THE formal nod from India' s central bank for DBS to take over cash-strapped Lakshmi Vilas Bank (LVB), as announced on Wednesday, will pave the way for Southeast Asia' s largest lender to scoop up a sizeable branch network in India.

 

" Willingness may have been expressed by both sides," said a Jefferies report this week, pointing to hopes of a union from both Reserve Bank of India (RBI) and DBS.

 

The merger with LVB will add 563 branches - mostly in southern India - to DBS India' s current 34 branches in 24 cities, over two million retail accounts and over 150,000 non-retail clients and about 4,400 employees, DBS said in a bourse filing on Wednesday night.

 

Under the scheme, its India unit will take over LVB' s INR20,973 crore in deposits (S$3.81 billion) and INR13,505 crore in net advances.

 

" Can DBS grow branches organically? Yes, but it may take time," said Jefferies equity analyst Krishna Guha.

 

As it is, DBS management had recently earmarked S$30 million annually for India expansion - doubling branch presence from the then-12 branches and setting up 60 kiosks to complement DBS' digibank in small and medium-sized enterprise (SME) business hubs and corporate business parks, Mr Guha wrote in a report this week.

 

" Various investments in digitalisation should lower the cost growth for existing business," he added.

 

Sanford C Bernstein analyst Kevin Kwek earlier told BT too that while the brokerage is not " particularly optimistic" on the ability of any foreign players to do well in India, this LVB deal may be the " bite-sized" approach for DBS to push the agenda harder. " If we were to look for positives, this merger could facilitate a more meaningful push into both retail and SME customers," Mr Kwek had said.

 

The amalgamation of LVB with DBS Bank India will be effective as at Nov 27, said DBS on Wednesday.

 

This is believed to be the first time the Indian authorities have turned to a foreign lender to bail out a failing local bank.

 

Foreign banks with a wholly-owned subsidiary in India are rare. DBS in March 2019 converted its India operations from a branch to a wholly-owned subsidiary. In doing so, DBS, which has been in India since 1994, became the second foreign bank other than State Bank of Mauritius to get approval in recent years to have a wholly-owned subsidiary in India.

 

The deal is structured such that existing shareholders of LVB are wiped out fully on their equity. LVB has been on a hunt for a rescue since last year, given its urgent need for capital infusion. Besides posting losses over the last three years, the Indian bank has been hit with governance issues and mounting bad debt.

 

DBS will inject INR2,500 crore into its wholly-owned India unit to support the transaction.

 

It is a small-scale takeover at this point, said Jefferies' Mr Guha. He noted that LVB assets makes up less than 1 per cent of DBS' s group assets, while India itself makes up just 1 per cent of group loan and profit.

 

The proposed takeover will not have a material impact on DBS' s dividend payment, DBS' s CEO Piyush Gupta had earlier said.

 

" If you look at the scale, (the deal) is very small in the big scheme of things. So it is not material to our dividend or balance sheet," Mr Gupta had said last week in a Bloomberg TV interview.

 

Investors favourable of the deal believe that LVB' s chunky, bad assets may already have been recognised, Mr Guha wrote.

 

But Mr Guha also noted that rapid swelling of LVB' s loan book, which grew more than five times from 2007 to 2019, has prompted some scepticism. There are also concerns over how LVB had five chief executive officers come and go in the last decade, as well as ongoing litigation issues.

 

DBS on Tuesday said it is teaming up with JD Logistics (JDL) to provide supply chain financing to Hong Kong-based small and medium-sized enterprises (SMEs) in the " fast-growing cross-border e-commerce import business" .

 

JD Logistics is the supply chain and logistics arm of Chinese e-commerce giant JD.com.

 

This is DBS' s first digital solution for e-commerce merchants on a logistics platform, the bank said in a press statement.

 

Through this partnership, DBS will provide supply chain financing to JDL' s e-commerce SMEs that place their inventory in JDL' s bonded warehouses and sell the imported goods on JD Worldwide. This will improve the merchants' cash flow needs to meet the growing demand from Chinese consumers for a variety of imported products from international suppliers, DBS noted.

 

In addition, the bank will integrate its [2][3]digital service into JDL' s blockchain platform to enable the real-time exchange of data. JDL will be able to refer e-commerce merchants that require financing to DBS.

 

The bank will then approve these applications based on real-time supply chain transaction data, such as inventory and sales proceeds collected from the end consumer, reducing the physical documentation required, DBS said.

 

Amid the Covid-19 pandemic, DBS can conduct remote account opening and customer identification and verification via video conference.

 

Once onboarded, merchants will be able to view their available balances and outstanding loans, as well as initiate drawdown[4] on a pool of eligible assets on the JDL supply chain platform, with funds disbursed quickly, the bank said. [/4]

 

Tan Su Shan, group head of institutional banking at DBS, said this partnership will strengthen the bank' s Greater Bay Area strategy by growing its cross-border SME franchise.

 

According to DBS, merchants that will benefit from this tie-up are typically Hong Kong-based SME trading entities with Chinese parentage.

 

" They import goods from overseas markets such as the US, Japan, Germany, Europe and South Korea, and sell them onshore in China. Most popular products include baby and maternal care, fashion and lifestyle, nutritional supplements as well as electronic products," the lender added.