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The dark horse: Development Credit Bank has promising prospects

The Mumbai-based small private sector bank has surprised the Street by continuing to perform well since its strategic turnaround in the previous fiscal year.

, ET Bureau|
Last Updated: Jul 23, 2012, 02.04 PM IST
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Development Credit Bank continues to perform well since its strategic turnaround in the previous fiscal year.
Development Credit Bank continues to perform well since its strategic turnaround in the previous fiscal year.
Development Credit Bank (DCB), a Mumbai-based small, private-sector bank, has surprised the Street by performing well yet again. During the first quarter of 2012-13, its net profit increased by 114% on a year-on-year (y-o-y) basis, and 9.2% on a quarter-over-quarter (q-o-q) basis.

In addition to the fall in provisioning expenses, a jump in net interest income, which increased by 23% y-o-y, and the increase in fee income, which went up by 19% y-o-y, play a significant role in this achievement.

Improvement in operations

The business is showing continued improvement, with its deposits growing by 14% y-o-y and 8% q-o-q, advances growing by 29% y-o-y and 3% q-o-q. The net interest margin (NIM) also improved to 3.18% in this quarter, a gain of 8 basis points y-o-y and 6 basis points q-o-q. This is mostly because of the positive impact of funds raised in the previous quarter. The NIM is expected to stabilise around this level in the future.

Though the cost to income ratio moved up a bit to 72.8% in this quarter after witnessing a continuous fall in the past several quarters, the management aims to bring it down to 70% by the end of 2013 and to 60% in the next three years.

Better asset quality

DCB also managed to show a significant improvement in asset quality during the quarter. Its gross non-performing assets (NPA) in absolute terms declined further by 10% y-o-y and 2.3% q-o-q. Though the historical asset quality issues are pending—gross and net NPA ratios remain at 4.18% and 0.75%, respectively—analysts are hopeful that these will come down in the coming years.

Despite the lower provisioning in this quarter, the provision coverage ratio is placed comfortably at 83%. Since the capital adequacy ratio is 14.49%, there is no need for DCB to raise additional capital in the immediate future.

Bright outlook

The strong growth in this quarter is a continuation of its improving operational performance in the past two years, triggered primarily by the loan diversification, improvement in NIM and sharp reduction in credit costs.

The dark horse: Development Credit Bank has promising prospects



With the management’s turnaround strategy of focusing on well-managed growth in mortgage and small and medium enterprises segment, pruning down non-staff-related costs and improving asset quality by yielding results, DCB is expected to raise its profitability profile in the coming years.

 



A continued earnings momentum, strong balance sheet and the dream of becoming a big bank in the future should help this bank to sustain its current valuations.

The dark horse: Development Credit Bank has promising prospects


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Also Read

Bullish on Development Credit Bank: Gaurang Shah, VP, Geojit BNP Paribas

Buy Development Credit Bank with a target of Rs 58: Mitesh Thacker

Development Credit Bank's Q1 net soars to Rs 43 cr

Development Credit Bank's Q1 net soars to Rs 43 cr

Development Credit Bank reports one of the strongest performance in the last few quarters

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