DCB Bank hits 52-week high, has rallied 25% in last 1 month; here's why

On December 8, 2023, the bank's board approved allotment of up to 6.06 million equity shares on a preferential basis, to Aga Khan Fund for Economic Development, at an issue price of Rs 137 per share.

Shares of DCB Bank hit a 52-week high of Rs 141, surging 6 per cent on the BSE in Monday’s intra-day trade on back of over two-fold jump in trading volumes on stable outlook.

In past one month, the stock has zoomed 25 per cent, after Aga Khan Fund for Economic Development, promoter of the private sector bank, expressed interest to infuse ~$10 million (approx. Rs 83 crore) in the bank. The purpose is to further strengthen the bank's capital position and support its growth plans, the lender had said in an exchange filing. In comparison, the S&P BSE Sensex was up 7 per cent during the same period.

The stock of private sector lender was trading at its highest level since December 2022. A combined 7.9 million equity shares changed hands on the NSE and BSE till 11:01 AM.

DCB Bank is a new generation private sector bank with 436 branches (as on 30th June 2023) across India. DCB Bank’s business segments are Retail, micro- small and medium enterprise (SME), SME, mid-Corporate, Agriculture, Government, Public Sector, Indian Banks, Co-operative Banks, and Non Banking Finance Companies (NBFC). DCB Bank has approximately one million customers.

On December 8, 2023, DCB Bank’s board approved allotment of up to 6.06 million equity shares on a preferential basis, to Aga Khan Fund for Economic Development S.A. (AKFED), at an issue price of Rs 137 per share, for a total consideration of up to Rs 83 crore.

CRISIL Ratings believes DCB Bank’s capitalisation will remain adequate to meet its business growth and manage its asset-related risks.

The ratings continue to reflect the bank’s healthy capitalisation and established market position in the SME segment, driven by an established track record of sustainable and calibrated growth in advances, comfortable asset quality and stable management team. These strengths are partially offset by the average earnings profile, average resource profile with relatively lower share of CASA deposits, and the modest scale of operations in the overall banking system, the rating agency said in its rationale.

DCB's capital profile also benefits from AKFED's stance that it will extend support as and when required. In the past, it has infused capital either directly or through associated entities or has helped the bank raise equity. CRISIL Ratings believes that AKFED will provide support to DCB, if the need arises, and that the Reserve Bank of India will not object to AKFED’s support to DCB Bank in a distress situation.

The recent regulation by RBI on revised risk weights on unsecured consumer loans, including credit card receivables and loans to non-banking finance companies (NBFCs) beyond a specific threshold is expected to have an impact on the capital ratios of the bank. However, since the unsecured loan exposure of DCB Bank is minimal, the capitalisation levels of the bank are not likely to have a material impact. Further, given DCB Bank’s demonstrated ability to raise funds, and considering its growth plans, CRISIL Ratings believes healthy capitalisation will be maintained over the medium term.