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 Q3 FY '25 Earnings Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Praveen Kutty, MD and CEO, DCB Bank Limited. Thank you, and over to you, sir.
Thank you very much. Good evening, ladies and gentlemen. Thank you for logging in. Let me take you through some of the key highlights of our Q3 results. To set a context, these are very challenging times. Demand is softening. There are headwinds on certain areas, specifically unsecured lending, MFI lending, et cetera. Given this context, I'm happy to note that the bank has recorded a growth of 20% plus on customer deposits on a Y-o-Y basis, 22% on loans and advances and 20% plus on -- 20% on balance sheet as well. We have been, over the last 4, 5 quarters, consistently growing at anywhere between 18% to 20% range. And this growth of -- is something which we believe will continue in the key segments and products going forward as well. Our yield on advances has shown an uptick. It is going in a descending mode till now. But in Q3, we have seen an uptick on the yield on advances. And while the cost of funds continue to inch up, contrary to our expectation and what I told you earlier, the NIM has arrested its slide and has changed direction.
Again the 20% top line growth, our NII has grown by 15% Y-o-Y. And this is after quite a number of quarters that you've seen a double-digit growth in NII. We're reasonably satisfied with our fee momentum and more so with our core fee momentum, which is continuing its upward trend. Like I mentioned earlier, in the last quarter, the discipline on productivity and cost control is an area where we are focused on. And while it's still early days, we believe that we'll be able to demonstrate this in the future as well. I'll take you through some key highlights and then keep the field open for questions. Our growth rate of 20% on deposits has been achieved while keeping the top 20 deposit at less than 7%, we are at 6.97%.
Our savings account growth has been upwards of 17%. INR 141 crores of core fee income is the highest ever so far. Our capital adequacy is now 16.29% with the advent of Tier 2 capital during the quarter. We have 457 branches, with 6 added in the last quarter, and we have been very conscious on improving the productivity and that you can see in the reduction of manpower quarter-on-quarter as well. Our gross NPA is now 3.11% and net NPA is flat at 1.18%. So these are the main highlights. Now I'll open up the call for any questions that you may have.
We will now begin with the question-and-answer session. [Operator Instructions] The first question is from the line of Hardik Shah from ICICI Securities.
Yes. This is Jai. Sir, congratulations on a steady and good set of numbers. A few questions, sir. First, it looks like sir the growth in this quarter from the disclosure that -- from the pie chart that you gave on the loans breakup, it looks like that majority of the growth has come from co-lending. I mean the share has now jumped to 11%. If you can share some more color and it looks like that the entire is clubbed in retail. So what are those products where we do co-lending? And is the observation right that most of the growth has come from co-lending?
Okay. Jai, so good to hear from you, and you've been very generous. Thank you so much. On co-lending, let me tell you, we have our growth, excluding co-lending has been as good as the previous quarters. But what you said about the growth in co-lending is correct. One of our biggest partners have -- on co-lending, has started originating business again after a brief respite and when our partner started the co-lending program, the -- sorry, the origination of their loans, it also helped us through co-lending.
As far as the second question is concerned, we have a wide variety of partners in co-lending. We do -- with the various products that we do in no particular order, are home loans, school finance, we do unsecured business loans, we do gold loan, we do SME. Have I missed out anything? These are the various types of co-lending products that we do. And we do it across -- commercial vehicles. And we do it across more than 7 or 8 co-lending partners.
Okay. So -- but this quarter, it looks like that -- or from this time around, it looks like it has a majority, it would have come from gold loan, right? I mean that is the understanding, that's the delta.
That's not a factually correct understanding. The increase -- while the co-lending definitely has increased, that is an incremental that you see. Usually, we grow about 18% to 19%. The last few quarters, the increase -- the surge to 22.87% has -- from the normal growth has come from co-lending.
Okay, sure. Secondly, sir, in terms of -- so you have 2 businesses, 2 types of channels for micro finance. One is your own and then through VC. Is there any clawback through VC? And if you can share some more detail it is like industry practice of having the claw back at around 5% or if there is something different here, in the MFI business?
We don't -- first of all, we don't have 2 channels. We have direct lending through certain MFI institutions, yes. And then we have lending through our business correspondent channel. So these are the 2 businesses that we have. And what you said -- I don't know what the 5% is, we don't have such a condition.
Okay. But both co-lending -- both MFI lending is actually to institution or to borrower, I mean, the individual borrowers?
The business correspondent lending is to individuals. The microfinance loans are given to MFI institutions. So they are 2 different things.
Okay. Okay. Understood. And secondly on asset quality, sir. I mean, non-gold slippages seems to have risen, as you have mentioned in the PPT also. If you can share some more details here. Is it mainly through -- mainly because of the unsecured but that proportion is very less for you. So what is causing this kind of a slight increase?
We still have about [ 700 -- 4% ] book on microfinance, and that is going through a similar kind of pain that the industry is going through. We are no different from the industry. So we are taking -- there is a hit on that and that I don't know how long that will continue, but it is that small component which we have is giving a higher NPA.
Okay. And lastly, sir, if you can also elaborate a few banks have already said that for unsecured MFI, which is relevant for you, they provide maybe by formula, either 25% or 50% or some banks actually provide 100% in the same quarter. If you can highlight what is your policy in that?
Internal policy, Jai, is internal for that particular reason. So we won't be able to kind of reveal the internal policy. What you will know is that you can see the overall provisioning, how we are vis-a-vis the credit provisioning that we do. So that's the only thing we [indiscernible].
Next question is from the line of M.B. Mahesh from Kotak Securities.
Just 1 question on this -- this quarter, recoveries and upgrades have been a little bit on the lower side. Credit cost has been a little bit on the high side. Just some clarity around?
Yes. That's right. The recovery is on the lower -- in absolute sense that perhaps may not be true, but we have had more than normal slippages happening because of the BC MFI book and some small unsecured DEA books that we had. So on that, while it's anticipated, but it's higher than normal.
Sorry, Praveen, that is on the slippages, right? But on the recovery and updates?
Recovery has been similar to what it has been in the previous quarters. There is the incremental slippage which just happened, is on the microfinance book. Usually, what happens is that when you have slippages happening on the normal book, you get recoveries also within the first 1 or 2 months. So the pattern is like this. Either you recover it in the first 2, 3 months or you wait for the judicial order for any secured asset, which you have to take positions. And that -- these are the 2 signs when we get bulk of the recoveries coming through. Whereas in unsecured, the first competent we're seeing a higher -- once you move to -- once MFIs moving to slip into NPA, there is no immediate recovery happening from that book.
Second question, with respect to the way you are seeing the industry, with respect to the segment that you are lending towards today, is the business fully recovered? We're growing, what is happening on the ground?
See the ticket size that we are in, we are seeing that there is enough demand in the market. On gold loan, our interpretation is -- I don't know how true this is. But our interpretation is, because of the microfinance slowdown, there has been a surge in gold loan, and that's helping both the natural organic book as well as the co-lending book. The -- for our kind of business, with a low base, relatively low base, growing upwards of 20% is not that much of a problem in the chosen segment that we have. There is enough demand for that. So that's the way I see it, right...
Sorry, Praveen, just to step in here. The question is more so in the sense that is there a recovery in business for the people on the ground, just trying to understand that part. Credit demand.
Yes, there is enough credit demand in the segment. Clearly, there is no slowdown there. And you're able to pick and choose.
Next question is from the line of Mona Khetan from Dolat Capital.
My question is on -- so if you look at the mortgage NPAs for the last 2 quarters, they continue to rise. So if within the LAP book, can you give some color. Firstly, the reasons around that. And secondly, some color around the average ticket size and LTV on the LAP book?
Mona, have a look at our slide where we've shown the incremental slippage and recovery for mortgages and just compare 2 numbers for me. One is Q2 slippages and Q3 slippages. One is INR 46 crores, that is Q2 and then Q3, it is INR 37 crores. So in absolute sense, the slippage is decreasing, okay? Is it where we want to be? No, definitely not. But are we getting better than the previous quarter? Most likely yes, right? I'll tell you which page number to look at. Page #26, have a look at Page #26. And you do to the math, INR 569 crores minus INR 532 crores versus INR 532 crores minus INR 486 crores. So you're talking about INR 37 crores versus INR 46 crores. So it's getting better. But having said that, we will never be happy. We really want to kind of drive that down.
No. But if I look at the overall size, I mean last quarter also, there was a sharp increase and this quarter also the NPA has increased by 7%. And that's not something we've seen for industry as a whole. So anything that's more pertinent for you that's causing the higher slippages.
No, really. I mean it's -- okay, let me put it this way. We're not happy with the fresh slippage happening on the mortgage portfolio, but we are -- quarter-on-quarter, we are seeing progress happening on that. Our current bucket bounces are looking better. I will take you to the last -- one of the collection efficiency pages. Have a look at it. It will give you a good indication of how things are. Page #28, right? Just go to -- kindly go to Page #28 and look at bucket zero collection. That will give you a good indication of how the future is going to look like. So 99% recovery on LAP, 98.9% on home loans, right? So that's the way it's progressing.
On -- specifically when you spoke about LAP. We touched 99% for the first time, while it's only a decimal place movement, but the current book, bucket zero book is a large book. So how that -- even I'm sure I'm preaching to the converted. But even a small decimal place movement there has got an impact either positive or negative on the future flows. So we are very -- we are pretty much happy with the lower slippage -- absolute slippage happening on a larger portfolio, not percentages. And we are reasonably comfortable with the direction in which our or bucket zero collection efficiency is moving.
Got it. And is it possible to give some color around the average ticket size and LTV in the LAP book in particular?
So we are always in the INR 25 lakh, INR 27 lakh loan range. So that's where we are. LTV number is something which I don't know whether we will -- we publish. I don't think we published that. Do we? No we don't publish LTV number. But it's conservative. It is very conservative.
Got it. And so higher write-offs during this quarter were they mainly on account of MFI portfolio or CV as well?
CV, that story is over. So I mean we had a lot of bad NPAs they remain, whatever is left and the organic book remains there. The DA book is much better. So we don't have too much of CV flows into NPA.
So it's mainly MFI that has caused the higher write-offs this quarter?
Yes. I mean, relatively speaking, but if you look at absolute, mortgage is something which we are working on in curbing reducing while going forward. But directionally, we are happy with the slippage. If you ask, are you happy with the INR 37 crores slippage? No, not really. So -- but INR 37 crores is better than INR 46 crores.
And just finally on the margin front. So margins have been trending much lower than what you've been guiding for -- so what are the levers to margin here on?
Theoretically, the levers are your yield on advances, yield on investment and your cost of funds and your NPAs, right? Theoretically there are only 4 elements to that. Where -- I mean, directionally, again, I'm talking about direction. Directionally, I'm reasonably happy that the NIM reduction, the descent has stopped, and we have an uptick, right? We are 3 bps better. And this is coming on the wake of yields and advances going to 11.44% as against 11.38% in the previous quarter and what was unexpected for us was that -- unexpected is a wrong word to use, but 3 months back, I thought the cost of funds would stabilize. It hasn't. It's increased by 3 bps. But the net result of it is that we are better off by 3 bps on NIM. 11.44% of interest yield, 11.38% previously, 7.20% of cost of fund, 7.17% previously. And on NPA, you see net NPA is still at 1.18%. So it's like flat. So I'm taking it out of the equation currently.
So If I have to understand versus your earlier expectations a few quarters back to now, the 20 bps or 25 bps lower NIM that we are seeing today, that's driven by -- if I could understand, maybe 5 bps by cost of funds, higher cost of funds. And what are the other things that have not panned out as per expectation, which led to the [indiscernible].
The broad -- the number 1 villain there is cost of funds. Number 2 is that our interest yield was descending if you were to see, I'll tell you which page number it is. It is 11.38% and 11.44% in Page #31. Let's have a look at that. So that -- the uptick in yield on advance is a very important factor. It is more than the cost of funds, so costs of funds increased. So these are 2 critical factors. But Mona, let's put it another way. Look at it this way. Our growth -- top line growth has been 20%. For the first time in 3 or 4 quarters, NII is double digits. It's actually 15%. What is -- what -- for the NIM to be -- the NIM growth be -- NII growth to be representative of the top line growth, like if you have to grow by 20% when will the NII grow by 20%. That story is something which we are targeting, right? So if you see from single digit, you move to 15%. So going forward, our ambition and the work that is happening in the bank is to ensure that even though with a lag, your NII growth reflects the top line balance sheet growth.
Got it. Got it. Just finally, what's the status on the capital infusion from promoters?
Yes. I mean, I've been saying this repeatedly. There are some minor information that we have to provide to Reserve Bank of India on the capital infusion. And once that happens, it could happen any time, but that's what I said last time also. So we are expecting it to happen frankly, any time. And hopefully, next review, you probably will not ask this question, we will not be answering this question.
Next question is from the line of [indiscernible] from SMIFS Capital.
Congrats on a strong set of numbers. So sir, first question is on cost, is it just due to head count reduction? Or is it actually we are already seeing some productivity benefits coming in. Further, you've changed the cost guidance target on the presentation from 60% CTI or below from 55% earlier. And in terms of cost percentage assets at 2.5% to 2.6% from 2.4% to 2.5% earlier. Is there some change in strategy on that front?
Thank you for the kind words. On the question, I'll tell you how the cost has worked. It's a combination of some 2, 3 things. There has been a productivity increase. There has been a selection and a deselection. I mean we have ensured that the performers are taken care of, the nonperformers are groomed. All that work, which happened over the 9-month period is giving us some benefit. So you're seeing that -- and some where we failed, where we put in all our effort and still not working up. That has resulted in a headcount reduction. Headcount is only one part of it. We are also assiduously working on the other expenses as well. So there has been a series of cost measures that have been undertaken by the management team, which hopefully should give a continued discipline on the cost front. So our effort in productivity will continue and on leaving productivity side, on the other expenses, there is a discipline that we have put in, which should see similar kind of trend line emerging in the future as well.
Yes. So change in cost guidance question, sir?
On the changes, what we thought of is we break up the milestone into smaller bite-sized pieces, so that we achieve that, we overachieve that rather than give a number which is far too distant, which we really haven't done for the last few quarters. So we -- if you were to see cost income ratio for one from 64.8%, we are now looking at about 62.4%. We are trying to bring that down even though the focus much more is on cost to average assets. So getting it under 2.60% was key internal milestone for us. Now we have to get it down to a 2.55% kind of mode. Now will be easy, especially with the kind of growth momentum that we are targeting. But then it's not an easy job anyways, right? But there's a lot of work going around towards that.
We haven't changed the -- on the NIM front, also, if you have noticed, what is -- what you mentioned about cost is true. We have looked at slightly more revised numbers, which we would like to get to. And to give you a bit of color on how the DuPont would look like, so that possibly are kind of making your question redundant -- next question redundant. 3.30% kind of NIM and then a 1.1% kind of fee. We're currently at 1.04%. We were 1.23% last quarter. But our core fee income alone, if you were to see -- not core fee income alone, the good performance in core fee income this quarter is still at 1.04%. So it's a bit of an ask there to get to 1.1%. Get to a 2.55% kind of number. We are at 2.59%. We are all touching distance, not low-hanging fruit, but touching distance, it's doable, 2.55%. And credit cost currently were [ 38 ]. But for time slot number, every quarter, we've been saying we are in the [ 45 to 50 ] kind of range. So that's how if you were to look at it, 3.30% plus 1.1%, minus 2.55% minus [ 50 ] into [ 0.74 ] if you were to do the math, it probably will come at 1% ROA.
Another question is on CD ratio, it jumped like roughly 3%. And while it's still lower than many of the private banking peers, is there some change in strategy on leverage? Or is it like some deployment of extra liquidity like from Tier account or something else?
No, no, no. Simple answer. We got some Tier 2 capital during the quarter, and that came in. And because that came in, we looked at cost of funds. We looked at a bit of borrowing. Even though customer deposit, if you see, has also grown handsomely. So we did a bit of a mix to get the cost also into play. It has resulted in the cost deposit on the -- sorry, on the CD ratio going worse, but that's not a direction we want to take. We're not particularly happy with that. We always want to grow deposits more than cost more than loans. We want to bring it back. So this is -- it's not something which we are -- there's no strategy change in that direction at all. In fact, if anything, it's just a reiteration of our strategy that we should get the CD ratio back to lower levels.
Right, sir. If I could just squeeze in one small question. Yield on advances uptick, is it related to co-lending growth or more of a function of increase in LAP versus retail mortgage loans. As in, has it moved substantially from roughly 50-50 demarcation which you had guided like earlier? So how fast are you planning to ramp up this proportion of business loan which would probably help offset the impact of anticipated rate cut at some point this year?
You see, essentially, you're right, it is because of the change in the mix. Co-lending cannot give you that benefit to that degree, right? So that's not it. We have moved the BL to HL -- sorry, HL to BL. But I want to tell you this, that may not be the way it will be continuing in the future. And the reason why we are relooking at it and revamping the thought process is because of the advent of PMAY. The current PMAY is hitting the sweet part of the home loan, which DCB Bank does. INR 25 lakh, there is 5-year the book stays with you upper cap of 11.5% interest rate. If the customer becomes delinquent, then the customer ceases to get the subsidy.
The subsidy is spread over 5 years. Now these are vulnerable principles, which just makes it so much of the kind of loans that we want to do. And obviously, consider low RO risk-weighted asset. So we may once the final PMAY guidelines come up, re-look at this ratio business, we may even ramp up the home loans because at 11.5% max, which meets all these criteria, there is an onus for the customer to make the home loan the last loan he or she will default. So probably, we will give the home loan once PMAY comes in or affordable home loan, the impetus that it deserves. But till then, the BL will continue to dominate over HL.
Next question is from the line of Aditya from SIMPL.
Sir, my question is on co-lending. So we have stated in the past that we would like to keep this at 8% to 9% of total advances. So this quarter, this constitutes now around 11% of advances. So is it just a one-off or there is some change in the strategy of the bank?
So see, I'm not too sure whether we have said that the co-lending will be explicit percentage, at least in public, okay? I don't think we have said that. But having said that, as a bank, there are reasonable caps that we have at a product segment location level, which we don't want to bust because of inherent risk reasons. But as far as co-lending is concerned, we are pretty much comfortable with the kind of book growth that we are getting. We're comfortable with the yield that we're getting, the book growth that we are getting. I'll tell you some of the philosophy on co-lending, it is very important that we should articulate that.
We want to be -- we want to do co-lending with partners who are either not in the product that we have or not in the segment that we have or not in the location that we have. So we're very clear who we want to do co-lending with and for what, right? Tomorrow after getting an experience of this unknown product, unknown segment, unknown location, will we go into it? That probability exists. But the fact is we want to -- we keep extremely clear Chinese walls to ensure that the partners are -- we were non-predatory in that level. This comes with low or very little operation cost, helps the cost income ratio. The -- at the right yield and at the right risk framework it's a good partnership to get into as long as you have chosen the partners right.
And sir, as you mentioned that co-lending would deliver lower yields, but should have a lower OpEx as well. So on a return perspective, does this product give us a targeted ROA of 1%? Or is it lower or is it higher? Any perspective you can share on the same?
Unfortunately, I wish I could, but I can't. We don't do product-wise ROA. But obviously, the kind of business that we do has to be accretive in nature. Otherwise, why will you do business. It has to make sense for both set of parties if you are going to scale that business.
And sir, next question is on your cost of funds. So our deposit growth has been pretty good as compared to the industry. So -- because of which the cost of funds have seen some increase because of liquidity concerns in the system. Do you think a cost of funds have peaked now or they could increase further? .
Look, last quarter also, I said I expect this to be stabilizing in the next quarter, and that has not proven true, okay? And it's not because we took a Tier 2 capital, which is usually a slightly higher cost than normal deposits. That contributed but that's not the only reason. There is a tightening which is there. Maybe who knows, Q1 could tell us a real story, but I've been proved wrong last quarter. So frankly, I don't know whether that opinion really matters, right? So what we are looking for is to ensure that we get the right constituents, the right components, get retail deposits, small ticket size as far as possible, individuals and small businesses, get the constituent rights so that LCR norms are well and truly and very comfortably met.
But on cost of deposits, one really can't tell. All we can say is that the deposits that we used to book 3 years back, when it gets repriced, it's fairly at a similar kind of rate. So it is not a question of repricing the stock, which is creating an increase in cost of funds. But there is -- I mean it's undeniable that there is tightness of deposits in the market. You know that from the industry published figures as well.
Understood, understood. And sir, our targeted ROA 1%. So there were 3 levers. So one was cost to income and other income. So on both of these aspects, we are touching -- we are within touching distance of our targeted range. But on the NIM part, that is one area where we are pretty far from a targeted range. So going from around 3.2% to 3.3% NIMs to around 3.5%, 3.6% NIMs, how long do you think it will take us to reach that level to achieve our targeted ROA 1%?
So this is what I was telling Mona, who asked the question earlier. If you were to look at the last 3 quarters, the top line was leading. We were around 18%, 19%, consistently. But the NII was lagging, and therefore, the bottom line also was lagging, was single-digit growth. Now we are seeing NII growth at 15% Y-o-Y, right? There's a 15% Y-o-Y increase on a 20% growth in the top line. You will see the NIM benefit actually coming through when the volume benefit translates in entirety to the NII growth, let's say, I'm not saying the 20%, but let's say it's 20% top line. And then when the top line grows at 20%, the NII also grows by similar 20% Y-o-Y. So that is where you would see us reaching closer to the 3.3% kind of NIM that we are targeting. But having said that, every second decimal point improvement, whether it's cost to average assets or fee is a fight.
So there is a lot of work happening on that count to get that moving. And also remember, we have -- our credit cost is 0.38 whereas the guidance is around 0.45. So we have to cover for that also because the steady-state scenario is that it's around 0.45, 0.5 kind of number. So you have to cover for that also. So we are -- the management team is aware of it, is working on it, how well we execute and how fast we execute will tell the story. I think directionally, we are going right. And what we are watching is -- how are we moving directionally? Is every quarter directionally better than the previous quarter.
Next question is from the line of Nitin Aggarwal from Motilal Oswal.
Congrats on good numbers. One question I have is on margins, which is a key metric for us to achieve 1% or higher ROA. So like how confident are we to improve NIMs to 3.6%, 3.65%, especially as the deposit market remain tight, liquidity remains in a deficit, and going ahead with potential rate cuts, yields may get further impacted. So how do you look to drive this? And any color that if you can provide around the incremental disbursement yields and the book composition in respect to the repo and MCLR linkages. So covering this entire piece, if you can provide some color. And because this is very key for us to reach 1% ROA.
So what we're doing is -- I think the first, what we are not doing, because that's very important. In the chase for a higher NIM, we're not going to move out of the risk framework or the business strategy framework that we've put for ourselves. And the reason for that is, we've seen the blood letting that the market does. The market, frankly, is red in its tooth and the claw, right? It kind of bites you back very badly, so -- during tough times. So that is something which we will not be kind of exploring. So within the risk framework and the business strategy framework, we are reassessing our portfolio because if you were to look at the portfolio, you have all kinds of -- at a low level, we are working out strategies to improve the ROA and ROE for the loan.
How do we improve that? First, diagnosis is very easy, right? INR 47,000 crores of loans, which are the ones which are cutting it, which are the ones not cutting it, we know that. Now that's the easy part. The difficult part, which we have embarked upon, is there those loans are not cutting it. How do we ensure that we get additional revenue through a variety of products the bank has. And mostly, it will lead to increase in fees, specifically core fee income. I mean you can't negotiate and get a higher rate of interest. But what you can do is you can get a higher revenue. And we have started doing that already. And you're seeing some benefit of that in the improvement in the core fee income over the last 3, 4 quarters, right? I'm not saying all of it, it is because of the good work that you've done. We just -- it's really an arduous task, it's not easy to go back and cross-sell various products that we have.
We have more than 50% of our INR 47,000 crore book is mortgages. Mortgage is -- for us, it has been -- always been a low engagement product, now we are unashamely shamelessly going back to the customer, finding out ways in which we can offer something he or she wants in the financial market, which would help him or her and also would help us get revenues from the second or third product that we are offering. Tough task, not easy, difficult, but that's how we are planning to improve the ROE at a loan level. It may not increase your NIM, but it definitely will improve your overall revenue from the customer. And end of the day, frankly, it doesn't matter to us because stickiness increases in the second quarter. There are so many other benefits that comes through. A lower cost of fund provider will not be able to take that customer away from us. So theoretically there are a lot of benefits. But practically, how well the team and I implement this will mean how fast we get to the decided ROA. Sorry, long, long answer, but it's very important that we share with you what our thought process is.
Next question is from the line of Rishikesh from Robo Capital.
[indiscernible]
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Am I audible now? .
Very much.
Okay, great. [indiscernible]. .
Sorry to interrupt you, but again, your audio is breaking. May I request you to rejoin the queue please, reconnect the line.
Next question is from the line of Rakesh Kumar from B&K Securities.
Rakesh, may I request you to unmute the line and go with the question, please?
Rakesh Kumar, can you hear us?
[Operator Instructions] Next question is from line of Gaurav Jani from Prabhudas Lilladher. Please go ahead.
Just one question. On the MFI front, right? So what kind of a time line do you envisage in terms of the pain that can be recognized in the upcoming quarters. Any color on that?
I wish I could tell you an answer. I wish I knew myself. But what we're seeing in the industry, when you go to credit bureaus, et cetera, is that every subsequent month looks like worse than the previous month. So that's a very pessimistic answer. But we -- I wish we see an improvement happening. But right now, the honest answer is we don't know.
And sir, if you could just sort of also give out as to what kind of stress has already been recognized of the overall MFI portfolio? If you can just throw out some numbers, please.
Page #26 has it, it doesn't have it? Is it? Actually, it's all mixed up in the others. So you probably get a sense of how that is moving. See, because it is a small portfolio, yes, it is a small portfolio. So it is getting kind of submerged in that others column. So it's not big enough for us to show separate.
Understood. And sir, just wanted your sense on the normalized credit cost level, right. So before COVID if I had to look at your historical numbers, we were at somewhere between 60 to 80 basis points. Now with credit cost normalizing for the system and other banks, what sort of levels are we -- could we envisage after this MFI pain is entirely recognized?
Well, having said that, MFI is a small, I mean, the overall context of things for us, it's a very small [indiscernible]. The 16% to 18% credit cost was -- is actually unreal because -- and I'll tell you why it's unreal, because we had a large restructured book and the restructured provision was taken for these customers.
Please let me interrupt. I meant 60 to 80 basis points pre-COVID.
I'm not too sure whether it's right, but somebody can check this out. My understanding was that in -- okay, I'll have to look at March 2020 or even March '19, that will be a good number, hold on for a minute. Let me see whether you're right. If you're right, then I probably don't have an answer, but I think you're not totally correct. We'll check it out. Can you hold on for about 10 seconds if you can, please?
Yes. Please, sir.
I'll just check for -- because 2019 is a good time to check, right? Because March 2020 or March 24, 2020, we already had declared COVID and we had taken provisions, incremental provisions. Most banks had, we also did. So 2020 March may not be the right year to look at. We'll have a look at '19 and see where we were.
Yes, I am looking at the numbers. So '19 was about 64 basis points. That is provisions divided by average loans, and it was 77 basis points in '18.
Just hold on. We'll tell you in a moment. But let me answer the second part of the question. Where do we see this? We see normalized credit cost somewhere between 45 to 55 bps. That's what the model usually supports. And the reason why we've been consistently lower and even in Q3, we are lower is that we are getting a diminished return benefit on the restructured book going -- being there. So I'll have a look at March '19 and get back to you, somebody is furiously searching for it. Is it correct?
Gaurav, let me see if we can provide you an answer right now. Otherwise, I can send you by e-mail after checking whether this credit -- what the credit -- what I'll do is we'll get to send you a trend line of the credit cost -- annual credit cost of the bank for '18, '19, '23, '24 and now. Let's have a look at it. Based on that, we can revisit this question, if that's okay with you.
Sure, sure. No problem, sir. I'm done from my end.
But if we don't hear from us, please call us, I'm sure you'll hear it, but happy to take this question. I am happy to come on line with you and talk to you, give you the answer for this as well.
Next question is from the line of Amit from RoboCapital.
Sir, my first question is on the profit on sale of investments. So if I look at the last year and for FY '24, the number was, I think, INR 33 crores. And the first 9 months, we have booked about INR 100 crores plus and this quarter is also healthy, I think, around INR 35 crores to INR 40 crores. So what should we forecast that number for FY '26 and '27. Broadly, what is the run rate there, annual run rate?
Look, I won't be able to comment on that because what we do is we forecast the core fee income. Internally also we look at the core fee income and have a -- we have a clear plan, a clear goal on whatever is core. And then we look at one-offs which can happen both at the opportunity front and the risk front. So that's how we plan our budget for 3 years go forward. But to answer your specific question, it is -- it depends upon how the interest rate movement happens. In fact, what I will do is I would request Ajit Singh, who heads treasury to kind of give his views also, hold on.
Amit, actually, it is easier to predict at least for a 12-month horizon for rate of interest, but please note that for sale of investment, a decent portion would come from equity by way of IPO. For that, it is very difficult to make a projection for coming 1 year. We don't know how equity market will evolve and what kind of IPO will be there and what kind of premiums will be there on that. It's very difficult to, but generally for rate of interest, we understand that going ahead like interest rate should decline. This is a fair projection. It's a question of time like somebody may be predicting for 1 quarter, it may take 2 quarters or so. But it is very difficult to predict for equities, actually, how IPO market behaves. So we are not able to give you the precise number for that. It will be a little unfair on our part to give a guidance to the market on that.
But I mean my understanding or my interpretation from outside was that whenever there is a one-off on the cost side, maybe some treasury profits can be booked to set off that one-off, so that some run rate can continue. Is there a fair assessment or it's not like that?
Your assessment in the sense that please note that we are typically NIM centric bank. And although we do book one-off income, but we have a calculation on how our, say, yield on existing assets will behave going ahead. Part of income, we may be booking but it's not that everything that is available on the plate we finish it off, this is the way. But interest rates, we believe that there could be a decline and bank may be booking trading income. And in the present regulatory environment, only 5% of STM book is there. One-off like during the first quarter, it's not available. So that's what we can -- if we decide to book, we can book. But it would be unfair to give a projection for the coming financial year because we don't know how equity will be.
I have a second question on -- I think I joined the call a little late, so apologies in case this was discussed earlier. There was a write-off of about -- there was a write-off of about, I think, INR 80 crores odd. So can you share some details on that?
So last year, our write-off, if I remember right, was about INR 69.3 odd crores, maybe slightly short of INR 70 crores. And this year, the write-off was about INR 71 crores, is in line with the normal write-off which we take. So that continues as normal. And so it is a mix of various products which we have kind of gone through and the residue which remains is written off. But for the front line, it is business as usual. They continue to collect and we continue to get income -- recognized income on collection of these on a go-forward basis. Although in dribs and drabs.
Okay, perfect. So there is -- I mean was there a one-off there because in December quarter it was a bump there, right? But on an annual basis, you're saying there's no one-off, if you look it down. Is there -- is my understanding correct?
Yes, it's a normal one -- there is -- Ravi, you want to comment on that?
I mean if I look at December, the Q3 number I see INR 84 crores there on Slide #26. So there are -- so that includes the -- it includes write-off, haircut, sacrifices, OTS all put together. So we give us a complete download on all kind of sacrifices that we have taken during that particular quarter.
And out of that, so I mean, is microfinance contributing large portion out of that INR 84 crores, is there some color available on that INR 84 crores?
No, it's a combination of accumulated stuff. Microfinance is a -- microfinance problem and NPA is a new phenomenon. We don't want to give it up this early. We'll continue our multiple levels of collection strategy, including legal, including feet on street, including calling, all that works before we write off anything. So these are not necessarily MFI, at least not currently. Maybe 2 years down the line, possibly some of microfinance also could come in.
Next question is from the line of [indiscernible] from JM Financial.
Congrats on a good set of results. [indiscernible]
[indiscernible] your audio is not coming clear. It's coming a little muffled. Can you speak through the handset, please?
Is it better now? .
Much, much better.
Okay. Congrats on a great set of numbers. What I wanted to understand is how the average ticket size expansion works in terms of the economics, understanding is maybe the yields will be lower there. Is the cross-sell income higher and is the lower cost initially, does it compensate for sacrifice on -- I mean how does that work?
Okay. First of all, the higher ticket size thing hasn't shown any appreciable material movement, okay? At least not enough material movement to create a dent in the cost or improve the productivity. That has not happened yet. So and also the yield will have a slight impact, had it gone higher. So we still are trying, but that really hasn't got fire, so to speak, right? So why we want to get in that segment is that overdraft product, INR 50 lakhs is something which we have an inherent advantage over the type of competition that we deal with, which is mostly NBFCs. So that's why we're going a slightly higher ticket size within the same framework. But to say, is it working? No, it is still very much WIP. We're not particularly happy with the kind of movement that it has had. And so therefore, it's definitely not the reason why the cost income is improving or the reason why cross-sell income is improving.
The cross-sell income is improving primarily because we're going after the old customers who have not been gone after where we're reaching out to asset customers. In the branch business, there is much more of a transaction digital as well as physically to enable cross-sell. On the asset side, primarily on the mortgage side, we've been kind of pretty dormant about it. I mean there's one interaction in the beginning, one or two interactions during the tenure and then whenever the customer closes the account, closes the home loan, that's another interaction. So we're trying to change that, reaching out to these customers, and they are -- they have the same financial requirements as just about anybody else. So there, we are seeing a slight uptick happening on the cross-sell related fee income.
But that is what we are seeing now. So if we are able to increase, we are able to double the ticket size so in that segment, the yields will be lower, right? Yields will be lower.
So obviously, that's an opportunity for us. From a INR 27 lakh, if we were to go to even INR 45 lakh, that's at least a 60%, 70% improvement in productivity. So we still are at it. And theoretically, will it result in a reduction of yield? Maybe, but the net revenue will definitely be positive for the bank rather than negative. So because the price differential between a INR 45 lakh and INR 27 lakh or INR 26 lakh is hardly anything.
And sir, how is the sourcing mix in our mortgage business, I mean, entirely in-house? Or are we dependent on the DSA for a large portion?
We continue to be partly dependent in the big cities, there is a dependence in the smaller towns, we are fairly doing things on our own. So the ratios have not changed too much.
Thank you. Ladies and gentlemen, that was the last question.
[indiscernible] Thank you very much.
Go ahead, sir. Would you like to give any closing comments?
That's it. It's -- we're back to the drawing board, back to putting our nose to the wheel. It's a challenging market out there. It's not easy, but we have a task on hand and just putting -- taking fresh guard and facing the next fall. That's where we are.
Thank you very much. On behalf of DCB Bank Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.
Thank you very much. Bye-bye.