Mr Sanjiv Bhasin, CEO, DBS Bank, was in Chennai recently enroute to Cuddalore where DBS Bank opened its 12th branch in India. Here is his take on recent developments in the banking sector.

The RBI has expressed concern about the gap between the growth rates in deposit and credit and the fact that some banks are funding loans through repo borrowings. As a foreign bank with limited deposit base, are you borrowing in the repo market for your loans?

As far as we are concerned, by and large, our loan growth has been funded by our deposits. There is no disconnect. Our access to the inter bank market has been at best for treasury investments which are liquid.

Our challenge is that a substantial portion of our deposits is wholesale in nature. There is a view that they are volatile. But over the last five years, we have seen that the base for the wholesale deposit has increased. If five years ago, we had a few accounts, that has now grown to a few hundred accounts for wholesale deposits. We are increasing our footprint and over the last two years we have tried to launch a retail liability franchise. We are trying to raise deposits from a variety of sources. So our reliance on repos is at best to meet some mismatch in cash flow, but we are aware that our dependency on deposits has to increase and this is what we are doing consistently.

The RBI released a discussion paper on foreign banks' presence in India and offered them two models – the existing branch model or a wholly owned subsidiary route. What is your bank's preference?

I think DBS has decided without any uncertainty that they want to build a franchise in India. Therefore, subject to a full diligence review, our preference would be for a wholly-owned-subsidiary (WoS) model, if that will help us accelerate our growth.

But it is still premature to say what we have decided. There are still some issues to be clarified on tax implications, the level of capitalisation, the definition of Tier-1 to -6 areas etc. Once the picture is clear, it will be easier to decide. Each bank will react differently, but institutions which want to build a universal bank model franchise will see merit in a WoS model. On the other hand, if you want to be a specialised investment bank or a niche wholesale bank, then of course the branch route may be more attractive.

How has your lending portfolio changed over the last two years? Has it shifted to retail?

We have no exposure to retail lending as of now and no immediate plans to enter that side. Our focus and coverage will be liability driven apart from our presence in wealth management. Retail assets aren't something we have thought about yet. That will need lots of preparation in terms of products, systems, people and scale. We need liabilities/deposits first and we will concentrate on this.

What lessons have you learnt from the Citibank Wealth management scam?

We have tried to focus more on robust governance, audit and compliance issues. We have reviewed our entire relationship model and we have more than two persons review the conduct of every account – not just the relationship manager or the team leader but the area head as well. Of course, the size and volume is not that large yet. But as we go along, that will happen. We are trying to ensure that there are more frequent client interactions with more persons in the bank and we have tried to ensure that the client belongs to the bank and not to the person. That is difficult but we insist on having multiple contact points so that the client also feels he is dealing with an institution.

Your bank is opening branches in a number of small towns. Have these branches been able to break even?

All our branches have turned profitable within a year, some within 6 months. You must understand that our costs for the branch in a small town are lower. The rental is far lower. Wage levels are no different but the number of people in such branches is less. So the total wage bill is not every high and consequently the break-even point is lower. If you insist on quality of service being good, you do pick up clients at a faster pace. Besides, everybody likes new things. So people do try out new services. We have been lucky that we have been able to capitalise on this.

Aren't customers generally averse to moving (their accounts) to other banks?

We have seen that more clients are willing to have more than one banking relationship. It may be the result of perceived safety, varying service standards or just proximity. In a big town it may not be important but in small towns, it always helps to have a branch nearby. My branches will certainly be closer to some part of the population. We have requested our staff to concentrate on the areas close to the branch rather than go some place 30 miles away. Let's dig deep down closer home, is the message. There's a lot of economic activity happening in small towns and if we are to focus on building a retail franchise, small towns are the way to go.

What are your hiring plans?

We are at 400 now. We should be about 650 by the end of the year, taking into account our expansion plans.