Next year by this time we will know my successor: Murali Natarajan, MD & CEO DCB Bank

Slippage isn’t worrisome. In gold loans, historically, we have always given an overdraft product to the customer, because we want the interest serviced monthly. This product was working very well for us till November 2021. In November 2021, the RBI changed the NPA recognition model for CC/OD products, which impacted SMEs. The applicability of this circular was later extended to personal loans. With erratic cash flow, the small loans customers seesawed NPA and that is why the NPA-level in gold loans was elevated. Otherwise, gold loans are intact and their impact on NPA may be technical or even inconsequential.

In mortgages, we are nearing the pre-covid levels. We have ₹2,000 crore of restructured book with only ₹ 15 crore going into NPA. We expect to see a steady-state credit cost of 50–55 basis point. Our margin of safety (operating profit divided by provisions) was about 3- 4x pre-covid and came down to 2x during covid. In Q1 we went back to 4x. Our model is resilient and when people had doubts on what will happen to the bank during covid, we didn’t have the need to raise capital.

Our contribution of retail and SME loans is above 85 per cent. Which means, we are dealing with smaller ticket sizes. Our average ticket size ₹13 lakh. Take the largest private sector banks, which have 50–60 per cent corporate book, where the cost-to-income ratio would be 20–25 per cent. But retail cost-to-income ratio, may not be less than 50 per cent. Since we are a retail- SME heavy bank, our cost-to-income ratio will be 50 per cent or above and we still make 14 per cent ROE. In SME banking, investment comes first, returns later. Second, there is a cost inflation. Usual salary increase may not be adequate and so we have given higher increment to compensate for inflation.  

Fortunately, in all these years, we didn’t have to do any flip-flop on our strategy. We want to be a retail and SME banking with some minor modification, and we have stuck to our core. Without taking away the credit from any of the small finance banks, tell me how many have succeeded in the last 6–7 years. Let’s say for example, if I want to be like a great NBFC gold loan company, then can I with the bank processes deliver a gold loan in 15 minutes? No bank can do it. Minimum it takes 45 minutes. Gold loan companies are facing challenges from banks, but it doesn’t make them unsuccessful.

A few years back I saw a Capital One branch in the high street of Manhattan. I was surprised because it was priding itself on having got into some completely analytical and digital space. So, there is a place for brick and mortar and digital as well.

When ATM was introduced, did all the crowd from branches go to ATM? No. Citibank was the first to introduce phone and internet banking. Did all of them move from phone banking to internet banking or from internet banking to mobile banking? No. People say digital channels are cheaper. But the cost of introducing the digital channel and making it popular with the customer, will have a cost. There is cyber security cost and disaster management.

If I am going to an unbanked area, how will they come to me if they don’t see brick and mortar. So, digital is for maintenance and servicing, but for acquiring customers, especially in deposits if you don’t have a physical presence, it’s difficult. We will open 25–35 branches every year. 

My 15-year tenure finishes April 2024. All banks will have to do succession plans which has to be reviewed by the board. As part of the yearly review, even RBI looks at the succession plan to see how good it is, because they don’t want any weakness in the structures of the bank. We have made a succession plan. The nomination committee will evaluate the internal and some external candidates and decide who can lead the bank for the next phase. Next year, around this time, we’ll know.