Development Credit Bank reports one of the strongest performance in the last few quarters

Development Credit Bank reported one of the strongest quarters posting 97% jump in its net profit. This spectacular performance was on the basis of healthy loan growth, strong improvement in its cost-to-income ratio and improving asset quality.

The advances growth of the bank was higher than the industry due to focus on secured lending like mortgages which together with priority sector lending contributed about 70% of its total loans. Deposits outpaced the loan growth at 32%.

The strong growth together with high margins helped to push up the net interest income by 44% year-on-year. The margins jumped to 3.52% owing to a Rs 40 crore capital infusion and fall in wholesale rates. However, going ahead the margins might stabilise at 3-3.2%

The bank managed to improve its cost-to-income ratio by 600 basis points sequentially to 62.5%, which was the lowest ever in its history.

The bank has been continuously improving its asset quality with a well-diversified portfolio and a focus on secured lending. This can be seen in its non-performing loans (gross) which improved by 60 basis points. Though the provisioning coverage ratio declined from 91% to 85%, it is still very strong and will provide cushion in case of any asset quality deterioration.

At Rs 46.95, it is trading at a price-to-book value of 0.95 times. But the stock might be up for a re-rating if one considers the strong earnings visibility for the bank.