DBS Bank India eyes self-sufficiency in capital within next 3-5 yrs

Lender aims to reduce net NPA below 2%; Grow CASA to 40% level

DBS Bank India, which bought ailing Lakshmi Vilas Bank, expects to generate internal capital--that is, attain self-funding capacity--over a three-five year period to grow business.

Fow now capital is adequate and as the bank grows, it will need resources for which a plan is already in place. Eventually over three to five years, it assumes that business on combined basis will be large enough to be able to generate capital to self-fund growth. Till that time, the bank has the support of group (DBS), said Surojit Shome, managing director and chief executive, DBS Bank India.

The bank's Capital Adequacy Ratio (CAR) stood at 15.13 per cent, with Common Equity Tier-1 at 12.34 per cent in March 2021. During the year (FY21), Singapore-based DBS Bank infused Rs 2,500 crore into Indian subsidiary to support the amalgamation.

Shome said in the past, capital has been infused before it was required. The capital assessment is based on growth trajectory.

Six months after full integration, at the end of calendar 2022, things will be in place including re-branding and all business lines growing. That is time can realise the full value of merger.

As for wiping out accumulated losses, he said that has been happening for many years. There are some tax losses and the bank will have to make profits over a few years to absorb them. But there will be no new losses from LVB after 12-18 months. It is still bleeding on an operating basis.

The asset quality profile came under pressure and gross non-performing assets (NPAs) rose to 12.93 per cent after the amalgamation of LVB in FY21 from 2.6 per cent in March 2020.

Referring to asset quality profile he said it is looking to bring down Net NPAs below 2 per cent in the near term from 2.83 per cent in March 2021 (0.47 per cent in March 2020) and increase provision coverage ratio above 90 per cent from the 84 per cent level.

The NPA formation has been arrested now and the question is now to resolve them. Some recovery, resolution and write-off will happen. There will be some amount of stress as part of business, beyond this there will not be NPL issue.

Shome hinted that interest in Citi's Indian operations remains alive. “We will look at opportunities as they present themselves. In this case the bank in question is in multiple markets so we have told the street that if there are businesses in our core markets (like India) we always look at them,” Shome added.

Following the merger, the bank has seen improvement in its liability profile. The share of low-cost money--current accounts and saving accounts (CASA)--went up from about 19 per cent in March 2020 to 31 per cent in March 2021.

The bank would like to increase the CASA ratio to where most large peer banks are. "It will take us years to go beyond 40 per ceny raised to 40 per cent plus level. It has taken 10-15 years for some private sector banks to reach those levels," Shome said.

A rise in the share of low-cost deposits has helped to stave off pressure to give attractive rates for garnering funds. Before the merger, LVB was paying much higher rates at the short end of term deposits as people were quite nervous and not opening longer-term deposits, Shome added.