DBS seeks easier priority sector norms for foreign banks

RBI had said the priority sector lending requirement for foreign banks would be 40%, like their Indian counterparts

Singapore-based DBS Bank, planning to convert its branches into a wholly-owned subsidiary in line with Reserve Bank of India's guidelines, has requested the banking regulator to relax priority sector norms. The central bank had said the priority sector lending requirement for foreign banks would be 40 per cent like their Indian counterparts.

Out of this, 18 per cent of loans have to be offered to the farm sector. The current cut off for foreign lenders in the PSL segment is 32 per cent (foreign banks with more than 20 branches, it is 40 per cent) but once they take up the WOS route, banks will have to move to achieving 40 per cent within five years of foreign banks converting into a wholly owned subsidiary.

The foreign lender has sought clarification whether infrastructure loans could be considered priority sector loans. “We have asked for clarification on what all should go into the definition of PSL. We want the definition to be broadened. For instance, we have asked whether infrastructure lending can also be considered under PSL. If infrastructure is considered, then the horizon would broaden and also the quantum of loans under infrastructure are bigger as compared to say the agriculture sector and so it will be a help us in achieving the cut off target," said an official familiar with the development.

The official added apart from requesting the regulator for broadening of the definition of PSL, the bank has also asked if the five-year time frame could be relaxed.

Meeting PSL norms for the banks is expected to be challenges for the banks, as foreign lenders believe that from a commercial stand point it might not be very feasible, as it would end up affecting the profitability of the bank.

DBS is one of the few foreign banks so far that has expressed keen interest in converting into a wholly-owned subsidiary. In fact, others such as Citibank have decided not to explore the WOS route as of now.

In an emailed response, a DBS bank spokesperson said, "As a group, we have been extremely positive about the WOS business model. India is a key market for us and we intend to expand here. We remain bullish on WOS and are evaluating our options as of now. The strategy we employ is directly correlated to where we see ourselves in India in the future, both in the short-term and the long-run. Our clarifications on WOS are the same as other foreign banks.”