DBS becomes second bank to get in-principle nod to operate as wholly-owned unit

Singapore-based bank DBS has got final approval to operate as a wholly-owned subsidiary (WOS) in India after a delay of two years.

DBS was the first foreign lender to apply for the new operating WOS model two years ago and had recently said that its request is pending with the Ministry of Finance and the lack of a precedent was causing delays.

The Reserve Bank of India (RBI) had issued the guidelines in late 2014 and DBS was the first to apply in early 2015, followed by at least two others including SBM Bank (Mauritius).

DBS is the second foreign lender after SBM (Mauritius) to get an in-principle approval to operate as WOS in India.

"A new category of banks have to be created...100 percent-owned foreign banks do not exist. With the first bank (licence), a new category of banks will be created. It is still a new thing," DBS Chief Executive for India, Surojit Shome said.

Piyush Gupta, CEO of DBS Group, said the WOS model will help to shift to the subsidiary structure from a branch structure in India in 6-9 months. We will fine-tune the earlier target of 75 branches and decide in the next 60 days. We will not be shy of adding more capital in the India unit.

Gupta says the bank now hopes to scale up in SME banking, consumer finance and supply chain management in India.

DBS also has a strong network in the form of Digibank in India with about 1.5 million customers.

Shome said that the bank has exposure to three of the 12 companies from the RBI's first list currently admitted in the bankruptcy court. Of these two have exited already.

At the time of making the application, the bank had expected approvals to come by March 2016.

Shome had hinted that their application has been approved by the Reserve Bank of India and is pending in the Ministry of Finance at present, which has to take a call on it after consulting other ministries, including Ministry of Commerce and Ministry of External Affairs.

The RBI has been wanting foreign banks to operate as a wholly-owned subsidiary in the country, which will insulate the local operations from any difficulties which the parent may face.

The present branch model exposes the banks to risks if an event like the 2008 financial meltdown happens.

Most foreign lenders did not want to opt for the WOS model owing to the slowing local and global factors leading to a reduction in their business in India.

DBS operates through 12 branches in the country at present with over a million customers. The bank has already drawn up plans of expanding presence in the country in a staggered way which is included in the application submitted, he said.

The RBI had mandated all the new foreign lenders and existing ones having a certain size to operate as a WOS.

As a WOS, DBS wants to expand its physical network to 50-75 branches in five years and primarily target the small businesses for its growth in the country.

Further, DBS is the only foreign lender offering a savings rate of 7 percent to its Digibank customers. Gupta said the premium pricing will not be tweaked as it "continues to remain cost competitive in our product offering".

DBS would be adding about 6 people in the key managerial positions and double its employee base from 2000 currently in the next 5 years.