DCB Bank gains 5% as Aga Khan Fund mulls fund infusion of $10 million

Shares of DCB Bank were up 5 per cent to Rs 119 on the BSE in Tuesday's intraday trade, on the back of heavy volumes, after Aga Khan Fund for Economic Development, promoter of the private sector bank, expressed interest to infuse ~$10 million in the bank. 

The purpose is to further strengthen the bank's capital position and support its growth plans, the lender said in an exchange filing.

To this effect, the board of directors of DCB Bank is scheduled to meet on Friday, December 8, 2023 to consider and evaluate the proposal.

At 12:16 PM, DCB Bank was quoting 3 per cent higher at Rs 116.35 as compared to 0.4 per cent gain in the S&P BSE Sensex. Average trading volumes on the counter jumped nearly five-fold today with a combined around 7.6 million equity shares changing hands on the NSE and BSE till the time of writing this report.

DCB Bank said Aga Khan Fund for Economic Development (AKFED) has expressed its interest to invest up to $10 million (equivalent to Rs 83 crore at the prevailing exchange rate) by subscribing to additional equity shares of the bank, in compliance with applicable laws and regulations.

This comes even as the bank has a capital efficient business model. As on September 30, 2023, the CRAR (Capitalto Risk-weighted Asset Ratio), without including the corresponding half-year net profit, was at 16.55 per cent (Tier I at 14.28 per cent, and Tier II at 2.27 per cent).

That said, on the bourses, DCB Bank has underperformed the market thus far in calendar year 2023 by falling nearly 10 per cent as compared to 13 per cent rally in the S&P BSE Sensex. 

The stock had hit a 52-week high of Rs 141.20 on December 13, 2022, and a 52-week low of Rs 96.70 on March 16, 2023.

According to HDFC Securities, DCB Bank continues to beef up investments in its franchise-building activities with intent to double its balance sheet in the next three-four years. 

"However, given that deposit re-pricing is likely to sustain for a few more quarters, concomitant with concerns around asset quality, we expect limited levers to near-term ROA reflation. We tweak our FY24/25 earnings to factor in elevated opex and higher funding costs as aresult of higher deposit mobilisation," the brokerage said in the Q2FY24 results review report, while maintaining 'ADD' stance and a revised target price of Rs 140.