2 FY '23 this quarter?
What came out?
How much of the moratorium book -- how much of the...
Please refer to Page 27. [indiscernible] only INR 400 crores of moratorium will be left. So you can do the math as to how much is coming out because that is all the information we can give you at this stage.
Sir, I was actually asking [indiscernible] book is already out of moratorium as on September 30, what percent came out in Q2 out of moratorium?
I don't have that number. All I can say is, our collection efficiency that we are showing you includes those who have come out of moratorium and pay. So we have 2 collection efficiency data. One is on 0 bucket, another is on restructured and -- including delinquent and restructured.
You can see that business loans is at 96.7, home loan is at 98.1 so that should give you comfort because I have repeated this many times, we have not restructured any unsecured loans. So when a September comes out of moratorium, it takes about 2, 3 months for them to come into a rhythm of repayment. After that, our collection people are able to get them back on track. Those who don't get back on track, slips into NPA, that is already reflected in our slippages.
The next question is from the line of Darpin Shah from Haitong India.
So my question, again, was on yield. So we see on a -- yields have just gone by around 15, 20 basis points on a sequential basis. So just wanted to understand how much card rate increase which we have -- must have done already on the loan side and what will be the which is happening?
I didn't understand your question. What is the question?
So I'm trying to understand is our entire book is largely floating in nature, okay, whether linked to MCLR or ECLR, how much card rate increase we have already taken from April till now and what will be the rest period? Because this increase of 15, 20 basis points sequentially is -- looks much lower for a floating rate book actually. So that is what I was trying to understand.
Hold on. See, the MCLR is passed on 4 times a year, correct, but it is reviewed every month and then there is -- as per the, what you call as, sanction terms, they are passed on in a particular day: November, then February, then May and then August.
These are the 4 months in which it is passed on. So it has a little bit of lag in terms of passing on that. EBLR, whatever book of priced in EBLR that has already been passed on. EBLR has come in only a few years ago. So not all our book is on EBLR, so you won't see the entire, this thing, impact. And I think our 50 basis point needs to be passed on next month, right? So you will see some impact of that.
Okay. So in that case, we can expect that at least the third quarter, fourth quarter margins still to remain at these levels and then by FY '24, it might be in the range which you've always been talking about?
We are looking at a margin of 365 to 375 basis points, okay? It is very hard to explain every moving part in that. All of a sudden, for example, if there is a huge competition in market on deposits, because given our growth submission, we can't stop that. So we'll have to look at saying, okay, why don't we do some differentiating pricing [indiscernible] liquidity and it may have effect on margin in that part.
But then we'll have to change our product mix profile to make sure that we come back to margins. These are nuances and adjustments we keep doing on a monthly basis. So it's very hard for me to explain mathematically exactly how this is going to flow, especially with so much of a mix of products.
Okay. Got you points. Lastly, data-keeping question, if I can get breakup of the provisions for the quarter?
Break up of the provision is there in thsi thing, right, Page 30, I think, no?
For the quarter.
Okay. The INR 31 crore number you want to break on that INR 31 crore number, right?
Okay. That number. Yes.
Yes.
So the floating provision is about INR 4 crores. Standard restructuring provision is a reversal of INR 11 crores. The regular standard asset provision is INR 7 crores and the NPA provision is INR 31 crores.
Okay. Is it possible, can I get from 1Q as well, if it is available? If I can get the same numbers for previous quarter, that is Q1 FY '23, if it is available?
We will have it readily [indiscernible] we can give it to you later. .
Yes, yes, you can get back...
I will take it offline.
Yes. So we have time for one more question.
The next question is from the line of [indiscernible] individual investor.
Yes, I just wanted to ask what would be our guidance on the slippages part? And you've seen a slight uptick from March, which -- what could be the reason for that?
See, the slippages, given that we are coming out of COVID, given that we have a self-employed book, given that a lot of the customers are improving, stabilizing, so we do have a situation where customers who have got upgraded, let's say, last month, last year, December may have slipped and then again getting upgrade because they're all stabilizing their business. So I do expect similar situation. But I don't expect every quarter some corporate slippages to be like this because it's more like a once in a while kind of stuff.
So I expect and gold slippages still, like I explained, would continue to be high because of the OD product that we are doing and the recoveries and upgrade also would be high. So I would say that it may remain like this for at least other 2 quarters before kind of tapering off.
So sir, in terms of the steady-state slippages ex gold loans, what [indiscernible] because you've given us the credit cost guidance.
[indiscernible] steady state our credit cost is targeted at 50 basis points, okay? So that has the composite of slippages, recovery, our portfolio quality, our loss [indiscernible] everything is built to do that.
And if you go back still in 2019, '20, you will find that we have operated at that level. Also, if you see, we also have a target of at least keeping our operating profit 3x to 4x provision. I think prior to COVID, that is a kind of safety margin we had and I think we are pretty much back to that same level. So that is what I can guide you on. Exact slippage ratio at all are the fit, we are operating at about 2.5% or something like that. So our intention is to go towards that, but I think we have some time before we reach there.
Right, sir. And just lastly, on the net interest on the yield improvement that you've seen with segment would it be driving? Would it be gold loans that have seen the maximum improvement from March onwards, March to September, if I'm comparing?
So every segment is highly competitive. Even gold loan is very competitive, okay? Many of the banks have not even increased their rate despite EBLR increase and cost of fund increase on gold loans, okay?
And small-ticket gold loans are operationally intensive. So you may not -- so it may be giving you a good yield, but the cost of operation is high on small ticket gallons. There are these complications and nuances. So I would say the mix of products that we are operating, we should be able to maintain NIMs at about 365 to 375 basis points.
And what is the average size for our gold loans?
About INR 2 lakhs, that is our average ticket size. Actually, if we go down to INR 50,000, INR 60,000 kind of level, we can come on higher interest rates but it becomes operationally intensive. Also, those customers demand further turnaround, which I will put my hand to heart and say that we have not been able to crack the model followed by some of the gold loan NBFCs. They do it very efficiently. So we are still a little away from that kind of ability to service those customers.
And just the last one, in terms of the MSME mix, how much of that part would be export focused and how much would be domestic?
Mostly ours is domestic because they are all small ticket size at INR 30 lakh, INR 35 lakh kind of storage. Mostly traders, wholesale trader, small manufacturers, that kind of thing. So our export to the thing would be quite small, maybe not even 5% to 7%.
The next question is from the line of Anand from [indiscernible].
Sorry, I joined a bit late, pardon me if this question is already answered. So I was just having a basic question like slippages still stay elevated, but recoveries and upgrades save the day for us. So could you provide some color on what accounts are slipping and what accounts are getting recovered or upgraded?
Slippages -- sorry, upgrades and recoveries are not an accident. It requires effort, and it also is reflective of the portfolio quality. So it is not some kind of some luck that we have had on recovery, I mean, upgrades and recoveries. So I would like to correct you on that right away, okay?
So it's a part of the portfolio quality and the resilience of the portfolio that is indicated. And we have almost 1,000 in-house collection team who work with these customers. These are all secured portfolio, and we are constantly in touch with these customers to make sure that they are upgraded. And the upgrades are higher than recoveries that tells you that we want to retain the retain as much of these customers as possible because an upgrade customer is a good business for us for future earnings as well.
So I expect slippages to be pretty much in the same kind of level for other 2 maybe max 3 quarters before it starts to ease off.
The next question is from the line of [indiscernible] Capital.
Sir, my question was on the branch expansion you're looking to do. What do we target over the next 2 years in terms of the branch network and...
We have -- yes. Go ahead.
And is it mainly in the Tier 2, 3 towns or how do we look at it?
So the bulk of the deposit still, in my opinion, comes in the top 60, 80 locations in India, okay? So to some extent, we had to open branches in the top 60, 80 locations. As you know, if you open 100 branches, 25 of them have to be opened in unbanked locations. That's a very tough business to breakeven in 2, 2.5 years' time. And sometimes it takes even 4 years in these unbanked locations. Our intention is to grow our branch network between 25 to 35 branches and I think we are on track this year also on that.
Okay. Okay. And so basically, we can see [indiscernible] ramp-up in the H2?
Sorry?
We can see a higher ramp-up in H2 [indiscernible] I think you opened 10 branches in H1?
Yes. So generally, most of the branches we opened between quarter 3 and quarter 4 and then they start to perform by first quarter. This year also, last year, whatever we opened is starting to give us benefits.
Okay. And sir, 1 question on the yield side. Have we already taken some reception on the spreads that you have in terms of passing on the cost to our borrowers?
What have we done? The passing on the increases?
Have we already taken some compromise on the spreads?
So right now, whatever is being increased is getting passed on to the customers. There is a separate analytics team, which looks at good quality customers and has programs to -- from a both retention point of view as well as from growth point of view to pass on some benefits basely on credit performance basis.
As there are no further questions, I now hand the conference over to management for closing comments.
Thank you very much for attending to all. I know this is Saturday, and it's already 7:30, but I appreciate your patience, and I appreciate your participation and look forward to talking to you next quarter. Thank you.
Thank you. On behalf of DCB Bank Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.