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Why Deutsche Bank's little jewel in India was spared the ax

Thursday, November 5, 2015 - 07:30
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The Deutsche Bank headquarters are seen in Frankfurt, Germany, in this Oct 29, 2013 file photo.

[DELHI] Deutsche Bank AG, which announced last week it's pulling out of 10 countries around the world to revive profits, left a nation off the chopping block: India.

Unusually, the German investment bank and private-wealth manager gives loans to corporate borrowers as well as consumers from 17 retail bank branches in India - the only country outside Europe where it operates branches. Equally unusually, Deutsche Bank in India has managed to avoid the bad-loan problems plaguing its rivals such as Standard Chartered Plc. Instead, Deutsche Bank's unit almost doubled its annual profit in the year through March and has the lowest bad-loan ratio of the five largest foreign banks operating in India, the latest filings to the central bank show.

"Deutsche have developed a very healthy loan book here by focusing on corporate banking," said Ashvin Parekh, managing partner at Mumbai-based financial advisory firm APAS LLP. "Their performance in India is better compared to many other markets. This is one of the reasons for the strategic decision to continue with the India operations." Foreign bank units in India are only required to report results once a year, so no comparable numbers are available for the global figures that Deutsche Bank reported last week for the quarter that ended in September. If the Indian unit's performance continues for the rest of this year, it would be a shining light for a bank that announced its largest quarterly loss in at least a decade.

To lift profitability, Co-Chief Executive Officer John Cryan said the company would pull out of businesses in 10 countries from Argentina to New Zealand and shrink headcount by about a quarter.

While India was spared, it's possible some reductions may take place. Russia also wasn't on the list of 10 nations, though the bank is closing its investment banking and trading there as it grapples with a probe into suspected money laundering. In India, the bank sold its asset-management unit to Prudential Financial Inc. in August to focus on core businesses.

Deutsche Bank has avoided some of the problems faced by its rivals in India by focusing on loans with maturities shorter than six months, which helped shelter assets from the sluggish economic cycle, Avinash Prabhu, chief financial officer of the Indian business, said in an Aug 20 interview. That also helped the unit avoid typically longer-term loans to build infrastructure, where the industry is plagued by bureaucratic delays and late payments from government agencies.

His unit's gross bad-loan ratio stood at 0.33 per cent as of March, less than a 10th of the Indian banking system's 4.61 per cent at the time. The firm's Indian lending increased fourfold in the seven years through March to 361 billion rupees (S$7.7 billion), while profit was 14 billion rupees, filings show. About 90 per cent of that lending is corporate, while 10 per cent is to retail clients, the data show.  "As we chose to lend prudently to the right companies in the right sectors, our asset quality held up well," Mr Prabhu said.

A Mumbai-based spokesman for Deutsche Bank declined further comment.

Deutsche Bank started its India operations in 1980 and now has more than 11,000 employees in businesses including retail and wholesale banking, investment-banking advisory and wealth- management services.

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