Operator: Ladies and gentlemen, good day, and welcome to DCB Bank Limited Q2 and FY27 earning conference call. Today we have with us Mr. Praveen Kutty, Managing Director and Chief Executive Officer, Mr. Sridhar Seshadri, Whole Time Director, and Mr. Ajit Kumar Singh, Chief Investor Relations Officer. As a reminder, all participant line will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation conclude. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. I now hand the conference over to Mr. Praveen Kutty from DCB Bank Limited.
Operator: Thank you, and over to you, sir.
Praveen Kutty: Thank you and good evening, everybody. Welcome to the Q2 results call. The bank continues its growth momentum, with advances growing by 21% YoY, and deposits growing by 19%. In keeping with the guidance, both advances and deposits have doubled over September 2022, over the last four years. Our net interest income grew by 17% YoY. Over the last one year, the yield and advances dropped by 38 basis points, while during the same period, we reduced the cost of fund by 34 basis points. If you look at the last quarter, our yield and advances dropped by two basis points, while cost of funds dropped by eight basis points. If you look at revenue, it grew by 21% YoY. Core fee income continuing to be strong.
Praveen Kutty: Also, the focus we have on our productivity and on technology adoption is helping us in keeping our cost to average assets under control. It continues to be below 2.5%, to be precise at 2.47%. Our cost to income is at 59.64% at an 18-quarter low. During the last two years, we have grown our employee strength by 1%, our balance sheet by 34%, and our revenue by 33%. The fact that the revenue grew by 21% and cost grew by 18% YoY meant that operating profit grew by 26% YoY. The portfolio quality continues to improve with our credit cost at 0.28%. Our GNPA is at 2.29% and NNPA is at 0.73%, both of which are at a 23-quarter low. Our PCR is at 81.38%, a 7.23% improvement over the last year. PCR excluding technical write-off is at 68.75%, a 9.6% improvement over the last year.
Praveen Kutty: As a consequence of all this, our net profit has risen by 29% over the year to INR 236 crore, which is the highest ever in a quarter. This is the fifth consecutive quarter where the bank is clocking a highest-ever quarterly net profit. As a result, our ROA is at 1.03% for the quarter and 1% for the H1. Also, the ROE is 14.6% for the quarter and 14.12% for the H1. I just want to take you back one year into Q2 2025, when we gave guidance of our 18% to 20% growth, of cost to average assets being less than 2.5%, of GNPA also being less than 2.5%, net NPA being less than 1%, and lastly, our ROE of 13.5% for this year, 2026-2027. One year later, in each of these four quarters, each of these numbers speak the story of consistency and predictability.
Praveen Kutty: Finally, I would like to share with you the trend line of ROE for the last four quarters. It is 12.73%, 13.53%, 13.61%, and now 14.6%. Thank you for listening in, and operator, could you please open the line for any questions from the audience?
Operator: Thank you so much, sir. Ladies and gentlemen, we will now begin with the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. First question come from the line of Akshad Agarwal with Nirmal Bang Institutional Equities. Please go ahead.
Akshat Agrawal: Good evening, sir. Thanks for the opportunity and congrats on a good set of numbers. The first question is on cost. While the cost-to-income ratio and cost to average assets are tracking guidance, OPEX growth QOQ and YoY looks a bit elevated. Is it mostly on the staff addition, branches, and a bit on technology? Is that contributing to increase or is there some one-off there? Are we on track to reach 13,000 employees by year-end and adding 20 branches overall during this year? Thanks.
Praveen Kutty: On the operating cost, the increase has been with people. We are now at 12,002 people, which is higher than what we started off the year with. It is a people cost that is coming in. Otherwise, it is a normal cybersecurity tech cost. There is nothing exceptional on the OPEX side. We should expect similar kind of trend lines to continue on the OPEX cost and also on the cost to average assets.
Praveen Kutty: I do not see us doing any change on that. As to your question whether we will be 13,000 people by the end of the year, we want to be, but I do not think we will be. We will be higher than 12,000, which we are currently, but I do not think we will reach 13,000 by the end of the year. Probably, we will be around 12,800, 12,900. That is what we are seeing currently.
Akshat Agrawal: Right, sir. Thanks for that. On the NIMs, what was the reason for the decline QOQ? Cost of funds seems to be declining. Advances declined by 2 basis. If you can elaborate on the key drivers of the compression and outlook for the NIM in coming quarters. Ideally, with the rate hikes we should see expansion going forward. Is that correct, or is there some other component that could affect the margins?
Praveen Kutty: If you look at Q4 and Q1, our advances growth was in the region of 18.5% to 18.7%, whereas deposit growth was between 20% and 21%. We are stockpiling liquidity post 26 February Israel-Iran war, and it is a conscious strategy to have enough liquidity with us. Then what happened is in August there was a window to garner NRI deposits, which comes at a much lower cost than our normal term deposits. We got $194 million through the FCNR B window. This really increases liquidity significantly, and that has a liquidity cost attached to it. Why you do not see a similar growth on deposit in Q2 is because usually most of the maturities come towards the last week of Q2 or last week of every quarter.
Praveen Kutty: We really went aggressively and on maturity of the high-cost bulk deposits, we gave up those deposits, which is why deposit growth is at 18.6%. But we have to carry the excess liquidity for practically the whole 87 days of this quarter. That is a cost which you have to pay, and that is the reason why there has been a reduction in the NIM in Q2. Going forward, you already seen the lead indicator where the deposit growth was less. We are starting Q3 with less surplus liquidity. Obviously in November we will be passing on the increase in repo rate to a significant chunk of our asset customers who are on floating rate. That will have an impact on NIM. We are confident of holding our credit cost to well below the guidance level, which will also have a positive impact on NIM.
Praveen Kutty: On a go-forward basis, we would see the NIM improving in Q3 and in Q4 as well, even assuming no further rate hikes going forward.
Akshat Agrawal: All right, sir. If you could provide some quantitative guidance, like 5 to 7 basis points or something like that, can we expect going forward per quarter? Is there a continued component from home loans to LAP shift as well, which was incrementally 70% to 30% last quarter?
Praveen Kutty: We are at 70/30, slightly at 71/29, and we are comfortable with that and we will be continuing with that. That is on this incremental. Over a period of time, the stock also changes its color, so you get the benefit of it over a period of time. The real story is not this. The real story is about the cost to deposit. The way the cost to deposit is coming down, and it is not because of CASA. It is because of the conscious strategy of not being the highest rate provider and we managed to make 3,000 people in branch banking aware of it and still grow 18.6%, still keep the top 20 less than 7%. That is really helping in this run. Some bit also has helped in our long-tenor term deposit repricing, which is coming in. It is a combination of this.
Praveen Kutty: It is more a cost to deposit improvement that is helping NIM in the longer term, not necessarily the repo. Of course, the repo rate increase will have an immediate impact on the widening of the NIM.
Operator: Thank you. Ladies and gentlemen, in order to ensure that the management will be able to address all the questions from the participants, we request you to kindly limit your question to two questions per participant. If you have a follow-up question, please rejoin the queue. Our next question comes from the line of Suraj Das with Sundaram Mutual Fund. Please go ahead.
Suraj Das: Hello, am I audible?
Praveen Kutty: Hi, Suraj. Feebly, but we can hear you.
Suraj Das: Okay. Let me Okay. I will speak louder. I have more than actually two questions. First of all, I think congrats on the board approval on your tenure, sir. Secondly, I think on the good quarter after long, I think you have given 1% ROA, 1% plus ROA on a quarterly basis. Before coming to ROA, sir, on the gold loan, I think growth has been strong, but I do not know, the slides where you give your disbursement and the loan, it looks like that the loan increase is more than the disbursements. Is this because of the co-lending fees that you do not give disbursement?
Praveen Kutty: Yeah. Let's go one by one. You can ask me multiple questions, but in a serial order. On gold loan, it is a combination. We kept co-lending flat and increased our DA because it provides you better compliance and gives you better pricing. About 30% of our entire gold loan book is organic and 70% is inorganic, which is basically a mix of co-lending and DA. Currently gold as a percentage of the total asset is 23%. The bank is comfortable taking it up all the way to 25%. I do not think we will ever go beyond 25% for this particular category. But currently we are at 23% and there is no anomaly between disbursement and growth because the disbursement that you see is for organic gold loan only and not for inorganic.
Praveen Kutty: It neither has co-lending, which is actually flat, nor does it have DA, which is growing.
Suraj Das: Sure. Understood. And sir, overall yield would be also, let us say, better on a quarter-on-quarter basis because of maybe mix shift between co-lending to DA?
Praveen Kutty: We are talking about basis points, right? It is better.
Suraj Das: Okay. Sure.
Praveen Kutty: in that sense. But in overall, it really wouldn't matter. It's not as massively different as business loan and home loan, like LAP and home loan. It's not that different. It is marginal. But look, we are in the marginal business. We don't let anything lie. We are constantly on the lookout for improving yield and reduction of cost of funds.
Suraj Das: Right. Sure. And sir, a related question to that, your gold slippages is also increasing for last 2 quarters. While I understand that LGD would be hardly anything, that I fully agree, but is this because of your DA and co-lending or organic book? Because also the context for asking this question is this quarter, few people on the NBFC side, they're highlighting that there is some stress in the gold book, especially for the shorter tenure product. So I don't know what is your DA composition, DA or co-lending in terms of, let us say, bullet loans or maybe EMIs under 10-year. So that is the context for asking this question.
Praveen Kutty: It's a relevant question to ask. If you look at non-gold, our slippage ratio is 1.55%. It was 1.52% last quarter, now it has gone up to 1.55%. That's a 3 basis points increase. Are we worried about it? Honestly not. Your early bounce, your early month on both vintage performance, one doesn't lose sleep over it. On gold loan, what you said is right. Some of the co-lending or DA partners, you find that the mindset is to collect before NPA happens rather than at a 1 DPD level. So we're dealing with multiple co-lending partners and DA partners. The rigor of 1 DPD doesn't apply to many partners.
Praveen Kutty: To some it does, but by and large, it really doesn't apply, which is the reason why this is happening. From a gold loan, is it a worry perspective? I want you to look at our investor presentation, page number 22.
Praveen Kutty: One year back, our NPA was INR 27 crore. One year later, it is INR 26 crore, and in the last five quarters, the highest our NPA has ever been to is INR 29 crore, and our book has been growing. We are talking about a INR 14,000 crore book with INR 26 crore NPA. Just look at the perspective.
Operator: Thank you. Our next question comes from the line of Varun with Bandhan Life Insurance. Please go ahead.
Varun Bang: Sorry. Thanks for the opportunity and congrats for the good set of numbers. First is basically, I observed a sequential increase of 450 employees, while the branch network has expanded by just about three branches. Could you help us understand the areas or functions that is driving this in headcount increase?
Praveen Kutty: Well, we are putting more people in existing branches, both for assets and liabilities. The belief is that we can really sweat more from existing branches without having to increase our footprint significantly. That is being borne out. The space is already there. It is a sunk cost already invested. The network is already there. You do not have to reinvest in it. We still are a people-dependent business. We still are phygital. Our customers expect some sort of assistance to happen. What we do is, where our portfolio is getting bigger, both in assets and liabilities, we put more people in those branches. That is why it is not a location game. The big eight cities contribute to practically everything of deposits. It is still driven by not top eight branches, but all branches in top eight to 10 cities constitute a lion's share of deposits and advances.
Praveen Kutty: So we continue to invest in those areas where our returns are much better. I still think that we can extract more juice from the existing branches. But does it mean that we will not do incremental branches? Probably maybe about 20 branches in a year. One does not see more of that happening, and one does not see the need for more of that to happen. Even the 20 branches, we would like to put it in locations where we already have our branches.
Varun Bang: Understood. With respect to the cross-sell or the bancassurance business, we have said that volumes will cover up for the loss that could come in form of drop in commissions. Just wanted to understand how well-prepared are we to capture the volume growth opportunity and also, can you talk about some of the factors that are helping us drive higher bancassurance business at the moment?
Praveen Kutty: Yeah. So on cross-sell, I wish I could tell you some good news. We are putting in a lot of effort. We are putting a lot of work. We are not seeing too much of results happening. But are we going to give up? Absolutely not. This is a slow-burning fuse. The graph remains very close to the x-axis for a long period of time, and then suddenly, harmonically will increase. We know that. We are going to be patient about this, like many other things in retail.
Praveen Kutty: So there is a lot of effort on both from people skilling, from technology, from business intelligence, et cetera. But there is really no great input to tell you right now. But that does not mean that it will not happen in the future. So there is effort happening. There is work happening. Maybe we will see the results over the next 12 to 18 months.
Varun Bang: Okay. Just last question from my side, do we look to source mortgage business through balance transfers from NBFCs, given that our ability to probably offer more competitive rates to the same customers? Is that integral part of our mortgage growth strategy? Any update on capital raise? Yeah. Thanks.
Praveen Kutty: Okay. That's quite. Okay, fine. On NBFCs, yeah. It's a target segment for us. Balance transfer from NBFCs is very much a central activity for our mortgage business. But not from a reduction of rate perspective. We want to give them a higher rate over the asset so that our yields are higher, but the customer has the flexibility of paying a lower rate of interest, a lower interest cost despite the higher rate of interest. We want to give more facilities to these customers, and we want them to transact with us. We want to engage with us, converse with us, and it just provides an opportunity to cross-sell, and that is working reasonably well. Customers understand the concept of interest paid versus interest rate. Are we looking at dilution of yield?
Praveen Kutty: I mean, unless it's a very high arbitrage opportunity, we'll try to keep the interest rates in.
Varun Bang: Update on capital raise.
Operator: I'm sorry to interrupt you, sir. But you can please rejoin the queue.
Praveen Kutty: Yeah. Going well on capital raise. You should be hearing some good news before the next investor call.
Operator: Thank you. Next question comes from the line of Nitin Agarwal with Motilal Oswal Financial Services. Please go ahead.
Nitin Aggarwal: Yeah. Hi, good evening, everyone. Am I audible?
Praveen Kutty: Yeah, very audible indeed.
Nitin Aggarwal: Great. A couple of questions. One is around the cost of funds. This quarter, we have seen a good decline. SA deposits have also shown some traction.
Nitin Aggarwal: But the margins have declined. Can you share the lending yield and the margin ex of FCNR deposits? How much were the two numbers this quarter?
Praveen Kutty: See, that will require a bit of calculation. What I know is that about $194 million has come in with leverage deals with banks in Middle East and in Africa. The first time ever the bank has done that. With our rating, people were willing to access our FCNRs. On the overall, what I would like to tell you is that the reduction of cost is a six continuous quarter trend line. You are seeing that happening. Like I said in the opening, when asset yield dropped by 38 bps, we managed to drop the cost of deposit by 34.
Nitin Aggarwal: Yeah.
Praveen Kutty: That is a long way down, like one full year trend line movement. Last quarter, I would take it with a pinch of salt, Nitin, because some NRI customers have foreclosed their previous deposits to take advantage of the FCNR B. So we got more than what we deserve in terms of foreclosure, what do you call, prepayment penalty, et cetera, and lesser interest rate. So it is giving us more credit than we deserve. But even otherwise, it would have been on the downward trend.
Nitin Aggarwal: Got it. Because the yield declined very marginally low, but the asset mix is getting better. Fair to say that ex of FCNR the yield should have also moved up?
Praveen Kutty: Are you talking about the future?
Nitin Aggarwal: No, this quarter, the lending yield this quarter.
Praveen Kutty: Lending yield is just there, dropped by 2 basis points.
Nitin Aggarwal: Two basis points, yeah. Ex of FCNR, would this have gone up because next quarter with the same trend in cost of funds and with yields moving up supported by the rate hikes, the expansion would be fairly decent.
Praveen Kutty: Absolutely.
Nitin Aggarwal: Well done. Second on the PCR now, we have been making quite a stride on the PCR. We have covered up almost 10 percentage points over last one year. Any numbers we are looking at? Any color around the ECL transitioning impact and the steady state impact on credit cost?
Praveen Kutty: Yeah. Look, we are a secured lender. We don't lend unless the collateral is much more than our exposure. Secondly, you've seen the recent trend lines happening across metrics. Except for SMA 1 and 2, I see that every other parameter is pointing to a positive direction as far as ECL is concerned. Having said that, we have appointed a Big Four. Our team is working very closely with them on ensuring that we get our assumptions right, we get our ECL model right. Work is underway on that. Fairly confident by March we should be able to go up and running. Right now what I can tell you is that all lead indicators and the profile of the bank seem to indicate that we are in a good frame as far as credit quality is concerned, and that should reflect in the ECL also.
Nitin Aggarwal: Right. Noted that. Lastly on the ROA and ROE guidance now, we have already reached what we indicated for FY28 also.
Nitin Aggarwal: Will you like to revisit those guidances?
Praveen Kutty: Yes. As a bank, we have no intention of sitting on our laurels, in no way. 1% is also only a milestone. That is not a destination. We are hungry, we are ambitious, we are determined. No worries about that. This is just one more milestone in our journey, all right? The reason why I do not want to put up another guidance is because there is a very high possibility that before the next investor meeting happens, we would have either a firm offer or we would have incremental capital coming in, which would change the ROE guidance going forward. Otherwise, look at the trend line, right? 13.5 is what we committed. It will definitely be higher than 13.5 and possibly with the capital coming in also, we will be better than 13.5. That is what I can tell you right now.
Praveen Kutty: Assume the capital comes in on 1 January, we still will be on a diluted base, will be better than 13.5.
Operator: Thank you. Next question comes from the line of Jaiprakash Mundra with ICICI Securities. Please go ahead.
Jai Prakash Mundhra: Hi, good evening, sir, and thanks for the opportunity.
Praveen Kutty: Okay.
Jai Prakash Mundhra: Congratulations on your board renewal. Sir, most of the questions have been answered, but I just wanted to check again on ECL. You would have done the dry run, right? While everything looks okay in terms of LGD and the last few years actually of decent performance on LGD and et cetera, the slippages are slightly higher, right? Including gold, everything.
Praveen Kutty: Yeah.
Jai Prakash Mundhra: Does that mean that you may have to provide more on a standard basis, standard assets because your SMA may be slightly higher? The LGD may not change, but would that mean that you have to provide slightly higher on standard asset basis, standard defense basis?
Praveen Kutty: We are sitting on close to INR 218 crore of provisions. Okay? Floating provisions, which we started making in July 2015, never touched it, despite whatever headwinds we had, including pandemic. In ECL kind of environment, that will really help the cause. Secondly, look at PCR. At 81%, and it is a secured book. Forget about 81%. Look at the 9.5% increase over the year. Right?
Jai Prakash Mundhra: Right.
Praveen Kutty: Okay, forget that also. Look at our cushion available. Look at our provision as a percentage of our operating profit or the other way around. We have 5.93 times cover of operating profit on our provisions. There is so much cushion available. Our credit cost is 0.28%. Just look at primarily these three numbers. Credit cost of 0.28%, provision coverage of 81%, a 10% increase in provision coverage, not 10%, maybe 9.5% over the last one year. INR 218 crores of floating provision. It is there. What I can tell you and the rest of the audience on ECL is once the model kicks in, what we are very much focused on is to reduce the SMA 1 and 2, which will help us gain benefit over the period of ECL before the next calibration of ECL model. Is it going to be difficult?
Praveen Kutty: Look, if we can get 97% of upgrade and recovery from fresh slippage, and we can bring down the NPAs. Our NPA grew by INR 7 crores in the last quarter without any technical write-off. If we can bring down NPA, why can't we bring down the SMA 1 and 2? It is an execution challenge, but I think people are capable of doing that. The next big gain in credit cost ECL after this will implemented will come from reduction of SMA 1 and 2.
Jai Prakash Mundhra: Right. Okay. Secondly, sir, on overall ROA. We have around 20 to 25 basis point ROA contribution from banca fee. That is going to be materially impact other banks are saying 50% decline in the fee, that is possible assuming the draft guidelines come through. That would mean 10 to 12 basis point of an ROA hit. Do you have any within fee line item or any other line item that can actually offset that kind of a hit? It will be really helpful if you can provide some color there.
Praveen Kutty: See, the answers to the future actually remain in the past. If you were to look back, let's look back two years. We had INR 120 crore plus hit on MFI. Okay? Nothing came. NPA equals loss. We took that in our stride. Then we had INR 100 crore plus one time benefit we got from treasury, which disappeared this year. Are you seeing any impact of that? INR 100 crore plus in H1 of 2025 has disappeared in H1 of 2026. Will it impact? Will bancassurance impact us? Certainly it will. But will we be passive observers waiting to take the punch and curl up and die? Obviously not. There will be multiple areas where we will put together, which I. Let's wait for the draft guidelines to come in. Maybe the draft guidelines is the final guidelines.
Praveen Kutty: And you look at us one quarter after the implementation of the bancassurance norms and see what the results are looking like, and then you will see the resilience of the bank.
Jai Prakash Mundhra: Right. That is very clear. Last question, sir, on gold loan. There are a lot of bureau reports suggesting that last part of the disbursement is going to people who have already been delinquent at other banks or other lender or in other products. When we disperse gold loan either organically or through partners or DA, is CIBIL score being a standard, is that a prerequisite or because it is gold loan, the product itself is secured? What is the current practice, and maybe could that change the growth trajectory?
Praveen Kutty: Our philosophy is absolutely clear. Gold loan is usually loans taken by people who really desperately need the money. Somebody could be in a hospital; they would need it for farming requirement. There are people who may not have access to formal source of credit, and some of them could be delinquent customers. We are okay with that. We take them on board fully knowing well that their CIBIL score in some cases may not be good enough. Why you do CIBIL is to establish the fact that the customer is of a particular profile that he or she may not be giving us fraud gold. The profile of the customer is important to that extent. It is from that perspective that you will be looking at the CIBIL.
Praveen Kutty: But a low CIBIL score is not a bar for a gold loan customer and will continue not being a bar for a customer. For us, we see that as a mechanism to rebuild credit and to get back into the formal world. That is true for us, and it is true for the inorganic partners that we do business with. What is the big risk in this regard? The big risk in this regard is the fall in the gold prices. Currently, 999 gold goes at some INR 14,560, and it is fairly stable at that count.
Praveen Kutty: If there is a deterioration of credit for those customers, they probably, I can draw in on one analogy. I will take you back to Q1 of 2025 when there had been a massive microfinance problem. We had gold loan customers who had microfinance exposure elsewhere. From CIBIL check we could figure this out.
Praveen Kutty: Despite the MFI going completely bust, gold loan did not have an impact. The gold loan was with us, MFI loans were with somebody else. We found out that those customers' behavior was very different. I am telling you this from the perspective that we did not get the money entirely out of auction. Auction was less than 10%. No customer is going to give up the collateral which he or she has, which is worth much more than the loan that he or she currently has. That is how we have seen the behavior. Right?
Jai Prakash Mundhra: Thank you.
Praveen Kutty: When the collateral value comes down, then we will have a problem. Still, we have a buffer, but that is the real risk, not the income-earning capability of the gold loan customer.
Operator: Thank you so much, sir. Reminder to all the participants, please limit your question to two questions only per participant. Our next question comes from the line of Aditya with Securities Investment Management. Please go ahead.
Aditya Khandelwal: Yeah. Hi, sir. Thanks for the opportunity. Sir, first question was on Agri book. We have a good proportion of Agri book. Considering the drought situation prevalent in the country, how are you looking at the disbursement growth in this book and also on the asset quality for our existing book?
Praveen Kutty: If you look at the tractor book, it is about 4%. If you look at a KCC book, it is about 4%. We have 1% individual MFI loans that we provide. What we have seen is that the tractor and the KCC book and MFI book also is behaving pretty well. It has given us cover in terms of PSL and subcategories of PSL. That is a very important engine of ours, which is running pretty well. We are on the lookout for El Niño-related pain coming from this particular segment. So far, we have not seen it. Our book continues to behave very well. The bounce rates are low. It is really benevolent in terms of fresh vintage bouncers and fresh vintage delinquencies, also from a NPA and recoveries perspective as well.
Praveen Kutty: We are on the lookout from an impact of climate risk on this particular segment, but we really have not seen anything which should keep either us or the industry worried on this front.
Aditya Khandelwal: Understood, sir. Got it. Sir, secondly, on NIMs. Currently we are at 3.3% against a guided range of 3.5% to 3.6%. I know we will get the benefit of repo rate, but that would be on a temporary basis because that would normalize once deposits start repricing. On a structural basis, if you just help us understand what would drive NIMs from the current levels to our guided range.
Praveen Kutty: Keep the credit cost under control, drive the cost of deposit down, and work on product mix to improve the yield. Do not go into riskier segment within the product and chase yield to create a problem later on. We want to play conservative by staying in a safe zone, but moving the product mix a bit. We will work on cost of deposit. The way to look at cost of deposit is, and you rightly said this, when repo rate increases, eventually the cost of deposit will increase. No one is disputing that, it will happen. But what you have to look at is the divergence between the yield on assets and the cost of deposit and how does that play over the next 3, 4 quarters going in.
Praveen Kutty: We want to keep that wide and we want to keep the provision impact low, as low as what we currently have. Hello.
Operator: Thank you. Our next question come from the line of MB Mahesh with Kotak Securities. Please go ahead.
M.B. Mahesh: Arvind, hi. Hi, Tushar. Tushar, there is a qualitative comment from your side, in terms of the strong growth one is seeing in segments like LAP for you as well as for industry as such. Just trying to understand, how are the underlying trends on BT and are you seeing dilution of underwriting standards coming through or is it still holding up? What is your sense of feedback? The reason I am asking this question is that if you go back in the last decade between 2012, 2013 and all the way up to 2016, we did see this instance of very high growth in the period, and we saw how it played out later on. Are we seeing a similar trend coming through again or you still think it is too early?
Praveen Kutty: Okay. Right now, if you look at any early trends and across products, I am not seeing that there is any cause for concern. But in an inflationary economy, rates going up, it is but natural that there is a sting in the tail. The house view is that it is important to go up the ladder in terms of ticket size. Marginal it may seem, but even a slight increase in ticket size is going to give a better impact in the future. It is the extension of the K-shaped recovery coming through. That is how we see across product segments.
Praveen Kutty: The slightly better segment, even if it means a slight compromise on the yield, is good enough in a scenario where rates are going up. That is how we see it. But is there any indication of that? No. Is the demand good? Absolutely. Is the early trends encouraging? Totally benevolent.
M.B. Mahesh: When you say demand is good, is it because the cash flows of the borrowers are better or the income is going up or are they simply kind of leveraging much more than before? What is your sense of the book that is building right now?
Praveen Kutty: While we stay secured, et cetera, we are a cash flow-based business. Nothing else matters. This whole collateral is just a thing in the mind, right? Honestly, everything is unsecured. So it is about the cash flow. And what we see from an assessment of cash flow is that there is a requirement. People still believe that productive use of the money will cover for the interest rate and put him on an ideal sum. There is LAP that we do, like I was telling the other person who asked the question earlier, is an interest arbitrage or a movement to a better product. So roughly speaking, about one-third are coming to you for an interest arbitrage.
Praveen Kutty: One-third is coming in for a better product. No, not one-third. Maybe one-sixth is coming for a better product, which is term loan to OD. But a significant chunk still is coming for higher exposure.
Praveen Kutty: They need more money. It is not for arbitrage at all. They believe that, not only they, our underwriting team also believes that that money will give customers better returns after paying our interest rate.
M.B. Mahesh: All right. Just last question. When you say bounce rates have not gone up and when you do look at the bounce rates that are coming right now, however benign it is, it is not like these borrowers are showing signs of being stretched out.
Praveen Kutty: No. The bounce rates are the same as what it was in January. We haven't seen any change. In our mortgage book, it is slightly better than what the beginning of the year bounce rates were. Our rejection rates are also similar. That's the more important thing. Are we rejecting more customers than we used to reject in the beginning of the year? No. It's about the same quantity. Demand is higher, rejection rates are similar, and early trends are looking decent.
Operator: Thank you. Our next question comes from the line of Kushagra Goel with Investec. Please go ahead.
Kushagra Goel: Hi, sir. Thank you for taking my question. Most of my questions are answered, but just a few data keeping question. Could you please give us your loan mix on EBLR, MCLR and fixed rate?
Praveen Kutty: We don't publish that. But you can take an educated guess on how much it is. You'll get to know from the next NIM, which we publish 3 months later. You can back calculate how it is. The ratios are same 3 years back also when the repo rate cut happened. Frankly, it's exactly the similar way. We have a hybrid book, we have a fixed rate loan book, and we have a floating rate book. Even the fixed rate loan book, remember this, 23% of our book is gold loan, which is fixed rate. But they reprice practically every month because they're all short tenured.
Kushagra Goel: One follow-up on the mortgage piece. I know you have not specifically called this out, but could you tell us how, right now, your mortgage book, how is it split between fixed and floating? I know your hybrid keeps on shifting, but if you could give some indication or a number around it.
Praveen Kutty: We don't publish that. Specifically product wise, we don't publish, neither do we publish for the entire bank. We have hybrids, fixed and floating.
Kushagra Goel: But directionally, that's increasing, the floating part?
Praveen Kutty: No. Like I said, when the repo rate cut happened, we had the ratio of these 3. On a larger book now, the ratio remains remarkably the same. Maybe a 1 percentage point, 1 percentage movement either way.
Kushagra Goel: Sure.
Praveen Kutty: The big change over the last 3 years has been that the gold loan book has increased significantly. So the fixed rate book has increased, but that is really fixed only in name because these are typically 6 to 8-month duration gold loans. So it keeps on getting repriced as you can imagine.
Kushagra Goel: Sure. Got it.
Praveen Kutty: Otherwise, the ratios remain exactly the way it is.
Kushagra Goel: Sure. Great. That is also nice. Thank you.
Praveen Kutty: Not at all.
Operator: Thank you.
[Company Representative] (DCB Bank): Make a note.
Operator: Ladies and gentlemen, anyone who wishes to ask a question may press star and one.
Praveen Kutty: All right. If there are no further questions, thank you very much.
Operator: We have a question.
Praveen Kutty: Go ahead.
Operator: Our next question comes from the line of Jaiprakash Mundra with ICICI Securities. Please go ahead.
Jai Prakash Mundhra: Hi, sir. Thanks for the opportunity again. Sorry, sir, we have a decent exposure in Maharashtra and we have a good growing Agri book. It would be really helpful, sir, if you can share your thoughts, any repercussions, early signs, or what is the bank doing to mitigate the drought-related impact in the Agri book? That is the only question, sir. Thank you.
Praveen Kutty: I would say it is not material enough that it has even come to my attention.
Jai Prakash Mundhra: Okay.
Praveen Kutty: See, one good thing about the bank is that we do not have a single state where asset exposure is more than 20%. I am talking asset exposure. So if you look at Agri exposure, again, we are pretty marginal in that sense. But like I said in the beginning, we have not seen any statewide beginning of an endemic problem or a pandemic problem. We have not seen that yet. Even in Agri, our collections remains robust and bounce ratios are standing up to the beginning of the year numbers.
Jai Prakash Mundhra: Sure. Sir, mortgage growth, we should think that so far it is still a little bit muted only. It should accelerate, right? Towards the overall loan growth basis over the next two quarters. Is that a fair assessment?
Praveen Kutty: It is a fair assessment for two reasons. One is that we will not allow our gold loan book to be more than 25%. We are very clear that we will grow overall by, like we kept on saying, 18% to 20%. So if both these are constants, then what will change is the contribution from mortgages.
Jai Prakash Mundhra: Great. Thank you and all the very best. Thank you.
Praveen Kutty: Thank you very much.
Operator: Thank you. Next question comes from the line of Parth Gutka with 361 Capital. Please go ahead.
Parth Gutka: Yeah, hi. Thanks a lot for the question.
Praveen Kutty: Not at all.
Parth Gutka: Just one question. We have on a QOQ basis, the corporate loan growth is a bit
Parth Gutka: On a higher side. Just trying to understand, wasn't there enough opportunities on the retail side where the yields would have been better and we could have done better on margins?
Praveen Kutty: If we were to look at our corporate exposure, a lion's share of it is from NBFCs. The kind of rate that we are able to command is very good with very low sting in the tail. The ROE that we get from that book is pretty good. I wouldn't be surprised if we raise it up to 10% of the overall asset book. Currently, it's about 8%, or slightly less than 8%. But in this particular segment, we have the expertise. Just look at this. We do co-lending, we do DA. We understand this particular segment, we interact with these particular companies, and therefore we also have the ability to assess NBFCs and we are very comfortable with that particular segment. The yields are decent and historical NPAs are very low, and that's reflecting even now. From an ROE perspective, it's a good book to have.
Praveen Kutty: Like I said, gold should be 25%. I think corporate, we should be at around 10%. We should be seeing an increase happening. May not be in Q3, but in an ideal state, it should go up to 10%. It's a good book to grow.
Parth Gutka: Sure, sir. Thanks a lot.
Praveen Kutty: Thank you.
Operator: Thank you. Our next question comes from the line of Prem Patel, an individual investor. Please go ahead.
Prem Patel: Hello, sir.
Praveen Kutty: Hello.
Prem Patel: I have been an investor from last three years. I hold around 20 lakh share and I am very much happy with the performance you have delivered. Just one question.
Praveen Kutty: Do you have a bank account with us?
Prem Patel: No, I don't have.
Praveen Kutty: You should have a bank account with us.
Prem Patel: No, I don't.
Praveen Kutty: You should have the experience of having a DCB Bank account. I will send somebody to your place and on a firsthand basis see how banking with DCB Bank is like. So apart from being an investor, we want you to be a customer as well.
Prem Patel: Yeah, 100%. Sir, I had just one question. At what price to book valuation are we thinking of diluting the equity?
Praveen Kutty: Good question. Look, we are very near closure on the capital. This has got three components. I am sorry I am not able to give a straight answer. But from a timing perspective, before the next investor call, we will have a firm commitment on the capital. Maybe the capital also will come in by that time. The quantum and the rate is getting closed. So if that is closed, the firm offer will also come in. So it is a question of a few more weeks or maybe maximum a month before we will be able to close it out. Look, the bank has not raised capital from 2017 onwards.
Prem Patel: Yeah.
Praveen Kutty: It is waiting for a right time. The right time is not based on time, it is based on valuation. That is the reason we have not raised it so far. So we are conscious about at what rate would we dilute incrementally. The bank's capital position is strong. Our capital adequacy ratio in 30 September is better than our capital adequacy ratio in March after having grown. So it is not as if we are desperate for capital. So we are holding out. We are ensuring that the capital which we require, and which we definitely do require, comes at a price which is fair to everybody. Existing shareholders, as well as to the new entrant or entrants who would come in over the next few months.
Prem Patel: I had just one concern that I am pretty sure that just now our share price is very much undervalued. Today just we closed at our book value around INR 203 or something like that. So below the book value, we will raise the capital or not?
Praveen Kutty: Below the book value, we will not raise capital.
Prem Patel: Okay.
Praveen Kutty: That much I can tell you. At what price to book will we raise capital? That is under negotiation, but below book value, we will not raise capital.
Prem Patel: Okay. That is it from my side. Thank you.
Praveen Kutty: Thank you very much.
Operator: Thank you. As there are no further questions from the participant, I now hand the conference over to Mr. Kutty for our closing remarks. Thank you and over to you, sir.
Praveen Kutty: Thank you very much. Look forward to the meeting three months later. Bye-bye.
Operator: Thank you, sir. Ladies and gentlemen, on behalf of DCB Bank Limited, that concludes today's call. Thank you for joining us and you may now disconnect your line.
