At a time when a major foreign lender like Citibank has exited its consumer finance businesses in India, DBS Bank India is confident that it can become successful in the country by achieving sustainable growth.
In a freewheeling conversation with Moneycontrol on April 7, DBS Bank India Managing Director and Head of Consumer Banking Group Prashant Joshi shares details on how the lender is looking to achieve 20-25 percent year-on-year (y-o-y) growth in both advances and deposits in FY23.
He also shares updates on the bank’s integration journey with Lakshmi Vilas Bank. Edited excerpts:
Q- Citibank recently sold its India consumer business to Axis Bank. What challenges do foreign banks face in India?
A- Over the last three decades, Citi built a genuinely high-quality, very impressive business. However, the growth obviously would be capped for foreign banks not just in India but in any other markets because to become successful in consumer banking and continue to grow sustainably you need to be completely local, that is number one.
Number two, you need to continue to have distribution in terms of branches.
Three, you need to have flexible technology landscape and these three are pre-requisites. You need these three things to become successful in any retail business anywhere.
Q- Does DBS Bank meet these three pre-requisites in India?
A- DBS has a different link. We are a wholly-owned subsidiary rather than a branch like a Citi, HSBC, Standard Chartered or Deutsche which allows us in distribution.
We are local, we have distribution and post amalgamation with Lakshmi Vilas Bank (LVB) we are in 400 cities and have close to 600-odd branches which gives us distribution and a good technology platform.
I think, all the ingredients which are required to become successful sustainably and continue to grow, are there with us. But we cannot take away the fact that Citi built a very successful consumer banking portfolio.\
Q- Have you integrated your systems fully with LVB?
A- It has been 18 months since the amalgamation with LVB happened. For the first six months, in the first phase, we were understanding the franchise and protecting it. In the next six months, second phase, we worked more towards stabilisation, consolidating the entire franchise and getting the products right.
The third phase is of growth. Purely from an amalgamation perspective, the organisational integration has been completed, organisation structures across business and functions have been done. Our technology integration and migration has been scheduled for last quarter this year. So, that is still about 8-9 months away.
Q- What are your focus areas for growth in FY23?
A- If you look at the balance sheet, particularly from the advances perspective at DBS, almost two-thirds of our business is corporate banking and large corporate banking, even after LVB amalgamation.
Now we are looking at aggressively growing our consumer and SME franchise. The consumer franchise we will grow through deposits from the branches we have. On the asset side, we will largely grow from the gold loans business that we have, and the MSME business that we are building on what we already have at LVB.
Very soon we will come out with a credit card offering. So, it is gold loan, MSME, credit card, and mortgages, but largely that will be in the affordable housing space which is suitable to the network of our branches. These are the four growth drivers as far as our consumer business is concerned.
Q- What is your guidance on loans and deposits for FY23?
A- For loans and deposits are concerned, I think, we are looking at a sustainable growth of around 20-25 percent in the year. Deposits will slightly outgrow loans but at an overall level, a 20-25 percent is something which is sustainable.
Q- On asset quality, is there more stress from LVB that is yet to be recognised?
A- As far as asset quality is concerned, Lakshmi Vilas Bank had asset quality issues. So, post amalgamation, we formed a special unit where all these assets were housed and a recovery unit was formed. Till now the recoveries have been quite good.
If you look at our numbers which we disclosed last year, the gross NPA was high at 10 percent plus. But the net NPA -- because all of it is largely provided for – number was fairly low. Less than 2 percent because NPAs of Lakshmi Vilas Bank were fully provided for as part of amalgamation.
Thankfully, even during the pandemic, our asset quality had not worsened, and also at Lakshmi Vilas it has been in-line with expectations. So there are no real asset quality surprises that we have come across. In FY23, our asset quality would be marginally better than last fiscal.
Q- You talked about the foray into credit card business. Large lenders are aggressively chasing growth in this segment. What is your strategy?
A- The credit card that we will launch this week will be a co-branded credit card with Bajaj. But equally as we stabilize that card platform, what we have today between LVB and DBS put together is close to 2-2.5 million good quality customers.
What we need to focus on once we stabilise the co-branded credit card is the next stage where we will look at these 2.5 million customers.
Most of them have a credit card today. We have to see how we can put our card in their wallets and how to make them start using it.
Q- When do you anticipate introducing a pure-play DBS Bank credit card?
A- I think we will take 6-9 months for the co-branded credit card to stabilise completely. Only after that will we issue our own credit card.
Q- Are you looking to raise capital in FY23?
A- When the amalgamation happened, we brought in Rs 2,500 crore immediately. Plus, we infused another Rs 1,000 crore as growth capital very recently. With this, I think we have a run rate to grow for at least another 18 months. Then we will see if we need capital, we will raise it.
The good news is that the asset classes in which we are wanting to grow as result of amalgamation are relatively light on capital requirement. Gold loan, for example, has a fairly limited capital requirement. Equally, the mortgages and MSME loans also consume less RWA (risk weighted assets) compared to corporate lending.
Capital is not a constraint; we can meet our growth plans and targets, and I think, capital will continue to get increased.
Q- Since you are a global bank, how much of an impact does an event like the Russia-Ukraine war and subsequent rise in oil prices have on the overall business dynamics?
A- The impact has been relatively muted. What we need to be watchful of is the long-term impact on Indian economy. What would be the fiscal deficit, as a result of rising oil prices and inflation – that is what we will see. That is something which we are watchful of like any other good bank.
We are not unduly worried about it. As I said, even during the pandemic the corporate sector showed remarkable strength and resilience, and even the consumers for that matter. However, we continue to be watchful of all global developments.
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