Development Credit Bank won’t get into infra loans

Mumbai-headquartered Development Credit Bank’ s net profit in the first nine months of the current financial year at Rs 68 crore has exceeded the previous financial year’s figure of Rs 55 crore.

The 80-year-old private sector bank , which started as a co-operative bank but got converted into a commercial bank in the mid-90s, wants to double its business (deposits and advances) in the next two to three years. As at December end, the bank’s business was at Rs 13,522 crore. At the helm for nearly four years now, Managing Director and CEO Murali Natarajan in an interaction with Business Line said he wanted to build on the momentum that the bank had achieved in the last three years by further strengthening the business.

Excerpts:

On generating growth “Being part of the banking industry for a long time now, I don’t remember a single private bank that would have remained independent despite suffering huge losses for two years in a row (losses of Rs 88 crore and Rs 78 crore in fiscals 2009 and 2010, respectively). Something would have happened.

“We also know that the promoters cannot put in money due to RBI guidelines (which require promoters of private sector banks to cut their stake to 10 per cent). So, for the team to work on their own to generate leads for getting capital (in August 2009, we raised Rs 81 crore, Rs 194 crore in March 2012 and Rs 140 crore in December 2012) and rebuild the whole business to come out of that challenging situation of 2008-09. That makes us confident.

“We are a standalone bank generating our own momentum. In addition, in the last 2-3 years, the economy has faced a lot of headwinds. In terms of assets size, we are just short of Rs 10,000 crore.

“Advances have doubled from Rs 2,800 crore in September 2009 to Rs 5,964 crore as at December end.

“Deposits are almost 70 per cent up in three years to Rs 7,558 crore crore as at December end. So we should be able to double our business in the next three years.

On mortgages

“We don’t have any plans to enter a new line of business as of now. Currently, 42 per cent of our loans are in the retail segment. Out of that, bulk is in retail mortgages. Our retail portfolio will stay in the 40-45 per cent range (of total advances) with a lot of focus on mortgages. In mortgages, we do home loans and loan against property in the mix of about 40:60.

“About 25 per cent of our loans are to small and medium enterprises, and again we don’t see that mix changing dramatically. Another 20-odd percentage is in the form of corporate loans. The balance is in agriculture and inclusive banking segments to meet the priority sector lending target. In terms of business mix, we intend to remain the same. We do not plan to go into funding infrastructure, as we do not have that kind of expertise.

“On the deposits side, our focus continues to be on low-cost current-account-savings-account deposits and retail term deposits. About 80 per cent of our deposits are retail deposits. As our bank’s financial strength improves and we become confident of borrowing on wholesale basis, we probably will reduce the proportion of retail deposits (in total deposits) to 70 per cent in about 2-3 years time. So, that also might improve costs, as retail term deposits are more expensive and more effort is required to garner them as well.

“With the rating on our certificate-of-deposit programme getting upgraded to ‘CRISIL A1+’ from ‘CRISIL A1,’ one more window for tapping liquidity has opened up.

On impending challenge from new banks

“First of all, it is difficult to understand in what sizes and when these banks will come. We are already competing with large non-banking finance companies, which may be given banking licence, for loans. So what is the new competition that is likely to come up is the first challenge.

“The second issue is that many banks, in order to pursue their priority-sector-lending targets, are buying out portfolios from NBFCs. Once these NBFCs get banking licence, they will not sell their loan portfolio to other banks. Banks will reduce rates due to competition. Even for NBFCs it will be difficult to be working as a bank in order to diversify their portfolio.

“We have already started working on our own distribution for crop and tractor loans, lending through our own branches that we have opened in rural areas.

On network expansion

“We are well distributed and meet the criteria of the RBI to open branches in semi-urban and rural areas. We try to be either the first or second private sector bank in any region where we plan to open our branches. In addition, the rent is very low in semi-urban and rural areas. Therefore, the overall cost is low and we don’t need to compete more with other banks. Also, the breakeven is faster. Therefore, there are lot of advantages to expand in rural areas.

“In the top cities, we are targeting Jaipur, Noida, Lucknow and Vijayawada.”

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