DCB reports flat profit growth in Q1 on higher tax expenses

Gross NPA as a percentage to gross advances went up to 1.96% in Q1 as compared to 1.78% a year ago

Private sector lender DCB Bank (earlier known as Development Credit Bank) reported net profit of Rs 47 crore during the April-June period compared with Rs 45 crore recorded during the same period of the previous year.

This is mainly because the bank had absorbed all its previous losses on which there was income tax benefit. "Earlier our tax rate was 15.6 per cent which has gone up to 34.6 per cent,"said Murli Natarajan, managing director and chief executive editor at the bank. As a result, tax expenses of the bank in the first quarter almost doubled to Rs 25 crore compared with Rs 13 crore during the same period of the previous year.

Net interest income (NII) also remained flat on a year-on-year basis since last year, when the bank got a one-time tax benefit of Rs 30 crore. Excluding the the one-off item, NII growth was 28 per cent at Rs 140 crore. Non-interest income almost doubled to Rs 63 crore on the back of treasury gains of Rs 22 crore during the quarter. "If we set aside the one-off items, the underlying performance was healthy. Underlying operating profit increased by 34 per cent over same quarter last year," Natarajan said.

The bank has also seen its asset quality worsening with gross non-performing assets (NPAs) going  up to 1.96 per cent at June-end compared with 1.78 per cent during the same period of the previous year. Provision for NPA was Rs 18 crore, compared with Rs 23 crore in the previous year.

"There was one corporate account of Rs 10 crore which slipped during the quarter," Natarajan said, explaining the reason behind the rise in NPAs. In addition, there were some operational issues at some branches, which resulted in some of the gold loans slipping into NPA.

"Some of the gold loans that has slipped will be upgraded in the current quarter. We expect asset quality to remain stable during this year," Natarajan said.

While the lender reported healthy net interest margin of 3.81 per cent in the first quarter of FY16 compared with 3.71 per cent in the same period last year, there would be pressure of 25-30 basis points (bps) on asset quality, Natarajan said. The bank has not revised its base rate - which is at 10.85 per cent - despite the Reserve Bank of India reducing repo rate by 75 bps since January.

"Our cost of funds have not come down since we revised our deposit rate only couple of months back. We will take a call on base rate once the deposit costs come down," he said.

For the current financial year, the lender is looking for balance sheet growth of 22-26 per cent. On the asset side, business would be driven mainly by retail loans like home and gold.