DBS Bets on “Poisoned Chalice” of India Banking for Profits

(Bloomberg) -- DBS Group Holdings Ltd. aims to bolster loans to Indian consumers and small businesses as part of a plan to reduce its reliance on Singapore.

Southeast Asia's biggest bank will push credit through its new wholly owned unit in India, Chief Executive Officer Piyush Gupta said in an interview in Mumbai, where the bank is beefing up both its brick-and-mortar branches and its digital presence to tap the world's second-most populated nation. Retail accounts for about 1/10th of DBS loans in the nation.

“The reality is that for most foreign banks, trying to build retail and small and medium businesses outside their home market has been a poisoned chalice,” Gupta said on Monday. “We are making this bet on India as we believe discontinuity caused by digital channels offer a once-in-a-lifetime opportunity of skinning this cat differently.”

A push into major developing markets such as India would help DBS reduce its dependence on Singapore, a tiny island state with a mature economy where it derived 62 percent of revenue in 2018. The timing might be favorable given that several Indian homegrown banks are hobbled by the world's worst bad-loan ratio and some foreign rivals like Standard Chartered Plc are considering cutting their presence in the country.

The Singapore lender is the only sizable foreign bank to have taken steps to set up a local unit after India announced relevant rules in 2013. The three largest foreign banks in the country -- Citigroup Inc., Standard Chartered and HSBC Holdings Plc -- are yet to announce plans on ringfenced units in the country.

“While other foreign banks in India are sticking to the top end of the market we want to go deeper,” Gupta said. “With the market growing so quickly in India, even if we manage to grow with it we will do quite well.”

DBS, which started its India business as a representative office in 1994, has about 13 branches in the country. It plans to scale up its presence to about 100 touch points -- branches and manned kiosks -- over the next 18 months and will also triple its balance sheet to 1.5 trillion rupees ($21 billion) by 2023, the India unit's CEO Surojit Shome told reporters in Mumbai.

Gupta also shared his views on wealth management and fintech businesses in India. Comments in the following Q&A have been edited and condensed:

How will the foray into consumer and SME lending help earnings?

One of the reasons why we want to do this is because the top end of the market in India is very tightly priced. If you look at the large corporate space in the country, the pricing is completely unrealistic relative to the risk rating of India. Which means you have to build alternative returns sources for the Indian market like SME and consumer lending.

What are your plans for wealth management in India?

If you look at the suite of products for domestic wealth in India, they tend to be mostly mutual funds, direct equity and property. And these products you can get from any brokerage house and a whole host of direct mutual fund providers. It is very hard to create a differentiated proposition out here. The real opportunity at scale comes from cross-border wealth management. That will be big in India at some point in time, but right now there are not that many flows that go out from India. So it is interesting, but not going to be a centerpiece for us in the short term.

How do you compare India fintech with that of China?

When you look at the Indian market, whether it is Paytm, Google or Facebook, everybody is focusing on the domestic payment space. And domestic payment by definition makes no money and nobody's got a viable business proposition. This market still hasn't reached a level of sophistication as seen in China, where fintech firms are making money through their lending book and other businesses.

To contact the reporters on this story: Anto Antony in Mumbai at aantony1@bloomberg.net;Chanyaporn Chanjaroen in Singapore at cchanjaroen@bloomberg.net

To contact the editors responsible for this story: Arijit Ghosh at aghosh@bloomberg.net, Jeanette Rodrigues, Russell Ward