Mumbai: Southeast Asia’s top bank, expects its small Indian operations to grow at a sharply slower 25-30% pace in 2009-10 as excess cash opens up more avenues for customers, a top official said on Wednesday.
A sharper-than-expected slowdown and a revival in equity markets in Asia’s third-largest economy has hurt foreign lenders who largely rely on corporate lending.
“Today, customers have many avenues for tapping funds as the system is flush with liquidity and we are seeing softening of credit spreads in general,” Sanjiv Bhasin, chief executive of DBS Bank India said in an interview.
“Besides our base is also rising that could temper the sharp pace of growth,” he said.
State-run lenders control 55% of loans in India, where foreign banks get just a handful of branch licences every year from the central bank.
DBS, which opened its first branch in the country in 1995, has 10 branches. It has applied for licences to open up to eight more and plans to raise retail deposits but will not enter the high risk retail lending for the next 18 months, Bhasin said.
DBS generates about 90% of its earnings from Singapore and Hong Kong. Earnings of its Indian unit had quadrupled to Rs2.6 billion ($53 million) in the past year ended March from 650 million a year earlier.
Indian companies have raised more than $3 billion by selling shares this year, mostly since April as a sharp stock market rally ended a 15 month drought of equity sales.
Standard Chartered and Citigroup, the largest foreign lenders in the country, have already seen the profit growth of their Indian units slowing.
Standard Chartered’s 2008-09 net profit growth halved to 12 percent and Citigroup’ by four-fifth to 20%, the two banks said.
DBS plans to focus on retail deposits to bring down costs and diversify the liability space, Bhasin said.
“Over the medium term, we plan to have retail liabilities to contribute at least a quarter of our total liability portfolio, which today is largely wholesale. We have a long way to go.”
Retail deposits, consisting largely of savings bank accounts, can cost as low as 3% in annual interest payments while term deposits cost more than double that.
Bhasin said the bank would not enter retail lending such as personal loans, auto and consumer durable financing for the next 18 months as the bank was yet to set up the required network.
ICICI Bank, India’s No.2 lender and once the most aggressive retail player, has slowed loans to a trickle as it rejigs its loan portfolio amid rising bad debts.
“We have no plans to see a presence in the retail asset market,” Bhasin said. “Retail assets require management bandwidth, suitable technology and effective collection system.”