DCB Bank to slow down branch expansion for next 2 years to improve profits

To concentrate on existing network of around 300 branches

Small sized private sector lender DCB Bank will slow down on its network expansion for the next two years to concentrate on improving profitability from existing network of around 300 branches.

"We have added branches at a faster clip in the last two years but will slow it down to 10-15 each in FY19 (financial year) and FY20," DCB Bank's managing director and chief executive Murali Natrajan told PTI.

He said the bank has added 90 branches in the year to June 2017 to take it to 290 and will close the financial year (FY) 2017-18 with about 310 branches. By FY20, the bank will have only 350 branches.

"The number of branches depends on what you can do from a cost to income ratio front," he said, adding that the decision is not driven by the advent of digital alternatives.

Natrajan said the bank had aggressively expanded its branch network to have a size which is "meaningful" among the small-size lenders and despite the expansion, the cost to income ratio has been maintained at 57.2 per cent in Q1.

The bank reported a 38 per cent increase in its June quarter net at Rs 65 crore, boosted primarily by a Rs 21 crore treasury income.

The asset quality was under check, but the provisions increased by over 70 per cent to Rs 35 crore.

Natrajan explained it, saying this is the result of extra provisioning done because of the bank's exposure to the SME sector which is prone to stress.

He said the bank started creating floating provisions three years ago and the buffer stands at Rs 44 crore at present with no draw down done. It is targeting for a 20-25 per cent growth in credit in FY18, Natrajan said.

The net interest margin expanded to 4.2 per cent on the back of a jump in the share of low-cost current and savings account deposits to 26.85 per cent and the Rs 378 crore capital raised earlier this year.

Natrajan said they expect some pressure on the spreads due to aggressive competition from banks and non-banking lenders, but added that the bank is comfortable with NIM at 3.75 per cent.

The promoters' stake has come down to 15.02 per cent, and they will maintain the same now on by participating in any capital raising exercise in future, he said.