After facing investor flak, private sector lender DCB Bank Ltd has decided to tone down the pace of its branch expansion. It will now open 150 branches over 24 months, against the 12 months it had decided on earlier.

Shares of the bank fell about 30 per cent in two days since October 13, when the bank announced its results and laid out plans to double its branch network over the next year. Fearing the rapid expansion would shrink its profits, the market gave it a thumbs down, dragging the stock price.

In a statement to the exchanges, DCB Bank said: “In view of the feedback received, and in close consultation with our Chairman, the management team has decided to install 150-plus branches in a cautious, prudent and calibrated manner over a period of 24 months (instead of 12 months).”

In its earlier statement, the bank had said its expansion plan of over 150 branches in the next one year is likely to break even in 24-30 months and pay back in 44-50 months.

In addition, it pointed out, “The cost-to-income ratio, RoA (return on assets) and ReE (return on equity) will get negatively impacted due to the gestation period of the new 150+ branches.

“In the coming 24-30 months, depending on the speed and quality of implementation, we expect cost-to-income ratio to worsen by 5-11 per cent; RoA may be in the range of 50-60 bps and RoE may continue to be below 10 per cent.”

Answering queries from the media and investors, DCB Bank MD and CEO Murali Natrajan said: “We, as a management team, are employees who are answerable to the bank’s stakeholders — customers, investors and employees. It is important to create value for them and we have to be sensitive towards investor feedback.”

“It (plan change) is more of a pacing out of our investments and taking less risks on our expansions. We met quite a lot of investors and they appreciated our strategy on the 150-plus branch expansion…Any plan has a risk element associated with itself. We have created a brand that is cautious. We have been growing at a pace of 25-30 branches per annum…So, we have to change gears; it has to be in a slightly more phased manner,” he added.

Following the alteration in the expansion plan, the DCB scrip soared over 7 per cent intraday on Friday and ended higher by 3.7 per cent at ₹95.80 on the BSE. On Monday, it closed at 94.65.

According to Natrajan, the bank is in a better position today than in the past two-three years.

Product mix Without commenting on the stock price, he said: “We have been discussing this for the past six-eight months and thought we must accelerate our expansion. The product mix and portfolio remain the same.”

Giving an analogy of how a car passenger is as much a part of a ride as the driver, Natrajan added that “as a bank we have to be sensitive to our stakeholders and are responsible to investors as well.

“After all, they provide capital to the bank. If we can act on our customers’ and employees’ feedback, why not on our investors’?”

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