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Edited Transcript of DCBBANK.NSE earnings conference call or presentation 16-Jul-19 1:00pm GMT

Q1 2020 DCB Bank Ltd Earnings Call

Mumbai Jul 18, 2019 (Thomson StreetEvents) -- Edited Transcript of DCB Bank Ltd earnings conference call or presentation Tuesday, July 16, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Bharat Laxmidas Sampat

DCB Bank Limited - President & CFO

* Murali M. Natrajan

DCB Bank Limited - MD, CEO & Non-Independent Executive Director

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Conference Call Participants

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* Abhishek Mody

Asit C. Mehta Investment Interrmediates Ltd., Research Division - Research Analyst

* Ankit Choudhary

Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst

* Anuj Gupta;Perfect Research

* Darpin Shah

HDFC Securities Limited, Research Division - Equity Analyst

* Dhaval Gada

DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials

* Jai Mundhra

Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst

* Renish Bhuva

ICICI Securities Limited, Research Division - Assistant VP

* Rohan Mandora

Equirus Securities Private Limited, Research Division - Analyst

* Sameer Bhise

JM Financial Institutional Securities Limited, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and a very warm welcome to the DCB Bank Limited Q1 FY '20 Earnings Conference Call.

Joining us today on the call are Mr. Murali M. Natrajan, MD and CEO of DCB Bank Limited; and Mr. Bharat Sampat, CFO of DCB Bank Limited. (Operator Instructions) Please note that this conference is being recorded.

I'm now glad to hand the conference over to Mr. Murali M. Natrajan. Thank you and over to you, sir.

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [2]

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Thank you. Good evening all of you. I have my team here with me in this conference call. My apologies for starting this call late evening. So I hope all of you have got the investor presentation and the press releases that we have put on the website and on BSE, NSE.

So we are ready to take the first question.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Anuj Gupta from Perfect Research.

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Anuj Gupta;Perfect Research, [2]

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Sir, I've got 3 questions, I'll club them together. First is, what's the current ALM mismatch for the bank? And what steps are we taking to bridge the gap?

Question number two, what are the strategies or key triggers that will allow the company to meet the target to reach ROA of around 1.2%, cost to income below 50% and ROE of around 14% and improve the CASA ratio?

So and the third question is like, what are the plans to improve the CASA ratio and what are the steps are you taking to improve the fees income on the P&L side? So like what are the targets for the fees income? These are the three questions.

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Bharat Laxmidas Sampat, DCB Bank Limited - President & CFO [3]

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Yes. So we have had some unusual challenges in the first quarter on the fee income. One of the primary challenges we've had is that there are certain regulations that needed to be followed as far as ATMs are concerned. And we have followed all the time lines. And as of 31st March, one of our ATMs, the vendor was not able to make it compliant with the current regulation. We've had to switch it off. Still, the compliance is completed by the vendor. There was enormous amount of delays in terms of the vendor completing the work in terms of compliance. So we, therefore, lost round about INR 3 crores of -- I estimate about INR 3 crores of revenue on ATM fees, which would have otherwise been -- otherwise have been very steady and consistent over the last many, many quarters. So that was one unusual item.

Now your question regarding ALM mismatch. The ALM mismatch has always been in line with the approved limits as prescribed by both regulation and our own internal Risk Management Committee. So I don't recall a single instance where we have had any mismatch over and above what has been approved as the various limits for various buckets.

Having said that, periodically, we look at our dedicated Mortgage portfolio, which is a long-term portfolio, and then we look at what is the long-term deposits that we need to take to reduce the gap, if any, in the greater than 3 year, greater than 5 year kind of a bucket, and then change our strategies in terms of deposit taking. Like, for example, we may like to price slightly higher -- pricing this one higher in a 3-year bucket so that we attract more customers in that bucket. That is how we have been managing our ALM process for the last several years.

Regarding return on asset and cost/income ratio, ROE, our plans are exactly how it is. Sometimes you -- maybe the expectation is that quarter-on-quarter, it will be exactly follow a particular pattern. That is not how business works. For example, first quarter, the cost increases dramatically because of the salary increase that we have to give, and the loan growth is not usually very good in the first quarter.

Over and above that, based on our own risk appetite, we, on our own, exited many of the large ticket, and large ticket means I'm talking about greater than INR 5 crore type of loans because we were not very happy with the kind of risk situation that we were looking at. So through either pricing method or therefore by asking additional collaterals, some of the loans we exited. So therefore, the loan growth was slightly less than our expectation in the first quarter.

Over a period of time, you can see our cost growth. Cost growth has been about 6% or 7%. It's been low single digit. We are very confident about controlling the cost and improving the cost of equity. So one of the major improvements we see would be the cost-to-average assets, which is consistently coming down. Over a period of next 2 to 3 years, we expect that to come down to 220 or 215 basis points. That is the aim. We are working towards that. That would be a major contributor to improving in the ROA.

And as far as NIM is concerned, barring any quarter-to-quarter issues, we think that the retail, we should be at about 370, 375 basis point NIM. This quarter has been a bit the thing because we have focused a lot on getting Retail Term Deposits. If you look at our term deposit growth on customer, it is 31%. And if you look at our drop in interbank, what is classified as interbank deposit, which is largely from cooperative banks and so on, it has dropped by almost 2%. Top 20 depositors have come down to 10%. Interbank deposits have dropped from 15% to 13%, you see there.

So I hope that answered your questions.

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Anuj Gupta;Perfect Research, [4]

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Sir, would you speak something about the CASA ratio?

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Bharat Laxmidas Sampat, DCB Bank Limited - President & CFO [5]

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CASA ratio is -- target is 25%, and branches have been given CASA ratio targets. Some of the branches are doing spectacularly well on CASA ratio. Mind you, about 20% of our branches are in rural areas. So therefore, their CASA ratio is not easy at all. However, we try to compensate that in the metro and urban areas. So the internal target, this will be slightly higher, but I think around 24%, 25% is where I think we'll probably end up CASA ratio. And mind you, with barely 4% interest rate up to INR 1 crore. So we are now pricing the -- our CASA is not -- is a low-rate CASA will be that 4%.

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Operator [6]

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The next question is from the line of Dhaval Gada from DSP Mutual Fund.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [7]

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So just a couple of questions. Just wanted to hear your thoughts on the slippage movement that we saw during the quarter and some color around that.

And the second was on -- you explained one of the levers why margin sort of trended lower. I just wanted to understand on the repricing side on the assets, where are we and what's your thought around that. Yes.

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [8]

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So margin, there is some moving parts in the margin. There is plenty of refinance long term we had taken from NHB, FSB, et cetera. They got, I believe, repriced somewhere in September last year. Since then, interest rates have started coming down. At that point in time, it looked like the right thing to do because interest rates were actually going up. For the last 3, 4 months, interest rates were coming down. So only next September, that is, coming September, we are likely to see some relief on the refinance repricing based on our terms with these refinancings.

Refinance is very good. It helps our LCR. It helps our liquidity profile. It helps to improve our ALM profile. So I would say that is a good thing to do, and it is available long term, okay? And it does not have any CRR, SLR requirement on those refinance. So that is one that is going on there.

The other thing is that the term deposits that are maturing are getting repriced in a particular way. So therefore, I would say that it may take about 1 to 2 quarters for margin kind of to stabilize, maybe sooner, but it does look like from our expectation that the margins may come under some more pressure in the next couple of quarters.

But overall, I think we should be all right because if you look at our yield, we have done a reasonably good job on the yield front. We have maintained good quality mix of products between Commercial Vehicle, Mortgages and Agri & Inclusive Banking. So therefore, that is helping us maintain the yield in a reasonably good fashion.

Regarding slippages, in quarter 1, we have had some about -- I estimate about INR 35 crores to INR 40 crores extra slippages than our expectation primarily on account of 5 accounts, which were average but they were not able to provide us with a proper repayment and therefore, they slipped into NPA. From my review, it seems that at least 2 of those accounts are likely to come back in the -- this quarter or the next quarter because we are seeing some action on that. So other than that, I don't see any major issues with our portfolio.

As usual, we always have some 2, 3 accounts challenges in corporate. They are good right now. But under the current situation, it may become NPA later. I don't know. But this is what we have always felt at any point in time.

Over and above that, we are very watchful of the Commercial Vehicle portfolio, especially the new vehicles where we see some pressure. Used vehicle seems to be doing all right.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [9]

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Sir, just on asset quality, just to make it clear. So this account you mentioned, a couple of them is coming, but just in general, given where we are on demand side within the economy, what is your sense on sort of a delinquency? Have you seen a rise in early bucket delinquency, then you're putting a lot of effort on collections? Perhaps some color around the health of the MSME, MSMEs that we work with. And sort of how do you expect asset quality to pan out?

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [10]

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The first set of head count increases that we gave as we were ending the last year was to our collections team because we want to be -- we want to make sure that there is enough intensity in our collections team to be prepared for any eventuality of any differential in the market conditions.

So looking at it currently, I don't think we are short on collections, hands-on collections, as far as the bank is concerned. Our analytics team also is doing a very good job on giving us proper pointers on what kind of credit quality you have to -- decision we have to take and what kind of focus needs to be there on early bucket or earlier bucket, whatever may be the situation. So we don't see any gap in that area.

Having said that, there is some amount of stress we can feel in the environment. I can't put a finger and say exactly where, but the general sense we get is that there is some level of stress. So

(technical difficulty)

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Operator [11]

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Hello, sir? Let me turn it to Mr. Natrajan.

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [12]

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I hope I was able to answer your questions.

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [13]

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Sir, actually, your audio broke while you were answering.

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [14]

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At what point?

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Dhaval Gada, DSP Investment Managers Pvt. Ltd. - Assistant VP of Investments & Equity Analyst for Financials [15]

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Let's say at 20 seconds.

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [16]

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So I was talking about our portfolio and intensity of collection. What I mentioned is that we are spending extra amount of time to make sure that the portfolio health is taken care of. We are trying to use our analytics team and our collections team to make sure that we are able to identify problems earlier. At the moment, I don't -- I can't put a finger and say, is there any major portfolio issue that is developing? I don't think so. New Commercial Vehicle portfolio is showing some stress, but not that -- it is not out of the ordinary there's some stress because of the market environment. And we are confident that over time, we will be able to correct that situation.

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Operator [17]

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The next question is from the line of [Sai Kiran] from Investec.

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Unidentified Analyst, [18]

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This is [Sai Kiran]. Sir, just quickly on the

(technical difficulty)

on which you had announced at least, can you give us some sort of

(technical difficulty)

on that?

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [19]

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[Sai], I'm losing you. Would you like to repeat your question because the audio got disturbed?

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Unidentified Analyst, [20]

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No, no. I'm just saying, sir, you had issued a press release about the potential acquisition or you made an offer to Abu Dhabi Commercial Bank for -- can you just explain the further details, if any?

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [21]

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So I would just very simply state that whatever has been mentioned in the press release is what we have to say at the moment. It's a simple transaction to our mind. We are taking select assets and liabilities of these 2 branches that are there of ADCB. That is our proposal. We have 60 days to execute definitive agreements. And we also mentioned that this transaction is at par.

And the portfolio -- loan portfolio is predominantly corporate. The deposit portfolio, what we are choosing, is predominantly retail and NR, which fits in with our -- and seems like very high-quality customer that fits in with our strategy of getting retail deposits.

It's a very small transaction according to us. And we hope to complete it in the time line that has been given to us.

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Unidentified Analyst, [22]

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Got it. And the second question, sir, when I look at the -- of what I can say NPA breakup by segment, I can see that AIB and then CV are the places where we have seen absolute increase in the slippages. So while answering one of the earlier questions, you mentioned that the challenge was in select accounts. How should one read it? Because I assume that AIB and NCLT portfolio should be the retail-oriented one, but is it retail or -- but you were -- one of your earlier questions, you said that it is select 10 accounts -- sorry, 4 accounts where you have seen the problem?

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [23]

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So the (inaudible) account, and you see others category, it has gone from 17 to 21. So there, we have had an account where there is a fight amongst the partners on who will complete that particular residential project. And while the project is going on well and it is in good shape, all of a sudden, these partners decided to kind of not cooperate with each other. So we are working with them to correct the situation. So that could not be achieved in the last quarter. We are hoping that in the next 2 quarters. So that was the -- that must be at least INR 7 crore or some kind of a -- the thing.

In AIB, there is a group of customers who have taken a loan for agri purposes, so there is a -- before, because they have not been able to service the entire interest portion. So therefore, that was the thing.

And then in SME, we had 1 account or 2 accounts, in fact, which was fairly large, which went into -- when I say large, it means by our reckoning, about INR 3 crores or something. So we had that NPA. That is how this happened. Mortgages was fairly in control, and we do see some better recoveries -- expect some better recoveries in the next 2 to 3 quarters.

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Operator [24]

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Next question is from the line of Ankit Choudhary from B&K Securities.

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Ankit Choudhary, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [25]

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My first question is regarding last quarter, you had mentioned there was 1 corporate account that slipped to NPA. And given the time lines, that could be of a flow recurring in the next 2 quarters. So what are the progress over there, sir?

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [26]

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The NCLT, that -- the thing has brought an honor. And it seems to have been accepted by the -- all CoC, which is the Committee of Creditors. Now money is expected. But in India, there's a lot of possible delays that can happen. We are very hopeful.

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Ankit Choudhary, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [27]

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Okay. And if you can quantify what is the exposure you have over there.

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [28]

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It is a small exposure. I mean it is not like large exposure. It must be about INR 7 crores, INR 8 crores or something.

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Ankit Choudhary, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [29]

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Okay. And secondly, sir, in your asset quality, segment-wise, the corporate, the NPS have declined. So is this a...

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [30]

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Okay. Because from time to time, we take fully provided accounts -- technical write-offs, so that is what we've got. Amongst all these accounts, the most difficult part of recovery is always in corporate. It takes a long amount of time. Rest of the account, even if the account is not upgraded, I can tell you there are hundreds of accounts where every month, we are collecting some money from the customer irrespective of the fact that it is not getting upgraded. So we are in -- we are, what you call it -- we are in -- yes, we are building the equity of the customer in the loan, making him pay something. In corporate, that is not right. So what it is, it takes a huge amount of time to recover. So the write-offs that you see in the gross NPM movement, both are, I think, 2 or 3. I don't know what are the -- they're in our corporate accounts.

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Ankit Choudhary, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [31]

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Understood. And lastly, sir, 2 questions are mainly on the guidance only. First, being the loan part. So last 2 quarters, the loan growth has been lower and that is mainly because of the slowing down on the corporates or that the book has been trending down.

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [32]

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Yes.

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Ankit Choudhary, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [33]

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Okay. So are you hopeful of -- so -- when can we see the growth coming up so that we can be able to fulfill the guidance of 3 to 3.5 years of doubling the loan book?

And second one on the...

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [34]

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Actually, on corporate, we have grown by 19%. We never give guidance on a year-on-year basis, okay? Because we don't know what kind of economic conditions, what we'll get from the environment to kind of run faster. So other than corporate, we have grown by 19%. We are pretty confident still that 3, 3.5 years -- I'm hoping that 3.5 years becomes 3 years and 9 months. I'm not going to lose any sleep over it because we are keeping on doing the right thing, going about the correct strategy. We are not trying to bulk up with big ticket and so on. As far as corporate is concerned, we are trying to make sure that we take as less risk as possible matching our liquidity situation. And that's how we've been -- so I mean I can't give you any guidance on where the corporate book would be in any time. So it's a very opportunistic business we are running.

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Ankit Choudhary, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [35]

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Okay. Sir, so basically, just wanted to understand, sir, when can we see the overall growth coming around 18%, 19%? And then, will be the retail...

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [36]

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I -- we are -- I've not made any commitments to you or anybody on overall growth, 18%, 19%. I'm just saying that corporate is not part of our core strategy. So we always only look at the rest of the other and corporate.

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Ankit Choudhary, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [37]

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Okay. And then lastly -- yes.

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [38]

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Given the current market conditions, given the kind of risk appetite with which we are running, we are pretty happy with 19% on that.

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Ankit Choudhary, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [39]

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Okay. And lastly on the NIM, sir. Basically, the standard NIMs have gone down to less than 3%. But I mean in one of the press releases, you had mentioned that next 2 quarters also, there could be some pressure on NIMs. So are you hopeful of exiting the year at around 3.7%, 3.75%?

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [40]

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As study said, we think that it'll be about 3.7%, 3.75%. Currently, there are some moving parts in terms of the refinance and the repricing of the term deposits. Our estimate, however, that it'll all settle down in about 1 to 2 quarters, and we are still hopeful of these kind of NIMs.

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Operator [41]

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The next question is from the line of Darpin Shah from HDFC Securities.

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Darpin Shah, HDFC Securities Limited, Research Division - Equity Analyst [42]

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Sir, just to know again, on the growth front, when we thought NBFCs will be much slower and many of the banks are also slower. So we could have grown faster in our -- on the core movement of the [NAB] portfolio. So what stopped us from being aggressive here?

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [43]

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I think the current market condition does not see. And we have seen they have exited or whatever, that will -- it certainly may have caused some issues in the state at which we are finding out as well. So as far as I'm concerned, when we look at our risk appetite, we feel that even though NBFC are not that, we want to operate in a particular set of segments, which may or may not have been attacked by NBFC. What I can see is that despite the fact there are some challenges along, we have been able to maintain a decent level of ease. That should give you some indication that there is some benefit of NBFCs not being there in the picture.

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Darpin Shah, HDFC Securities Limited, Research Division - Equity Analyst [44]

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But do we expect in the next couple of quarters we'll see a much higher growth because of lower competition and lower takeover of loans?

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [45]

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It is -- there is some moment of where a lowering has happened on takeover of loan. But I can tell you, Darpin, that we will be very cautious even in the next 2 quarters, and we would be very careful in terms of how we proceed and how we grow. Of course, we are adding more people to sell in Mortgages and other products. But our -- we will have to see one more quarter to see whether we need to increase the speed because of the current situation that we see the market to be in.

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Darpin Shah, HDFC Securities Limited, Research Division - Equity Analyst [46]

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Okay. And one thing is our restructured book has grown of around INR 16, INR 17 on quarter-on-quarter basis.

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [47]

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Yes. So I think Bharat can answer. There are some regulatory guidance on that which he would like -- yes, Bharat?

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Bharat Laxmidas Sampat, DCB Bank Limited - President & CFO [48]

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When I mentioned the account on the regulatory guideline here, restructure is around INR 16 crores, INR 17 crores.

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [49]

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Yes. So the -- some of the MSMEs are taking shares there. And as an example, there is not -- it is not something that a bank have an option when it is demanded by the SME, right? So that's -- so that is -- I think there are 2 accounts, Bharat, right? Not 1 account, 2 -- 1 account, is it?

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Bharat Laxmidas Sampat, DCB Bank Limited - President & CFO [50]

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Yes.

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [51]

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Okay.

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Darpin Shah, HDFC Securities Limited, Research Division - Equity Analyst [52]

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Okay. Fair enough.

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [53]

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The account is -- I mean it's average, but it's not in any -- I mean they are still finalizing and they are going about their business.

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Operator [54]

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Next question is from the line of Renish Bhuva from ICICI Securities.

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [55]

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Sir, a couple of questions. One is on the RWA growth, which is at 5%, what seems to be manageable though for right now for the same. What explains the higher RWA growth in this quarter?

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [56]

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Very simple. In the first quarter, the operational risk, 15%, kicks in. So you will see that in the last year first quarter as well. So in the first quarter itself, you had to provide for the average of the last 3 years income and 15% of that. So that is what is the calculation for the risk-weighted asset growth.

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [57]

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Okay, okay. And that's the only reason why the RWA growth is...

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [58]

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Yes. Absolutely. Yes.

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [59]

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Okay. And then secondly, again, just setting up on the asset quality piece. So basically, is there -- due to the overall economic slowdown, we are slowing down growth as well as we are seeing the highest I think among the portfolios. And how are we going to prepare ourselves to navigate this sector successfully? I mean in terms of process CVs or anything which you have in your strategy piece?

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [60]

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Yes. So number one is that we are -- as we speak, we have intensified collections. Not that we are seeing any systemic portfolio issue except in Commercial Vehicles. As far as corporate is concerned, once in a while, something blows up that you can't be prepared. I mean you can keep working on it, but there's no collection capacity or something that we can put in place for those kind of problems. The rest of it is all portfolio-related, whether you talk about AIB or Commercial Vehicle or Mortgages or whatever.

So there, we have already done that. We have kind of looked at various cuts of our portfolio to see whether there are any segments that need special attention or to be avoided or what needs to be done. So our preparation is to intensify our collection as well as recovery efforts and provide right level of capacity for collections so that you are never short of capacity there to address any problem that may arise. That's how we are preparing ourselves.

The second point I would like to see is that we are looking at even the through-the-door population of loans coming in to see whether there are any segments that needs to be avoided. I think there is a popular belief that because NBFCs have gone, then -- which means that banks should go crazy to do that. I don't entirely -- I may have agreed with that maybe in September, but current market situation doesn't tell me that that's necessarily. All bad loans are made in good times is what I learned a long time ago. So I would say that these are not good times either. At least that is not how it looks to us. So we have to be very careful in terms of how we do that. So we are looking at even the through-the-door population carefully. So that's how we plan to navigate this situation.

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [61]

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Okay. Right, sir. And when we initiated this process, I mean, let's say 3 months back, 6 months back?

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [62]

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January.

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [63]

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January. Okay, okay. And sir, last question, if I may ask, is that -- this is about that acquisition we are proposed. So basically, what sort of ROE these branches are making today? I mean this is ROE-accretive business which we are buying or it's at par with the -- what bank is generating as of now?

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [64]

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So I don't think I can comment on that too much. But I'll tell you, if there are 2 branches, I don't know of any 2 branches running the full-fledged technology, full-fledged compliance, full-fledged operational risk, full-fledged CRO can hope to be that profitable, I mean, like from an ROE perspective. They will be profitable, I guess. But we are only taking select part of their business, okay? We are not taking their -- so for customers' convenience, we -- say, for example, we take the branches, that doesn't mean that we have to take over the entire cost. So more details will follow. What I'm trying to say is it that we wouldn't even attempt to take something that is not -- that is likely to negatively impact our ROE.

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [65]

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Yes. So basically, why I am asking is because in your initial remark, you have already mentioned that we are not very keen to getting into corporate banking and the advance portfolio, with these 2 branches, I think, is entirely corporate banking.

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [66]

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Yes. So my justification for that is very simple. You have INR 1,000-odd crores of retail and NRI deposits and quite a lot of good quality customers, at least our preliminary examination says that. When you look at their corporate portfolio, most of them at least looks to us as short tenure and high quality. Okay? So therefore, we believe that we can manage the exposure and over time, use this opportunity to build a deposit base.

And when we -- preliminary examination shows that their branches are very well located, both in Bangalore and Bombay, and we are quite happy with that. So we'll know in the next 50 days. And again, we are -- we have to do a full due diligence before we...

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [67]

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Right, right that part is pretty clear.

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [68]

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Yes. So therefore, it may just turn round to be INR 900 crores, it may turn out to be INR 700 crores, I don't know where it will end up on this particular thing.

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [69]

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And what will be the price we're going to pay, I mean, the basis on which we will pay? I'm not asking the valuation. I'm just asking...

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [70]

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Par. It's -- I think we have already said it, it's par, right? It's there in the -- in our -- this thing.

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [71]

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Okay. It's there in the press release.

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [72]

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Yes, it is there in the press release. As Bharat can read out.

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Bharat Laxmidas Sampat, DCB Bank Limited - President & CFO [73]

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Last para says acquisition of these deposits and advances will be at par value of balance sheet in the underlying account at the actual date of transfer thereof to DCB Bank.

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [74]

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So for example, let us say the transfer happens on July 31, whatever is the balance, we'll pay that balance.

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [75]

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Right, right. No, but what about the infrastructure payout and everything? I mean...

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [76]

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So you are talking about -- I mean,I'm just -- again, the details will have to be -- I'm just giving you what could be our thinking on this, is that what is normally the infrastructure of a branch, maybe INR 50 lakhs, INR 60 lakhs kind of equipment, I don't know. We are not taking the premises there, right? So I mean our branches will cost normally, what, INR 50 lakhs, INR 60 lakhs to refurbish. So I mean that is the kind of numbers. So it is not even I think a factor in our...

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [77]

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Got it. Got it. Basically, we'll decide prices as like thinking what we will spend on the other branch. It will be like that thinking...

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [78]

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Exactly. I mean like why would we think anything other than that?

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Renish Bhuva, ICICI Securities Limited, Research Division - Assistant VP [79]

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Yes. Just wanted to reclarify that.

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Operator [80]

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The next question is from the line of Abhishek Mody from Asit C. Mehta.

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Abhishek Mody, Asit C. Mehta Investment Interrmediates Ltd., Research Division - Research Analyst [81]

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Sir, first question is since you're talking at low growth in terms of advances and deposits, would you be increasing the branches? Is there any plans to increase the number of these so that we'll have more area coverage?

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [82]

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What your guys are missing out, which I think now I'm wanting to point out, is that item number J, not -- yes, item number J of our press release says that deposits grew by 15%. Our customer term deposits grew by 31%, and we are talking about retail growth here. And customer deposits grew by 26%. We need branches to grow customer deposits. And the more granular our deposits, the more stronger the franchise and this is -- everyone knows that.

So we would continue to have 15 to 17 branches every year, at least for the next -- this year and next year, then we'll take a call on what speed we need to increase our branches. The primary responsibility of most of the branches except the unbanked branches is to generate deposits, both CASA and retail term, and that is already reflected in their scorecard.

What we are trying to do is to get more and more and more small, small retail term deposits because we believe that, that would enormously strengthen our franchise. And so far in the last few -- 3, 4 months that we have been at it, we seem to be fairly successful.

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Abhishek Mody, Asit C. Mehta Investment Interrmediates Ltd., Research Division - Research Analyst [83]

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Okay. One more thing that in the -- one of the questions, you told 4% of interest you pay up to INR 1 crore. Just wanted to have an idea. So you are not taking bulk -- no, no. As per your definition, bulk was revised to INR 2 crores. So just wanted to have an idea, the INR 4 crores up to INR 1 crore, you're telling you're giving at a savings rate, if I'm right.

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [84]

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Savings rate, we pay 4% up to INR 1 crore. Greater than INR 1 crore, I think we pay 6.25% and greater than INR 5 crore, we pay 6.5%. There is a separate monitoring of total bulk deposit. So we're very careful about what will be the bulk because we don't want to have to -- because this bulk savings account has very erratic listing in terms of stability of balance.

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Abhishek Mody, Asit C. Mehta Investment Interrmediates Ltd., Research Division - Research Analyst [85]

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Okay. Sir, just one final thing. The Commercial Vehicle portfolio told you -- in terms of new vehicles, you don't see good growth. You expect the improvement in economy to have a better growth. You told the old vehicles were doing good -- old and used vehicles. The new vehicles are having some downturn issues, so just wanted a clarity on that side.

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [86]

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Yes. I think used and old vehicles, our business is fairly interlinked. So that is there. But one advantage is there in used car -- used vehicles, sorry, is that we give you -- we give a loan based on the valuation of the stock. So the LTVs, as we start off, is quite okay, right? Whereas in new vehicle what happens, if you say 80% of the vehicle, as it comes out of the showroom, it is already down by X percent in terms of value. So if the customer defaults within the next -- first 6 to 8 months, then the loss given default is high on new vehicles.

So we see some challenges in our portfolio on new vehicles because of delinquency of customer not able to completely pay their installment. Supposing the installment is INR 50,000, some of them are paying only INR 10,000, INR 20,000, obviously, it becomes NPA. We haven't seen that type of issues in used portfolio, which is smaller than our new portfolio, but having said that, if Commercial Vehicle as a segment does not do well in the coming months, it may have some impact in used vehicle as well.

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Operator [87]

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The next question is from the line of Rohan Mandora from Equirus.

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Rohan Mandora, Equirus Securities Private Limited, Research Division - Analyst [88]

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Sir, in say 3 to 4 quarters ago in a con call, you had indicated that one of the key risks that you saw was that once a loan was given by DCB, if some other financier gives another loan to that borrower, the accounts would go into [shared]. So like currently, how do you see that test because NBFC has slowed down?

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [89]

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No, no. NBFCs have slowed down, but there are NBFCs which are very, very active on unsecured lending. And there are some other entities, they are strong on secured lending. And we are -- we have reduced a bit, but such a situation still exists, some of the loans that we exited in SME this year -- I mean this quarter is also because we found that they are stretching themselves by taking unsecured loans elsewhere, which indicates more and more a craving for credit. So therefore, we exited. So it -- we have gained a little bit, but we still continue to monitor that kind of loans in our portfolio.

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Rohan Mandora, Equirus Securities Private Limited, Research Division - Analyst [90]

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Sure. And sir, like another thing was in terms of -- like we had a like reference that if an account crosses at INR 3 crores or INR 4 crores, we may be okay if they want to move out of this basically. So are we looking to relook at the point of their ticket size or maybe increase it to say INR 5 crores, INR 6 crores or we are comfortable at that?

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [91]

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For the next 12 months, I'm pretty confident that if at all I'll relook at it, I'll relook at it to see whether the INR 3 crores has to go INR 2.5 crores, if at all. This is not a market where you want to give higher loans. I mean in a very, very select basis, we will give it, but not on a portfolio basis. Our average ticket size in Mortgage and SME continues to be in the range of INR 35 lakhs, INR 40 lakhs, that type of thing.

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Rohan Mandora, Equirus Securities Private Limited, Research Division - Analyst [92]

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And lastly, you just mentioned a comment on the increase in NPAs for Agri business, [13%] jump. So was it mainly because of the Agri corporate businesses or was it more on the direct Agri side?

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [93]

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We don't have a problem in the BC business in Agri. We have some delinquencies in tractor, but that is how the market is. We have some delinquencies in commodity funding. We have some delinquencies in KCC. So across the portfolio here and there, there are issues. And that's the nature of that business. If you don't do that, we are not able to complete our Agri target and then you get -- you need to subscribe to low yield RIDF bonds to the extent of your shortfall. So that's the nature of that business.

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Rohan Mandora, Equirus Securities Private Limited, Research Division - Analyst [94]

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Sure, sir. So any views on the recoverability of these slippages?

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [95]

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I mean that's why I mentioned like even when the account is NPA, unlike corporates, we continue to have some recoveries flowing in, in many of the accounts because of the collection effort. They may not have upgraded the loan or paid in full, but they keep paying some part of their installment despite being NPA. That is how a lot of recoveries are done and then at one point, once you have got the customer into the loan fully settled, that is, by either selling a property or a plot or something like that. It's very hard collection. The AIB collections are very hard and intense collections. I mean I just heard -- I mean it's just an anecdote. I just heard that in one of the small locations in one of the states, some of the local people start interfering on repossession and sale and things like that. So you have to at the local level sort this out and get the customer to cooperate and pay. So it's a very different work out there. It's not like your metros and cities where the collections are slightly different. So...

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Operator [96]

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The next question is from the line of Parameswaran S from JM Financial.

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Sameer Bhise, JM Financial Institutional Securities Limited, Research Division - Research Analyst [97]

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This is Sameer here. So just wanted to understand what would have been the approximate cost for these long-term borrowings that you have tried to replace in this quarter?

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [98]

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Problem means?

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Sameer Bhise, JM Financial Institutional Securities Limited, Research Division - Research Analyst [99]

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The cost of borrowings of -- these long-term borrowings that you have replaced with TD?

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [100]

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No, no, no. That is not -- you misunderstood that. We have taken from time-to-time refinance from NHB, SIDBI and so on. They all come under particular contract. Some would be a 3-year contract, some would be a 5-year contract, depends on at that point in time what kind of funds were available with these entities. These refinance usually don't have CRR and SLR attached. So whatever you pay a coupon is what is your cost of fund on that, right? So it goes through a particular repricing mechanism.

When we took these refinance a few months ago, the interest rate was looking like it was going high. So that is how we took that refinance because it looked very good at that point in time. And there is a repricing mechanism because of which you are paying a higher rate. Now the interest rates have started coming down but they are not going to reprice it immediately. They will reprice it at the anniversary date, right? So hopefully, it will play out by September, October onwards. That's at least our -- our [MIS] teams will indicate that is how it would be.

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Sameer Bhise, JM Financial Institutional Securities Limited, Research Division - Research Analyst [101]

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Okay. But -- and on the incremental basis, you have tried to go by going higher on Retail Term Deposits.

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [102]

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On Retail Term Deposits, we have a campaign running and we have gained the scorecards for our branches. So the intention is to try and get as many retail deposits as possible, to provide even better liquidity profile than what we have currently. That's the intention. And you can see that at least in 2 data points that our top 20 has reduced to 10% and our interbank deposits in the pie chart you'll see has dropped by 2%.

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Sameer Bhise, JM Financial Institutional Securities Limited, Research Division - Research Analyst [103]

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In fact, even outstanding borrower -- borrowings number is slightly down Q-o-Q, which is why I thought that you probably would have tried to repay some of these high costs with...

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [104]

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You cannot repay that, look, in advance. You have to repay them as per schedule. So these are all scheduled repayments month-on-month.

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Bharat Laxmidas Sampat, DCB Bank Limited - President & CFO [105]

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If I may add, balance sheet quarter end to quarter end, customer deposits are up 26%, of which customer term deposits are up 31%, whereas intercorporate deposits in balance sheet are down 26% -- 27%. And what Murali mentioned, 15% to 13% is the drop in their share of the pie. But in absolute numbers, interbank deposits have come down by 27%.

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [106]

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And that's all deliberately we are doing that. I mean that is not by accident. It's all -- that's how we are trying to run the business.

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Operator [107]

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The next question is from the line of Jai Mundhra from B&K Securities.

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [108]

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So that would be the last question. Okay, go ahead.

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Jai Mundhra, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [109]

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A couple of questions, sir. First, on this acquisition. So is it correct to assume that either you will buy out the entire corporate portfolio or you will not take it? Or is there a mechanism wherein you can only select part of this 900 something...

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [110]

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I think our press release is fairly clear. Let me just read it because I just want to make sure that there is no misunderstanding on that. It says that...

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Jai Mundhra, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [111]

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I have that in front of me, sir.

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [112]

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Yes. It says here to acquire the business of identified customers of their 2 branches. Okay? So our intention is we have already had some idea about their portfolio. Our intention is to do due diligence and acquire certain portfolios of the customer and similarly, certain deposits. So for example, we can choose not to acquire a bulk deposit or a CD or whatever they may have. We may choose to not to do it. So we have the option. But for that, we have given certain indications on what would be the -- approximately what it would be, and we will complete the due diligence in the next X number of days and complete it. So we are under no this thing to take over the entire book.

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Bharat Laxmidas Sampat, DCB Bank Limited - President & CFO [113]

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In fact, their balance sheet is bigger than this. This list itself is based on -- if you see the press release, it's certain customer assets and liabilities. It is part of their balance sheet, subset of their balance sheet.

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Jai Mundhra, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [114]

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Sure. And secondly, sir, is there any relationship with this bank in any way with our promoter group? Just to understand.

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [115]

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I don't believe so. But if this goes on well, we hope that we have a long-term relationship with ADCB.

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Jai Mundhra, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [116]

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Sure. And second, sir, on the fee income, so I mean the trend so far, though this is a seasonal, I mean, it could be seasonal, but the core fee ex of Treasury has also been little bit lower. So any comments there?

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [117]

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I mean we lost some revenue on ATM because, for the right reason, we didn't want to operate the ATM if they are not compliant with the regulation. So there's so many banks are connecting their ATM compliance and vendors are stretched. Fortunately, the situation got fixed I think by end of May or -- sorry, end of June or something. So we hope that this quarter is not as difficult as the previous quarter.

We are continuing to put a lot of effort on all the granular fees, and I'm pretty hopeful that fee income will continue to build, especially because if you are going to acquire a lot of retail deposit, which is what we are doing, it does provide an opportunity for us to do a lot better job. This focus on Retail Term Deposit is definitely getting us a lot more customers through the door.

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Jai Mundhra, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [118]

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Sure. And sir, what is your usual -- I mean from now onwards what would be normalized branch addition fees if you can just...

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [119]

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There is nothing like -- I mean I wish there is anything normal in our country. So there is nothing like a normal something that I can tell you. But at the moment, the intention is to do 15, 17 branches for the next 2 years, this year and next year.

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Jai Mundhra, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [120]

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So 15 to 17 branches every year, right?

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [121]

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Yes. Yes. And we are confident that we will do that. And again, one other data point which may be of interest to you is that we are unlikely to go into any new geography. We probably -- other than unbanked, which is a different strategy altogether, we probably will deepen our presence in existing geographies.

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Jai Mundhra, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [122]

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Sure, sir. And how do you read this sir, emergence of -- there is a portal PSU or SME loan under 59. Any -- the teams who have made some headlines, but what is your assessment on your competitiveness out of this?

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [123]

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Is it secured or unsecured loans?

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Jai Mundhra, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [124]

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That shows everything. I mean this is collateral based, wherein some held property in their name, so they can get an approval. It would be secured, I believe.

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [125]

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So I believe we have a reasonably good understanding of SME segment. In a month, if 100 loans comes in, I think we probably reject about 30, 40 of those customers for various reasons. Usually, poor financials or poor -- in our assessment, not able to repay or in fact, sometimes they may not even have the property that can be properly mortgaged. Okay?

Now you can take a call based on your risk appetite to finance all those people because there is a business, they are running some business, there is a business. Their cash flow may be erratic or whatever, they may -- they have a business, right? So you may finance that for their expansion or so.

We have chosen certain parameters by which we do lending. And one of the things we don't do is that without meeting the customer, going to their site and checking out their business, I don't think the credit approves any loan, probably some very small loan maybe they approve, but not those loans at INR 30 lakhs, INR 40 lakhs.

So our experience is that SME segment is very good, very big, but equally risky, so one needs to have very detailed underwriting process. So we have other ways to ensure faster processing. For example, recently, we have introduced a software called FinFlex for SME lending, where, from start to end, the process has been simplified a lot. There are some automatic checks that are done of various portals to speed up the process. So you can call it digital or whatever. So all those things we are going to ease the pain of the customer, but we would not do a loan without meeting the customer and checking out their business.

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Jai Mundhra, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [126]

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Sure, sir. And last 2 data points, sir. What is the proportion of LAP in the Mortgage book and the provisioning breakup?

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [127]

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70%, 75% of our book, Mortgage book is LAP.

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Jai Mundhra, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [128]

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And the provisioning breakup for this quarter, sir, how much is loan loss and MTM was really (inaudible)?

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [129]

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Okay, Bharat will...

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Bharat Laxmidas Sampat, DCB Bank Limited - President & CFO [130]

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Floating provision is roughly INR 6 crores we have made. Standard asset provision is INR 2 crores we have made and balance is credit provision, which is roughly INR 33 crores.

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [131]

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And what is our total floating provision we have now, Bharat?

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Bharat Laxmidas Sampat, DCB Bank Limited - President & CFO [132]

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Total floating provision is INR 82 -- INR 80 -- INR 84 crores.

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Murali M. Natrajan, DCB Bank Limited - MD, CEO & Non-Independent Executive Director [133]

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So we have total provision of INR 84 crores in our balance sheet at the moment.

Okay. Thanks a lot. And if there are any follow-up questions, please do get in touch with Gaurav or Bharat and we'll be happy to answer them. Okay, thanks. Bye-bye.

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Operator [134]

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Ladies and gentlemen, on behalf of DCB Bank Limited, that concludes this conference call for today. Thank you for joining us, and you may now disconnect your lines.