While it waits for approval from the nation’s central bank for local incorporation, DBS, Southeast Asia’s largest bank, is subtly revising its India strategy to shift focus from retail banking to being the lender of choice for small and medium enterprises (SMEs). As a result, it is fine-tuning its local branch network expansion plan.
With roughly 21 new banks of various types and sizes expected to operate in the next 18 months, the Singaporean lender’s shift in approach seems to have come at the right moment as competition in the country’s retail banking market is expected to heat up. The Indian banking regulators have received applications from about four foreign banks, including DBS, to be locally incorporated, which implies they would be given the go-ahead to operate as many branches as they like in addition to being allowed to make local acquisitions.
DBS chief executive officer Piyush Gupta said at a recent global banking conference, “With our license for subsidization in India, our intention is not to do retail … we intend to build a good network for SME banking. We are keen on embarking on an SME strategy in India as we do in China, Taiwan, and Hong Kong.”
According to DBS, the bricks-and-mortar approach to retail banking is being replaced by a digital strategy.
Mr. Gupta said, “In some markets, including in India, we are going to explore a digital footprint to access the retail market,” pointing out that no international bank has been successful in cross-border retail banking, barring a few that took the acquisition route.
Due to increased regulatory requirements, M&A opportunities remain muted, he said.
“The problem is that a bricks-and-mortar approach to retail banking takes 20-30 years to build in terms of a retail branch network system. Today, nobody has the pockets or capital to be able to create that kind of platform … Digital presents a new opportunity. Nobody knows how successful it will be, but it gives you a stand,” he said.
With its entry into India in 1994, DBS has been actively participating in the retail banking sector since 2008 and 2009. The bank has locations in several important cities, including Mumbai, Delhi, Kolkata, Chennai, Bangalore, and Pune. After receiving subsidiary approval from the Reserve Bank of India, the bank expects to open 60 to 70 new branches. With Prime Minister Narendra Modi’s “Make in India” initiative gathering steam, it is now structuring its branch network on the expanding SME sector.
Mr. Gupta said, “We are going to build our business in the SME and MSME (micro, small and medium enterprises) space, for which (we need) some amount of network.”
Given the immense opportunity presented by India’s unbanked semi-urban and rural market, which accounts for more than 40% of its 1.25 billion people, several foreign banks have been persuaded to open offices in the third-largest economy in Asia. With mounting bad loans and a heavily indebted corporate sector, several banks, including DBS, have suffered in the retail banking sector, especially given the absence of bankruptcy legislation in the nation.
The Indian operations of DBS lost approximately $59 million (Rs 275 crore) in the financial year that ended in March. As part of its commitment to improving its balance sheet, DBS wrote off non-performing assets worth $185 million.