Why Southeast Asia’s biggest bank is now bullish on India

Connecting Asia.
Connecting Asia.
Image: Reuters/Edgar Su
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Since it began operations in India a little over a decade ago, Singapore’s DBS bank has opened around 12 branches in the country. In the next five years, however, it wants to open five times that number.

Last week, DBS—Southeast Asia’s largest bank, by assets—said it has applied to the Reserve Bank of India (RBI) to set up a subsidiary. Piyush Gupta, the bank’s India-born chief executive officer, said the application was submitted in April, which includes a plan to open about 50-75 branches over the next three to five years.

Currently, DBS is the only large foreign bank to formally start the process of setting up a wholly-owned subsidiary in India. Most others have chosen to stay away from taking this route primarily because of high costs, taxation and regulatory hassles.

The Singaporean lender’s bullishness towards Asia’s third largest economy is because of two reasons. First, it expects the country’s growth momentum to pick up speed. “With India’s positive macro-economic indicators and banking sector outlook, the group intends to expand and strengthen its India service offerings,” a spokesperson said.

At the same time, DBS also views itself as a conduit to connect India with key markets in Southeast Asia and beyond.

Connecting Asia

“I think the time is very propitious for Southeast Asia and East Asian businesses to be looking to India,” Gupta told Quartz in an interview earlier this year. “And the reason for that is China is slowing down.”

There is not only a window for India to attract capital and savings from the region, the banker argued, but Indian companies, too, should push into Southeast Asia to take advantage of the rebalancing underway.

“One of the upsides is brand,” Gupta explained. “To create an Indian brand in the West is not easy. But to create a relevant Indian brand in the East is not tough at all.” Indian business groups like Tata and Bajaj, for instance, are already well-recognised in markets like Indonesia and Thailand.

By virtue of being the biggest lender in Southeast Asia, DBS, of course, potentially stands to gain if Indian firms do actually Act East en masse (in prime minister Narendra Modi’s parlance) after decades of looking at the region from afar.

Challenges remain

While there is little doubt about the potential of increasing trade, India must put its house in order.

“The challenge is that for most of East Asia—and certainly for a lot of the Chinese diaspora—dealing in India, and with India, has always been very tricky,” Gupta said.

Investors from the region often grapple with negotiating everything from India’s policy framework and regulations to the country’s norms and culture. “And therefore, India has to actually make a conscious effort to reach out to the source of business activity,” he said.

“I think the big challenge is that India has to be seen as an easy and consistent place to do business,” Gupta added.

The Modi government is working on solving exactly some of those problems as it seeks to improve India’s ranking on the World Bank’s “Ease of Doing Business” index. From an abysmal 142 rank out of 189 countries, Modi and his team want to push India into the top 50 countries.

Big and small

If any of that materialises, it’ll only help the Singaporean lender’s chances in the country, even as it looks for opportunities in other segments of India’s banking market.

While it has so far focused on large domestic and multinational corporations, DBS now plans to scale up its consumer banking and small and medium enterprises businesses once it forms a wholly-owned subsidiary.

DBS also wants to make inroads into the hinterland, which includes building a network of business correspondents. A business correspondent is a representative of a bank who helps people in rural areas with banking transactions.

“RBI has clearly laid out the guidelines in terms of opening of branches in rural areas,” the spokesperson said. “We recognise the different banking needs of different customer profiles and will have a distinct value proposition for the rural segment.”

Bad loans

And it’s not that DBS doesn’t know the marketplace that it wants to get deeper into. Earlier this year, for instance, the bank decided to go easy on growing its loan business in the country after non-performing assets (NPAs) shot up to 10.21% of its portfolio for the 2014 fiscal. The year before, the figure stood at 2.37%.

“While the number of accounts that went bad were a few, given that our overall book was relatively small, the impact of this on the NPA ratio was magnified,” the spokesperson said. “We have taken steps to proactively address the challenges, cleaned up our balance sheet and are ready to grow from here.”