DCB Bank earnings outlook supported by funding-cost relief and asset-quality gains

Investment View and Valuation

Motilal Oswal Financial Services Limited’s July 24, 2026 results update on DCB Bank considers the bank’s 1QFY27 performance to be in line with expectations and reiterates a Buy recommendation. The broker views the business outlook as steady, supported by healthy loan and deposit growth, expected moderation in funding costs, an improving asset mix and better asset quality.

Motilal Oswal retains a target price of Rs 235, valuing DCB Bank at 0.9 times FY28E adjusted book value.

1QFY27 Financial Performance

DCB Bank reported profit after tax of Rs 213 crore in 1QFY27, up 36 per cent year on year and 4 per cent quarter on quarter, broadly in line with Motilal Oswal’s expectation. Lower provisions offset weaker other income.

Loan and Deposit Trends

Advances increased 17.1 per cent year on year but were broadly flat sequentially, led by the gold-loan book. Deposits rose 20.1 per cent year on year and 2.6 per cent quarter on quarter.

CASA deposit growth was relatively slow at 11.5 per cent year on year and declined 0.7 per cent sequentially. As a result, the CASA ratio fell to 21.7 per cent from 22.4 per cent in 4QFY26. The credit-deposit ratio declined 220 basis points sequentially to 80.5 per cent.

• Mortgage growth slowed to 9.9 per cent year on year.
• Co-lending advances declined 10.6 per cent sequentially.
• Gold-loan growth remained the key driver of advances.

The slower mortgage and co-lending trends, lower treasury income and margin contraction were the key near-term weaker observations in the report.

Asset Quality Improvement

Asset quality improved in 1QFY27. Gross and net NPA ratios declined sequentially to 2.43 per cent and 0.84 per cent, respectively, while the provision coverage ratio improved to about 66 per cent.

Management said non-gold portfolio slippages remain healthy. Gold-loan slippages are considered operationally manageable because the portfolio is fully secured. Gold-loan underwriting remains conservative, with a maximum loan-to-value ratio of 75 per cent.

• Management targets gross NPA below 2.5 per cent and net NPA below 1 per cent.
• The bank has built a floating provision buffer of around Rs 210 crore.

Funding Costs, Margins and Business Strategy

Management expects deposit-repricing benefits to continue until late 2QFY27 or early 3QFY27. Lower funding costs and liability optimisation are expected to drive margin expansion. The bank is prioritising liability quality and pricing discipline rather than pursuing high-cost deposits.

Management expects lending yields to improve over the next three quarters as mortgages, loan against property and agriculture lending contribute more and the gold-loan share normalises. Gold loans are expected to stabilise at 20-22 per cent of advances, while co-lending exposure is expected to remain at 12.5-15 per cent.

DCB Bank has discontinued the Direct Assignment mortgage model and is shifting to organic, branch-led sourcing. It plans to add around 20 new branches in FY27 and aims to keep cost-to-assets below 2.5 per cent despite manpower and branch investments.

Profitability Outlook and Broker Estimates

Management reiterated its target of return on equity above 13.5 per cent in FY27, with an aspiration for 14.5 per cent in FY28, and return on assets of around 1 per cent.

Motilal Oswal largely retained its forecasts, while trimming FY27E net interest income by 2.3 per cent to Rs 2,950 crore and FY27E profit after tax by 0.6 per cent to Rs 990 crore.

Capital Position

The bank has approval to raise Rs 2,000 crore of capital for future growth if needed, although management sees no immediate fund-raising requirement.