DCB Bank plans to raise capital in Q2 of FY20 for rapid growth in loan book

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Mumbai-based private lender DCB Bank is planning to visit the market in the second quarter of the next financial year (Q2FY20) to raise additional capital to support rapid growth in its loan book. 

DCB Bank Managing Director and Chief Executive Officer Murali Natrajan said at present, capital adequacy is strong (15.55 per cent in June 2018). The bank might look at raising capital in the July-September 2019 period (FY2019-20), keeping in mind requirements to support business growth. 

The specific timing (for capital offering) would depend on the market conditions. For now, it is premature to talk about the actual capital requirement, he added.  

The bank, backed by the Aga Khan Fund for Economic Development (AKFED), had raised Rs 3.8 billion through qualified institutional placement (QIP) in 2017 and Rs 2.5 billion through QIP in 2014. In 2012, it raised Rs 2.33 billion, out of which Rs 1.39 billion was through a preferential allotment and Rs 0.94 billion via QIP.  

The pace of the bank's growth has been fast, doubling its loan book 3-3.5 years. In the 12 months ended June 2018, the BSE-listed bank's credit -- essentially to retail and small & medium-sized enterprises -- rose by 31 per cent to Rs 212.43 billion from 162.66 billion in June 2017. The loan book stood at Rs 104.65 billion in March 2015. 

On Friday (July 12, 2018), its stock closed about two per cent lower at Rs 179.45 per share on BSE.  

Over the weekend, the lender announced its results for the first quarter ended June 2018 (Q1FY19). Its net profit rose to Rs 0.70 billion in Q1FY19, up from Rs 0.65 billion in Q1FY18. 

The bank earned a net interest income (NII) of Rs 2.73 billion in the April-June 2018 period as against Rs 2.33 billion for the same period of 2017. However, its net interest margin (NIM) declined to 3.90 per cent for Q1FY19 as against 4.23 per cent for Q1FY18 and 4.09 per cent for Q4FY18.  

Natarajan said margins are under pressure, especially in the mortgage and corporate loan book. Given the competition, the range of 3.75-3.85 per cent is a decent level to operate at and NIMs are not expected to dip much further.     

The new branches are expected to begin to contribute business -- current accounts, savings accounts, low-cost deposits, and better yielding assets -- in the coming quarters. This would provide stability to margins. The branch-expansion business model is designed to deliver "break even" between 18 to 22 months from the start of business, according to the bank's annual report for 2017-18.

The branches in the network more than doubled to 323 in June 2018 from 160 in October 2015. Indicating a moderation in the pace of branch expansion, Natarajan said that the bank would add 15-18 new branches to the network each year. 

Timeline for capital raising  

Year Mode\route Amount
2017 QIP Rs 3.8 billion
2014 QIP Rs 2.5 billion
2012 QIP and preferential offer Rs 2.33 billion
2009 QIP Rs 0.81 billion
2007 Preferential allotment Rs 2.8 billion
2006 IPO plus private equity Rs 2.38 billion
2005 Private equity Rs 1.4 billion

Source: DCB Bank's Q1FY19 presentation 


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