Development Credit Bank-Proposes Rs 150 Cr QIP/Return To Profits in Q3FY11

Development Credit Bank (DCB)- Proposes Rs 150 cr QIP / Open 2 new branches in Gujarat / Indicates return to Profits by Q3FY11

DCB's capital adequacy under Basel II is at 13.8% and most of the capital is in Tier I. The Board of Directors and the shareholders have approved an issue of shares amounting to Rs 150 crore using the QIP route. This should be concluded in the ensuing quarter.

Quite recently the RBI has granted DCB the license to open two new branches. One in a place called Netrang (Bharuch District), it is a rural branch and another place called Mandvi (Surat District), it is a semiurban location. Both are in Gujarat.

This development should be considered positive because it has been quite some time since Reserve Bank of India has given any approval at all for branch licenses. If DCB continues to perform well, it will be able to obtain a few more licenses from Reserve Bank of India in the coming months to open new branches.

The Q1FY11 performance indicates that DCB should return to profits by end Dec 2010.

Focus on Retail

DCB has targeted growth of about 20% this year, both on deposits and advances. In terms of operating profit the Q1FY11 operating profit was Rs. 22 Crores this quarter as compared to Rs. 19 Crores in the fourth quarter of last year.

DCB's strategy is to grow CASA, focus on Retail Term Deposits, diversify loan portfolio in home loans, SME, Micro SME, Agri, and Mid Corporate Banking. In line with that strategy during Q1FY11 CASA grew in absolute term by Rs.149 Crores and the CASA ratio stood at 36.0%.

DCB has strategised to keep CASA above 30% and that is the goal it is pursuing. During the last three consecutive quarters DCB has done better than it's target. In terms of Retail Term Deposits it continues to grow it's Retail Term Deposits.

Concenterating on Credit To Housing/SME/Micro SMEs

Home loans portfolio have been rising on a month-on-month basis. DCB continues to do well on SME and Micro SME. All in all the Bank has been able to pursue growth in the chosen areas. The older portfolio of Unsecured Personal Loans, Commercial Vehicles, etc., is being run down, so net of run down the Q1FY11 portfolio growth has been moderate this quarter, but by end of second quarter or by end of third quarter there should be a decent growth in the loan book.

Loan Coverage At 75 % Against RBI mandated 70%

The provisions were at Rs.25 Crores. The provisions for the retail portfolio especially personal loans have come down and there should be more reduction in this provision in the second / third quarter of this year because it has already provided almost 90% of the NPA in Unsecured Personal Loans.

The coverage ratio that is expected by Reserve Bank of India by September 2010 is 70%. The Q1FY11 coverage ratio was 75.2%.