New bank licences unlikely to make ‘material difference’

Growing retail liabilities, focussing on doing a few things effectively and maturing customer (borrower) relationships over a period of time are part of DBS Bank’s business game-plan in India.

The Singapore-based foreign bank, which has 12 branches across India, will prefer a subsidiary based model to operate in the country. In an interaction with Business Line , Sanjiv Bhasin, CEO, DBS (India), says that a subsidiary model will ensure that DBS gets the same treatment that a local bank gets in the country.

It will also mean that the bank can expand its footprint across the country, while adhering to the guidelines and regulations that are applicable to a local bank.

Excerpts from the interview:

What impact do you think the new bank licences (if given) will have on the banking sector and the economy as a whole?

I don’t think it is going to make a material difference, because of two reasons. One is that the market itself is large and growing. If there is a six per cent GDP growth, you expect that the financial services sector to have a multiplier effect of three times.

Two, it takes a long time for an institution to set up, raise capital, get people, systems and a strategy in place. By the time they are up and running, the markets would have expanded even further.

What are DBS Bank’s growth plans in India?

We expect to grow upwards of 30 per cent on the asset side in the next two-three years.

We are not too large on the retail asset side (loans). We are aggressively targeting to grow much beyond the 30 per cent range on the retail liability side (deposits). That’s our focus.

That is why we have upgraded our cash-management offering, our operating platform and our service delivery. Our consumer banking onslaught is only going to be on the liability front.

How will you attract the consumer only with the liability product, when you are not giving them the comfort to borrow from your bank?

Customers invariably go for the best deal. So, if there is another organisation that is offering a mortgage at better pricing, the customer may seek mortgage from that bank and continue to hold the deposit account with another bank.

We also believe that if a customer opens a savings bank (SB) account with DBS, then we have to make it interesting for the customer to operate that account. Most institutions have neglected the SB account customer. Banks did not chase the customer with questions like why is the balance not going up, what are his issues, etc. We want to do better.

Among other things, DBS has launched the Internet platform through which a customer can operate the account.

We have added about 7,500 customers in the past 6-7 months. We are also improving our capability to offer wealth management services. So, we are offering all the products that other foreign banks offer. The only thing that is absent is the retail asset product, which at the moment we feel is not much of a disadvantage.

What are the factors inhibiting growth on the retail asset side?

One, the bank does not have excess liabilities. Liabilities are needed to increase the loan book. Second, we need to have infrastructure in place. That requires significant investment and also we need to understand the market well.

Our focus is to do a few things effectively, than take on a large pile of things.

DBS has only 12 branches in the country. So in terms of footprint your reach is very limited. Do you see that as a challenge?

That in a way is a challenge because there is less visibility. We are trying to overcome that with the help of technology.

The younger generation is more tech-savvy. They do not want to go to the bank branch and they do not want to talk to you on phone. We are seeing if we can penetrate that market.

You only need to have a reasonable presence if you want to be a serious player in the consumer banking space. In a large city, you may need to have 10-11 branches, because people need to see it. We have applied for four more licenses. We are keen to expand.

What is the composition of your loan book?

At the moment 94-95 per cent of our total loan book (of Rs 12,800 crore as at March-end 2012) is corporate, of which, 70-75 per cent is large corporate.

The balance would be mid-corporate loans. SME loan is a small portfolio of 3-4 per cent, since we started it only this year.

Our exposure is less on real estate. We don’t have much exposure to the mining sector. Both sectors we do not understand properly.

Otherwise we have a balanced portfolio across different sectors.

DBS has a large exposure only to corporate loans. Other local banks are trying to reduce their corporate loan book size and focus on retail loans. How is DBS addressing that challenge?

Given our size and selection of customers, we have not faced much of a challenge. So, this is an opportunity for us to continue to grow on the wholesale side.

On the wholesale side, since the beginning of this year we have launched our offerings in the SME space. We are growing our SME book slowly and diligently, trying to understand the customer needs.

We are trying to link up the customer with our cash management product so that we can understand the cash flow of the customers before we can go ahead with the asset offering. We are trying to meet their foreign exchange needs.

We commence our relationship with any customer on a smaller scale and then let it mature. We give ourselves 5-7 years to make the relationship meaningful to the bank and customer.

Over a period of time, if the client does not find us useful and we do not find the client useful, we like to keep the relationship small and drop it as time passes.

If there is a value addition on both sides, only then the relationship will be strong.

Do you think that RBI regulations on priority sector lending (PSL) put spanner on the expansion foreign banks?

I believe that so far foreign banks have been treated preferentially because the banks have lower PSL targets.

We are not averse to the PSL targets, because we are ready to embrace a subsidiary model. So, the cap of 20 branches (beyond which foreign banks have to fulfil PSL targets like mainstream banks) does not make sense to us.

If we have to grow, then we will have to adhere to the guidelines. In any case, RBI research shows that the performance of the PSL portfolio is superior to the others.

>satyanarayan.iyer@thehindu.co.in

>ramkumar.k@thehindu.co.in

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