Getting Stronger - Development Credit Bank
11/8/2010 1:13 PM Monday
Development Credit Bank (DCB) has turned into black in Q2FY11 after remaining in red for the previous seven quarters. Interestingly, the recently announced result has seen a clear improvement in performance that now provides a positive outlook on the bank’s profitability going forward. The bank has grown its balance-sheet size by 24.1 per cent to Rs 6,937.6 crore for Q2FY11 from Rs 5,590 crore in Q2FY10. Its advances have grown by 29.6 per cent to Rs 3,839.8 crore on a YoY basis from Rs 2,961.7 crore for Q2FY10 and its total deposits witnessed a growth of 22 per cent with the retail deposits contributing 78.7 per cent to the total deposit base.
The CASA deposits vis-à-vis the total base works out to 34.6 per cent with a growth of 14.7 per cent on a YoY basis for Q2FY11. Its retail banking advances is now 32.8 per cent of the total advances as against 34.5 per cent in the same period last year. The decrease is mainly because the bank has stopped providing personal loans and unsecured vehicle and equipment loans - a conscious decision taken by the management to contain the non-performing assets (NPAs). DCB has maintained its net interest margins (NIM) at 3.1 per cent as against 2.5 per cent last year for Q2FY11. This has been better than the expectation of 2.8-2.9 per cent. The cost of funds has also witnessed a decline for Q2FY11 and it is now 5.58 per cent on a YoY basis as against 6.58 per cent for Q2FY10. Additionally, after being profitable in the current quarter, RBI may allow more branch licenses in the coming quarter which in turn will increase the CASA base for the bank. Hence, although the management has provided guidance for NIM of 2.8 - 2.9 per cent it can be said that the NIM may improve further in the coming years.
As of July 2010, DCB has received permission from the RBI to open two new rural/semi-urban branches in Gujarat. This will take the total branch network to 82 units. The bank is able to reduce its provisioning to a suitable extent whereby the total gross NPAs have come down to 7.6 per cent of advances from 11.2 per cent last year and the net NPAs have come down to 1.9 per cent as against 4.7 per cent last year. On the revenue side, the total provisioning has been reduced by 50.8 per cent on a YoY basis which has been the key trigger for profitability. The management is confident of maintaining the net NPAs below 2 per cent for FY11 which is assumed to be an achievable target. On the financial front, for Q2FY11 the company has posted decent results. The topline grew by 14.56 per cent on a YoY basis for Q2FY11 at Rs 127.88 crore as against Rs 111.63 crore. The bottomline stood at a profit of Rs 4.82 crore for Q2FY11 as against a loss of Rs 16.93 crore for Q2FY10. On the valuation front, DCB trades at an adjusted price-to-book value of 2.50 times. The change in management has also helped the bank to increase its focus on the above-mentioned financing and has turned DCB into black in the recently concluded quarter. It therefore looks like an ideal candidate to find its place in one’s portfolio for a long-term perspective.
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