State Bank of Mauritius to improve asset quality before converting into Indian subsidiary

Apart from SBM, DBS and ABN Amro Bank have also applied to RBI to convert their franchisees to local subsidiaries

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State Bank of Mauritius (SBM), one of the three banks that has expressed interest in converting into a wholly owned subsidiary (WOS) in India is now looking at improving its balance sheet position as it awaits for a final licence.

"We decided to tap on to the opportunity when RBI announced the WOS rules in 2013 we are waiting for it. Hopefully, we will get the licence it in next calendar year. We are looking for a bigger play in India as with a WOS licence we will be as good as a domestic bank," said Siby Sebastian, CEO, SBM.

He added that as they wait for the licence they are looking at cleaning up their book and ramping up the balance sheet. At present, the bank has about 200 corporate clients and only 5000 retail clients. But as the WOS licence is still far away they have already started increasing their customer base.

"In the meantime, we are ramping up the business, building infrastructure, adding people etc. We have also started reaching out to customers as well. We are offering 6.5 per cent interest rate on savings bank account also to pull in more customers. Net NPAs are around 3.5 per cent, we have already begun to clean up the books and they have been adequately provided for," added Sebastian.

The parent has already infused Rs 500 crore in Indian operations and so far they are adequately capitalised with about 62 per cent capital adequacy ratio. However, as and when they convert into WOS the parents will need to infuse more capital.

Despite the fact that several foreign banks have been under pressure in the last couple of years, SBM is confident that once they get the licence they will manage to achieve scale and build a profitable business. The lender plans to have a 55:45 mix of corporate and retail.

"The banks that didn't have problems with bad loans etc have managed to grow well and despite the slowdown, they are growing at 20-22 per cent in retail. As far as we are concerned we are already there in the corporate business so we believe that we can leverage it and we can establish ourselves on the retail side as well by having the right technology and people," added Sebastian.

Apart from SBM, Singapore-based DBS and the Dutch lender ABN Amro Bank have also applied to RBI to convert its franchise to a local subsidiary.