Development Credit Bank

Development Credit Bank or DCB is the preferred banking services provider across 80 state-of-the-art branches across 10 states and two union territories. Its promoter the Aga Khan Fund for Economic Development (AKFED) holds over 23% stake. AKFED is an international development agency dedicated to promoting entrepreneurship and building economically sound enterprises in the developing world. It had co-promoted HDFC in India in the late seventies. The Bank provides a comprehensive suite of “best in class” products for customers in Retail, SME and Corporate Banking market segments in chosen geographies.

The DCB has evolved from a stressed asset laden, loss making bank in FY08 to a profitable, strategically led, focused small new generation private sector bank after a painful two years of restructuring, revamping and consolidation of business. Currently the company has a CASA of 35.2% and CRAR of 13.25% under BASEL II. The Company’s long term rating has improved from “Negative’” to “Stable”.

A closer look into the bank tells us that the retail deposits have increased from 51.95% in FY 08 to 81.17% in FY 11. The Loan book of the bank has increased from INR 338mn in FY08 to 1293mn in FY 11 showing a phenomenal 56.23% CAGR. The bank showed a very good result in reducing their Non performing assets. The net NPA’s of the bank has reduced from INR 1270mn in FY 09 to INR 412mn in FY 11 which is really outstanding. The profit for the full year was Rs 21.43 Cr versus a loss of 78.45 Cr in FY 10. The NIM for the whole year stood at 3.13% against the expectation of 2.8%. The bank was in a distress position two years back and has fully turnaround from that situation showing a balance sheet growth of 20%.

Last night, Company reported its Q2 FY 12 results and it has proved to be another feather in the cap. The Net interest margin (NIM) stood at 3.41% for Q2 FY 2012 against 3.14% for Q2 FY 2011. The deposits increased 14% to Rs. 6,261.50 Crore while advances grew by 12% to Rs. 4,314.7 Crore in Q2 September 2011 over Q2 September 2010. Net advances grew 12% to Rs. 4,314.7 Crore as on 30 September 2011 from Rs.3,839.9 Crore as on 30 September 201.

DCB has shown a sign of improvement and seeing its expansion plan especially in Retail mortgages, SME and Micro-SME, the bank could easily been considered as a dark horse amongst the roaring bulls. The company is currently trading at P/E of 3x FY 11 earnings and 2.5x FY 12 E which is really cheap compared to banks like City Union or Dhanlakshmi. Another thing makes this bank an attractive proposition for an investment is because lot of large cap banks has shown an active interest in acquiring majority stake in the bank which could be beneficial in expanding its network

Dated: October 13th 2011