Merging troubled LVB will boost DBS's retail biz in India: Moody's

The merger will not alter DBS group's credit profile and the effect on its capital will be immaterial

Rating agency Moody’s today said the proposed merger of troubled Lakshmi Vilas Bank (LVB) with DBS’s Indian subsidiary will strengthen latter's business position by adding new retail and small and medium-sized customers.

DBS Bank India's loan book is mostly focused on the corporate and SME sectors. The acquisition will help DBS complement traditional physical branch banking with its digital strategy in India.

The merger will not alter Singapore-based DBS group’s credit profile. The effect of merger on DBS's capital will be immaterial.

“We estimate that DBS India's customer deposits and net loans will increase by about 50 per cent-70 per cent following the merger. LVB will also add around 500 branches to DBS India's 27 branches”, Moody’s said in statement.

On 17 November, the Reserve Bank of India (RBI) announced a draft scheme to amalgamate the private sector lender LVB into DBS Bank India Ltd, fully owned by Singapore’s DBS Bank.

As part of the draft amalgamation scheme, DBS will invest around $345 million in LVB. The merged entity's Common Equity Tier-1 ratio will be at 9.6 per cent before the capital injection from DBS, a significant improvement from LVB's currently negative capital adequacy.

Moddy's said, "India is one of DBS’s priority markets, and the acquisition of LVB fits DBS’s expansion strategy. We estimate that the merger will increase DBS’s net loans in India to around 1.5 per cent of group loans, from 0.9 per cent as of 30 June 2020. DBS’s net loan exposure in India will remain small and will not alter the group’s credit profile."

The additional risk weighted assets from LVB will decrease DBS's common equity Tier-1 (CET1) ratio by about 10 basis points from a strong 13.9 per cent at 30 September 2020.

India and Indonesia are DBS’s core foreign markets where it is actively growing its digital banking services, and had more than three million digital bank customers in these two markets at the end of 2019.