DCB Bank’s asset quality deteriorates as GNPA stood at 4.9% versus 4.1% QoQ and NNPA at 2.8% versus 2.3% QoQ. Net restructured standard book stands at Rs 13.74 billion (5.4% of advances) remains a key concern. Bank’s credit growth remains stable at 2% YoY (2% YoY FY21) while deposits grew by 4% YoY. NII grew by 1% YoY led by decline in margins. PAT declined by 57% YoY led by higher provisions (up 86% YoY; up 54% QoQ). 

Cost-to-income ratio has increased to 53% vs 50% YoY. Bank reported collection efficiency (overall including delinquent) for key portfolios (June’21) -LAP/Home loans/CV loans at 89%/92.8%/74.5% versus 95.3%/96.8%/ 86% (Mar’21) respectively. However, Customer paid 3 EMI or more (April ’21 to July’21) in LAP/Home loans/CV loans stands at 97.9%/94.9%/ 94.9% respectively. Management has been confident of recovery due to secured portfolio.

Commenting on the result review, IDBI Capital said, "We largely maintain our estimates and have 'Hold' rating with TP of Rs.104 valuing it at 0.9x P/ABV FY23."

Key highlights and investment rationale

Credit growth stable; Deposits growth improved: Loan growth on the overall book remains stable at 2% YoY (2% YoY FY21). While growth ex-corporate segment is at 3% YoY. Its core segment Mortgage has grown by 4.2% while SME segment declined by 7.5% YoY due to cautious approach. AIB book grew by 7% YoY (7.3% YoY FY21); however corporate segment continuous to de-grow (down 6.7%YoY). Overall, Bank will continue to increase the head count in Mortgages and Home loans while expects to grow in the range of 8 -10% in FY22. Deposits grew by 4% YoY led by growth in term deposits (up 4% YoY).

Asset quality deteriorates; Restructuring book at 5.4%: Net restructured standard book stood at Rs 13.7 billion (5.4% of advances) largely from Mortgages, CV and SME/MSME higher than 4% as of FY21. Bank GNPA worsens to 4.9% vs 4.1% QoQ and NNPA at 2.8% vs 2.3% QoQ. Gross slippages stood at 5.15bn for the quarter vs Rs 6.64 billion (full year FY21) and holds lower PCR at 43% (excluding tech w/offs). Apart from this bank hold provisions of Rs3.11bn (1.2% of advances) which provides cushion on P&L. We need to watch out for slippages from restructured book.

NIMs declined QoQ; Cost to income ratio increased: Margins declined on sequential basis led by higher interest reversal. NIMs stood at 3.31% lowest in last several years. However, management guided for improvement in NIMs as cost of deposits to decline. Cost to income ratio continues to decline from highs of 57% in FY19 to 43% in Q3FY21, however increased to 53% in Q1FY22 as operating expenses increased by 18% YoY.     

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