The Business Times

DBS to double down on China and India for growth in Asia

Published Tue, Mar 30, 2021 · 05:02 PM

SOUTH-EAST Asia's largest lender DBS is looking to double down its presence in China and India as part of efforts to expand into the wider region.

At the bank's virtual annual general meeting (AGM) on Tuesday, DBS chief Piyush Gupta outlined three key areas of focus in China, namely its upcoming securities joint venture (JV), the consumer finance market and the Greater Bay Area.

Mr Gupta told shareholders that the bank's new JV in China, announced last September, should be ready to go to market in the new few weeks. "We are convinced that China's opening-up in the capital account is going to present tremendous opportunities. We're already seeing some benefits of that, as institutional investors from China come out and international investors go into China. So that's hopefully a big area of growth for us," he said.

DBS also continues to be bullish on the Greater Bay Area, with its presence in Hong Kong expected to help with deeper integration into the area.

"We saw good momentum on that last year, especially with our supply-chain solutions. We're going to double down on that in the Greater Bay Area," he said.

On the consumer finance front, the bank is set to launch a wholly-owned business in China to capture more opportunities in this space. DBS currently has 15 per cent ownership of a consumer finance JV with the Postal Savings Bank of China.

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Over in the India market, Mr Gupta assured shareholders that the bank's takeover of Lakshmi Vilas Bank (LVB) last November was "the last thing from a forced marriage". The cash-starved LVB was amalgamated with DBS Bank India to accelerate the group's digital banking push in South India.

"People have asked whether this was a forced marriage or if we were forced to do this deal. This the last thing from a forced marriage. As early as 2016, we decided to float a subsidiary in India. The reason we put our hands up is because we knew it will give us the opportunity to expand both organically and inorganically," he said.

The deal added two million retail and 125,000 corporate customers to scale up DBS India's deposit base. Notably, about 23 per cent of its customer base pre-merger were retail customers.

DBS India has mainly been focused on serving large corporates. While this segment has done well in the last decade, the "real big opportunity" over the next decade lies in the SME and retail segments, said Mr Gupta.

Before the merger, about 23 per cent per cent of DBS India's deposits came from retail customers. This has since grown to 48 per cent.

Mr Gupta said: "This is very important because to grow in a country like India, we need a good source of retail sticky deposits and LVB is able to achieve that. When we overlay our digital capabilities on top of this base that we amalgamated, we think the prospects for us are very good."

At the AGM, a shareholder raised concerns over financial losses and the merger's impact on DBS' profit and loss (P&L) statement. Over Q4 2020, the lender recorded amalgamation expenses of S$33 million and general allowances of S$87 million for LVB, with provisional goodwill of S$153 million.

Mr Gupta noted that the goodwill was a "very reasonable cost" to acquire a franchise of 600 branches and 1,000 ATMs across five cities in South India.

DBS took on an aggressive view on LVB's asset quality, with 76 per cent coverage of gross non-performing loan assets (NPAs). This means net NPA transferred to DBS after the merger stood at just S$212 million, fully secured, with general provisions conservatively built up to 9.5 per cent of performing loans or S$183 million.

"At this point in time, we do not believe that we have to take on anymore incremental cost of credit on the LVB portfolio. We think we provided for anything that we might have expected to see in the course of this year," said Mr Gupta, adding that the merged entity is expected achieve a positive P&L number in the next 12 to 24 months.

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