Recommendation from Banking Sector

This section gives a recommendation of a stock having stock price below Rs 150 with sound fundamentals and expected to give handsome returns over a one-year time horizon.

DCB Bank Limited : RETAIL FOCUSED GROWTH AT DEEP VALUE

HERE IS WHY
✓ Strategic shift from corporate to retail & SME.
✓ Retail loan mix driving margins and credit quality.
✓ Digitally driven productivity boost.

I ndia's banking sector continues to demonstrate strong momentum, supported by sustained economic growth, rising incomes, and rapid digitisation. With increasing adoption of digital payments, enhanced infrastructure spending, and ongoing policy reforms, the banking ecosystem is positioned for long-term expansion. One of the private sector banks benefitting from sustained economic growth and rapid digitisation is DCB Bank, which has steadily evolved its operations and footprint over the years.

Founded in 1995, DCB Bank transitioned from a cooperative bank to a private sector bank and now operates 442 branches across 20 states and 2 union territories. The branch network is well-diversified, with 29 per cent in metro areas and 28 per cent in urban centres. The bank has strategically focused on expanding granular retail lending, which forms 65 per cent of its total loan book (excluding agri loans), leveraging productivity at the branch level and integrating digital solutions for operational efficiency and growth.

DCB Bank is witnessing a strong rebound in loan growth over the past two years after reporting tepid trends over FY20-22, driven by a strategic shift towards granular retail and SME lending. The bank has successfully reoriented its loan portfolio, with retail loans now forming a substantial 65 per cent of the book (ex-agri). These loans typically carry higher interest rates and lower credit risk than corporate loans, thereby supporting stronger net interest margins. Business per branch has improved through network optimisation and digital transformation, boosting productivity and lowering cost ratios. The bank's strategy emphasises profitable growth by increasing exposure to retail and business loans, backed by robust credit underwriting. It is also effectively leveraging digital channels for customer acquisition and servicing, improving turnaround times and customer satisfaction. Operational efficiencies, a growing retail mix, and healthy margins position DCB for sustainable balance sheet expansion. With favourable macroeconomic tailwinds and controlled credit costs, the bank is poised to deliver consistent earnings and return metrics going forward.

In Q3 FY25, DCB Bank reported a 29.6 per cent YoY increase in standalone net profit to ₹151 crore, compared to ₹127 crore in the corresponding quarter last year. Net Interest Income (NII) rose 15 per cent YoY to ₹543 crore from ₹474 crore. Asset quality improved, with Gross NPA reducing to 3.11 per cent from 3.29 per cent QoQ and Net NPA declining to 1.18 per cent. Advances grew by 23 per cent YoY, and deposits increased by 20 per cent YoY. The Provision Coverage Ratio (PCR) stood strong at 74.76 per cent, and excluding gold loan NPAs, it was 75.56 per cent. The bank maintained a robust Capital Adequacy Ratio (CAR) at 16.29 per cent, supporting continued balance sheet growth.

DCB Bank's stock trades at a Price to Book (P/B) ratio of 0.69x, significantly below the industry average of 1.14x and well under its 10-year median of 1.3x, presenting a compelling valuation opportunity. Over the past three years, the bank has delivered a CAGR of 11.5 per cent in total income and 16.8 per cent in profits. Return ratios remained healthy in Q3 FY25 with an ROE of 11.98 per cent and ROA of 0.86 per cent. Given its attractive valuation, improving fundamentals, and strong growth levers, we recommend a BUY on DCB Bank.