In an exclusive chat with businessline, Murali Natarajan, MD & CEO, DCB Bank, says the way forward for the lender would be strong collaborations and product delivery. Excerpts:


Co-lending is a separate sub-head on your investor deck. Is this by design or default?

We have a strategy for core lending segment, that is the products that we don’t do DCB Bank is happy to explore opportunities for co-lending with business partners. Let’s say, a particular NBFC has a product like school finance or two-wheeler loan, which we as a bank are not doing, or the segment to which they [business partner] are doing. For example, the bank may feel that gold loan of ₹50,000 ticket size per individual isn’t the same as a ₹2 lakh loan, the latter being the segment that we serve. Or the purpose may also be different. It could be for business, which is what we do, whereas they [NBFCs] could do a personal emergency, and so on. We have successful co-lending partnerships going on at present. We want to expand it and think that it should be anywhere from 5-8 per cent of our book.


Would it be a stepping board for you to make these products inhouse at some point?

We have about 400-plus branches and have to also generate deposits. So, the branch time must be divided between various product, with CASA and deposits being a very primary item. NBFCs must simply do loans, whereas the bank has to do more. So, I don’t believe that we will step into that. We want to be extremely sensitive on the relationship that we have with our co-lending partners. We don’t want to be seen as learning something from them and trying to do that. That won’t work. It will not be good partnership.


These are fintechs?

No, only NBFCs. We are working with fintechs. But with fintechs, scaling up is a challenge. With fintechs, we want to be very sure about their compliance capability and their approach, because the RBI will hold us responsible for compliance. Second, many of the fintechs that have not delivered on these counts have fizzled out in the last two years. We are working with one fintech on a deposit product. We are very keen to work with fintech. But our filter for choosing the partner is tough because there is no point in wasting technology.


In the March quarter, cost of deposits and funds spiked notably. How do you see the interest rates play on your assets and your liabilities sides?

The benefit on NIM at 4.18 per cent you saw in March 2022-23 quarter is like that quarter phenomenon. The reason is EBLR; we immediately pass on the hike to the customer. Most of the loans booked in the last three years will be in EBLR. Deposits rates have just gone up, so the cost of deposits will catch up. When you put it all together, we believe NIMs will come down to the similar levels of 370-375 bps-range. Our intention is to increase our CASA, and we are trying to do some newer products in CASA to see if we can make it more attractive to customers.


Any reason for cost to income ratio increase to over 60 per cent in the March quarter?

The model that people have in mind is that banks should have cost to income ratio 50 per cent or below. It is slightly complicated than that. Look at the cost to income ratio of banks, which is very retail like us; you will find that cost to ratio will not be less than 60 per cent. For predominantly corporate or bigger ticket size- focussed banks, the ratio can be as low as 35 per cent. It is a function of how much investment you did in the previous 12-24 months, which has not yet matured from a productivity perspective on the balance sheet. Last year, we added 27 per cent more staff. Over the next 12-18 months, we expect the cost to income ratio to come down to 55 per cent, keeping the retail unchanged.