Pain in microfinance will linger for at least 3-4 quarters: DCB Bank MD

DCB Bank MD & CEO Praveen Kutty outlines plans to double loan book, manage costs, and raise capital by Q2FY27, while navigating MFI stress and shifting lending strategy

Following DCB Bank’s 2025-26 first quarter (Q1FY26) earnings, Praveen Kutty, managing director and chief executive officer (MD&CEO) of the bank, spoke to Subrata Panda on the lender’s performance, growth strategy going forward, and plans for raising capital. Edited excerpts:

 

Your provisions increased in Q1FY26...

 

We have a top-line growth of 20 per cent, in line with what we have been doing consistently for the last four quarters. And we are keeping the bottom line also in sync, with the top-line growth. Despite a rate cut of 100 basis points (bps), we have managed net interest margins (NIMs) well. We have also managed the cost to a degree where our cost-to-income ratio is 59:97. The big story, going forward, clearly is clamping down on the cost of deposit, and ensuring that the cost to average assets works out more in our favour. On the provision, we have taken a conservative stance. And, even after doing that, we are able to grow the bottom line by 20 per cent. Our guidance has always been to keep the credit cost between 45 bps and 55 bps. Having said that, over the next three quarters, the credit cost probably will be lower than 45 bps.

 

Has stress in the microfinance book peaked?

 

There is stress in the book, but we are not sweating over it because it's a small book. This is a high-yield product. And you substitute a high-yield product with a low-yield, low-risk product. Secondly, it is tougher to meet our agricultural priority sector lending (agri-PSL) target and small & marginal farmer requirements. Since we are a small bank with a smaller portfolio, our concern is less about how much non-performing assets (NPAs) can happen and more about where will the yield come from and how will we meet PSL sub-sector norms. I don't think the pain is over. It will linger on for at least three-four quarters. 

 

Which segment is currently witnessing strong demand?

 

We see gold loans are growing. Within the mortgage, there is a subtle shift happening. We are doing more of loan against property (LAP) and less of home loans. It is giving us better traction, and a higher yield. We are doing extremely well in the agri segment. And, construction finance too is doing well for us. So, these are the products where we will see incremental growth coming from. We do not see the corporate book growing more than 10 per cent.

 

With expectations of the second half (H2) being better than H1, at what pace would you look to grow your loan book?

 

We will be in the 18-20 per cent range, and double the balance sheet in three-and-a-half-to-four years.

 

How do you see the NIM trajectory going forward?

 

There could be a reduction of NIMs when the full impact (of rate cut) comes in. There are some interventions happening to ensure that the impact on NIMs is lesser while definitely keeping up with the transmission of the repo rate cuts to all customers.

 

Are there any other product segments that you would want to enter in FY26?

 

We are losing a lot of our small and medium enterprise (SME) customers, who are getting to a particular exposure threshold and beyond. So, when they grow, we are not able to grow with them because we are capped at a particular level. They are too small for the corporate banking group but too big for the micro SME book that we have. So, that gap we are attempting to fill through a ₹3-10 crore SME programme. We have a history built around it in six-eight cities in a progressive fashion. We would be looking at this particular segment for growth.

 

Are you looking to raise capital anytime soon?

 

Our ambition is such that we will need to raise capital. There are two schools of thought: one is take capital when you get it; second, if we continue to do what we are doing, at some point in time, there will be a re-rating happening, and then capital can be raised. Possibly, we will be able to stretch the capital into Q2FY27. We do not want to go that way. But there is enough gas in the tank to go all the way there.