DCB to reduce personal loans portfolio

Ties up with HDFC to sell home loans.

Development Credit Bank, the small private sector banking outfit, plans to slash the share of personal loans in its credit portfolio to diversify risks.

It will, instead, scale up the commercial and construction equipment business, which is a secured portfolio in the retail segment.

The bank wants to raise the share of retail assets comprising commercial vehicles and construction equipment in total advances from 45 per cent to 55 per cent. The large and mid corporates currently enjoy 55 per cent share in total loan base. The total advances at the end of September 2007 stood at Rs 3,195 crore.

The prospects of loan defaults are higher in case of personal loans. The bank had seen a minor rise in net non performing assets in the first quarter, arising out of personal loan segment. "We plan to bring down the share of personal advances in total retail loans from 47 per cent to 35 per cent over the next financial year," managing director and chief executive Gautam Vir said.

The personal loans stood at Rs 713 crore, as of September 2007, while commercial loans were Rs 279 crore. The bank has already exited the low ticket (below Rs 50,000) loan space where delinquencies are higher.

It has also forged a strategic alliance with HDFC to market home loan products. "This (home loans) is not our area of expertise (which is volumes business). The bank will focus on origination and servicing customers," Vir said. This arrangement is expected to help to boost the bank's other income.

As part of its expansion plans, the bank has applied to Reserve Bank of India for permission to open 50 branches. DCB currently has 74 branches, predominantly in the western region of the country.

"We will continue to expand the region (western), where the growth is high and our brand is known. We will also open branches at SME clusters outside the western region", he said.

The western region comprises Maharashtra, Gujarat, Goa, Andhra Pradesh, National Capital Region and Rajasthan.