Why southeast Asia’s largest bank is wary of lending to Indian corporates

Ready to storm in.
Ready to storm in.
Image: Reuters/Edgar Su
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Singapore’s DBS Bank is all set to become one of the first foreign lenders to kick-start full-fledged operations in India. From October this year, the lender will begin functioning like any other Indian one—with no restrictions on opening branches or expanding its business.

The move by southeast Asia’s largest bank (by assets) comes five years after India allowed foreign banks to operate as wholly-owned subsidiaries.

But DBS Bank seems rather reluctant to lend to big Indian companies.

“In (loans to) large corporates, returns and margins are woefully low, so it makes less sense,” Piyush Gupta, group CEO of DBS Bank, told Quartz in an interview on June 26. In India, he added, corporates are able to get money at a reasonably cheaper rate, therefore the risks faced by banks outweigh the benefits. So, till this balance is restored, lending to India Inc doesn’t appear to be  very lucrative.

In fact, lending to the corporate sector has already burnt a hole in the balance sheets of several Indian banks. The total stressed assets held by Indian banks, including NPAs and restructured loans, stood at 24.8% of total loans in March 2018 compared to 12% a year ago, according to the financial stability report released by the Reserve Bank of India (RBI) on June 26.

The situation is so dire that 11 out of the 21 government-owned banks that have been struggling may even see their capital reserves slipping below the minimum prescribed levels, the RBI warned in the report.

DBS knows this. The Singaporean bank has already burnt its fingers with large corporates in India—by the end of March 2014, its gross NPAs had ballooned to 13.45%, which it gradually brought down to 4.3% by March 2017.

So, now it plans to tread carefully and focus on the relatively more resilient automobile and pharmaceutical segments instead. It will also expand its branches from a dozen to 50 in the next 12 months to reach out to more retail customers and small and medium businesses. And at a time when most Indian banks are struggling, DBS has pumped in Rs500 crore ($72.9 million) into its India operations in March this year.

“As long as the macroeconomy is looking good, it is a good time to go in when the rest of the players are on the back foot, so we get a good competitive advantage to scale up our presence,” added Gupta.