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DCB Bank Ltd
DCB Bank (DCBB) is a modern emerging new generation private sector bank based in Mumbai, with presence across Retail, MSME, Agri and Corporate banking serving mainly towards self-employed clients. Mr. Murali Natrajan is the current MD and CEO (since 2009) and has driven structural changes in the bank. As on March 2019, the bank had a network of 333 branches and 504 ATMs.
* Niche focus in mortgage financing with granular loan book: DCB Bank has created niche in mortgage financing (~40% of total advances) with emphasis on small ticket loans (ticket size ~30-35lac) to self employed in Tier II-VI cities. Bank’s core target segment is MSME/SME with customer profile largely including self employed/small businessmen. It has deliberately chosen to have limited presence in the salaried segment on account of significantly higher competition from large banks. The portfolio is well diversified and granular with greater reliance on secured lending (~96% of the total loans are secured).
* Operating leverage benefits post expansion to drive RoA: Post aggressive branch expansion of doubling its branch count from FY15 onwards, operating leverage has kicked in and DCCB has been able to bring in a gradual and continuous reduction in cost to income ratio to ~58% in FY19. We expect cost benefits to sustain in the long run supporting improvement in ROAs.
* Positive outlook on conservative approach, stable margins and cost controls: DCBB has transformed itself into a strong retail franchise over the past years with focus on secured and granular business. It has done a successful shift from consolidation to growth and investment. DCBB chose to create a niche in self-employed segment, which has relatively limited competition enabling the bank to improve its NIMs significantly. We believe DCBB’s comparatively conservative approach towards lending will help the bank tide over the loan growth slowdown and slippage concerns in the near-term.
* We recommend a BUY with TP of Rs. 213.
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