‘LVB integration complete; DBS now looks for growth’


MUMBAI :  Two years after the amalgamation of DBS with Lakshmi Vilas Bank (LVB), the Singapore bank is all set to grow its balance sheet from 2023. With the integration of all platforms, systems, and people from both banks now complete, the bank believes it would now be able to leverage its growth from 530 branches spread across 350 cities. In an interview, DBS Bank India managing director and chief executive officer Surojit Shome clarified that it would take another 18 months for the bank to shed the impact of the amalgamation on profitability. Edited excerpts:

It’s been a little over two years since DBS’s amalgamation with LVB happened. Tell us where you stand currently.

It’s been a very productive two years, despite the repeated challenges of covid. First, we’ve managed to now integrate all the branches of LVB on a common core banking platform. All our branches can offer all the products of the platform on the consumer side, SME, and large corporate side. We’ve also completed renovation in most branches. On the people front, we completed the unification of all the grades in both organizations. By October, we had signed a five-year bilateral agreement with the clerical and sub-staff union. As a part of that, we took a couple of major revisions to basically provide for a complete unification of the compensation, which meant that people who are on a pension was converted to defined contribution.

On the portfolio side, 50% of the wholesale portfolio of LVB was stressed. Our current net NPA is back to 1.42% from about 2%, and also our gross NPA is down to 7.7% as of 30 September. And we expect that to fall further below seven and below six. Over the next six months, we’re working quite actively on restructuring and recovering; also we have made a couple of sales of portfolios. Our aim is to bring net NPA to below 1%.

How has the deposit book grown over the last two years?

At the time of the merger, I think it was maybe 4,000 crore– 5,000 crore. If you remember, at LVB, about 15% of its deposits are what are called high-cost deposits. So, we let them go. In fact, I would say about 70–80% of those are gone because they have matured, but another 20–25% have not yet matured, which we will continue to work on.

Are you interested in buying another bank like IDBI to add more branches?

We don’t need another bank. We can add 1,000 branches. So today, buying branches is no longer the driver of business growth. I think what is important is the ability to have a large enough physical presence. Our essential strategy is to build a physical plus digital strategy. We don’t need to add another layer of integration to execute our strategy because there’s nothing that stops us from doing that organically. And capital is not something that is a problem. We continue to put in the capital since the integration or amalgamation. We put in close to 3,500 crore over the last two years.

What kind of retail loan growth have you seen?

From January to December, our portfolio is up 35 or 40%. But the way to think about it is we want to go from a substantially large corporate business to a 40:30:30 (large corporate: SME: consumer). We are already at about 55% in large corporates, and the balance, 45%, is between SME and consumer segments.

What kind of revival of revenue have you seen from LVB?

It has improved, but slowly because while we have gold loans, we could only grow through the branches once the platform was integrated, which was only done this year. We have added 2,000 plus people, about 1,000 of them are salespeople. So, we will drive the real growth now because the last thing we wanted to do is to have two platforms, two different sets of products and customer experience being separate before we made an aggressive customer acquisition. We will do that from January. Quarter-on-quarter top line from the September quarter ending 2021 to the September quarter ended 2022, we are up about 30%. And I would say about 50% of that increase is because we have utilized the branches and the expanded network better.

Can we say that the impact of the merger on your profitability is a thing of the past?

Not yet, for three reasons. First, remember, we took a large goodwill hit. And the goodwill, as per Indian accounting standards, we have to write off 20% every year, and that overhang is still there. Second, we took a large provision in two or three lots for the pension liabilities, roughly 600 crore. Third, we were running two separate data centres and two sets of core banking solutions, all of which only got integrated last month. This means that the cliff effect of the stuff we will no longer use will only go off next year. Then, there is noise around the sale of NPAs because we are dealing through that portfolio. I would say that it would take another two years before our P&L really reflects a clean trajectory of the underlying business. Then, there is noise around the sale of NPAs because we are dealing through that portfolio. I would say that it would take another two years before our P&L really reflects a clean trajectory of the underlying business.

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