The economy will propel credit growth across the board and especially in small businesses. Government initiative to support the MSME segment by extending the ECLGS scheme is helpful for players like DCB who have good exposure towards such segments. ICICI Securities has upgraded the banking stock from Hold to Buy rating with a target price of Rs 135. The current market price of a share of DCB Bank is Rs 114.90.

Here are the key points of the report:

•  A cautious outlook is expected to keep advances growth moderate in FY21E. Focus remains on the granular secured loan segment including gold loans, LAP, and tractor loans.
•  Unlocking of the economy and resultant improving collection bodes well for the asset quality outlook. Incremental restructuring expectation remains low at 3-5% of advances. Cumulative contingency buffer at ~57 bps somewhat looks on the lower side, which is seen keeping credit cost on the higher side in the coming two quarters.
• Adequate capital adequacy keeps away near term dilution risk. The inclination of promoters to increase stake (if the current cap revised by RBI) provides comfort.
• DCB Bank reported a nearly 10 per cent decline in net profit at Rs 82 crore for Q2 as provisions rose. The bank logged a net profit of Rs 91 crore in the same quarter of the previous fiscal year. Profit before tax for the quarter was impacted by Rs 48 crore COVID-19 regulatory package provision.

Total income also fell marginally to Rs 970.98 crore in July-September 2020-21 as against Rs 980.59 crore in the year-ago same period. Net interest income grew 7 per cent to Rs 334 crore, while the non-interest income fell by 9 per cent to Rs 92 crore.