DCB Bank share price plunges 20 pct on fear expansion will hurt earnings; CEO says faster branch expansion to ward off new rivals
A plan that will see Indian lender DCB Bank double its branches to 300 in a year is aimed at tackling increased competition and will not dent profits indefinitely, the bank said, brushing off investor jitters that sent shares tumbling on Wednesday.
Shares in DCB, one of India’s smaller private sector banks, fell by their maximum daily limit of 20 percent on Wednesday, a day after the lender said it planned to add more than 150 branches to its network within a year.
Its earlier plan had been to open up to 30 branches a year.
“Competition is going to become stronger because of the 23 bank licences that have come up,” DCB Chief Executive Murali Natrajan said in an interview.
“We have to increase our pace and (get) slightly ahead of the game before full-fledged competition comes in.”
India is set to add nearly two dozen new banks in the next year or so, as the central bank hands out new permits. Two new full-service banks have started operations this year after what was the first licensing process in a decade.
Natrajan said the branch expansion would likely hit the bank’s earnings for the next 18 to 24 months, at worst.
“We probably might even do better,” he said.
DCB, which wants to double the size of its balance sheet in about three years, is focused on lending to individuals and small companies and plans to keep to smaller loans of 30 million rupees ($462,000) or less, Natrajan said.
Loans to big companies currently account for just over a fifth of its book, while retail, small-and-medium enterprises and agriculture dominate.
DCB does not see any major challenges to its asset quality at this moment, Natrajan said.
“Everybody has their view,” he said, when asked investor concerns and the stock plunge on Wednesday.
“We have a proven business model. And competition is likely to heat up,” Natrajan said. “So, we have to seize the opportunity.”
($1 = 64.8738 Indian rupees)