DBS to focus on affordable housing segment in the run up to set up a subsidiary in India

May look at an acquisition of the portfolio or a tie-up with another lender

Singapore-based DBS Bank has decided to focus on the affordable housing segment, in the run-up to converting itself into a wholly-owned subsidiary (WOS). At the moment, the lender typically focuses on the higher end of the segment but is now looking at either acquiring an affordable housing portfolio or a tie-up with another lender that caters to the segment.

"In the affordable housing segment we are looking at a partnership with some entity that has the strengths or on taking on a portfolio. We can't do it directly as we do not have a wide distribution reach," said Rahul Johri, managing director and head of the consumer banking group at DBS.

It had applied to the Reserve Bank of India (RBI) to convert its branches into a WOS in April this year. The focus on affordable housing will be a key component in meeting the priority sector lending (PSL) norms as and when it converts itself into a WOS.

Before applying to RBI, DBS had also requested the regulator to relax PSL norms. Fulfilling the PSL norms had been a bone of contention for foreign lenders who had been exploring the WOS route. RBI had said the PSL requirement for foreign banks would be 40 per cent, like their Indian counterparts. 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 (for 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 converting into a WOS.

Currently, DBS India is in the business of large-ticket size loans — between Rs 80 lakh and Rs 1crore. But with the focus on affordable housing, the ticket sizes will reduce. According to RBI  norms, loans of up to Rs 50 lakh for a property valued up to Rs 65 lakh in six cities - Mumbai, New Delhi, Chennai, Kolkata, Bengaluru and Hyderabad - and up to Rs 40 lakh in other centres, qualifies for affordable housing.

The lender entered into the mortgages business in 2014 and is confident of closing this calendar year with a book size of Rs 300 crore. Johri said the bank is looking at quadrupling it to Rs 1,200 crore in 2016.

In order to grow its mortgage book, the bank has also tied up with direct sales agents (DSAs). After the increase in bad loans in retail after the 2008-09 crisis, most foreign banks had severed ties with DSAs. However, Johri explained the model is working well for them as they have selected their DSA network based on their sound governance framework and risk assessment framework.

"A case where the DSA is the primary source where they complete the case is not the model we are following. Instead we work on a model where DSA refers a case and then someone from the bank closes it. That is the model that we follow as it allows for a greater ownership within the bank,"  Johri said.