Shares of the bank fell 30 per cent since October 13, when the bank announced its results in which it laid out its plans to double its branch network in the next one year. Fearing its profit would shrink on such a plan, the market gave its negative feedback which affected the stock price.
In a statement to the exchanges, DCB bank said, “In view of the feedback received, and in close consultation with our Chairman, the management team has decided to install 150 plus branches in a cautious, prudent and calibrated manner over a period of 24 months (instead of 12 months).”
In its earlier expansion plans, the bank had said that its expansion plan of over 150 branches in the next one year is likely to break even in 24 to 30 months and payback in 44 to 50 months. In addition, it pointed out that, “The cost to income ratio, ROA (return on assets) and ROE (return on equity) will get negatively impacted due to the gestation period of the new 150+ branches. In the coming 24 to 30 months, depending on the speed and quality of implementation, we expect cost to income ratio to worsen by 5-11 per cent, ROA may be in the range of 50-60 bps and ROE may continue to be below 10 per cent.”
Answering the media and investors in the past 2-3 days, DCB Bank’s MD and CEO, Murali Natrajan said, “We as a management team are employees who are answerable to the bank’s stakeholders – customers, investors and employees. It is important to create value for them and we have to be sensitive towards investor feedback.”
It is more of pacing out of our investments and see it can take less risks and be cautious on our expansions. We met quite a lot of investors and they appreciated our strategy on the 150 plus branch expansion… Any plan has a risk element associated with itself. We have created a brand that is cautious. We have been growing at a pace of 25-30 branches per annum… So, we have to change gears, it has to be in a slightly more phased manner,” he added.
After the alteration in the expansion plan, DCB scrip ended higher by 3.7 per cent at Rs 95.80 per share on the BSE.
According to Natrajan, the bank is in a better position today than in the past 2-3 years.
Without commenting on the stock price, Natrajan said, “We have been discussing this for the past 6-8 months and thought we must accelerate our expansion. The product mix and portfolio remain the same.”
Giving an analogy of how a passenger of a car is as much a part of a ride as is the driver, Natrajan added that “as a bank we have to be sensitive to our stakeholders and are responsible to investors as well. After all, they provide capital to the bank. If we can act on our customer and employee feedback, why not on our investors.”
Source : Thehindubusinessline