LVB was struggling to survive even before the March lockdown. The resulting dislocation dragged down the Tier 1 capital ratio to minus 1.83%, putting the lender beyond redemption. By swallowing assets and liabilities of the 94-year-lender, DBS
gets 563 branches, 974 ATMs and a $1.6 billion franchise in retail liabilities.
institution was the second foreign bank after SBM Group of Mauritius to turn its India operations into a wholly owned subsidiary. Yet, DBS
Bank India Ltd. hasn’t really expanded outside major metropolises. LVB will help it penetrate deeper into the more industrialised southern state of Tamil Nadu, where Singapore’s ethnic Indian minority has an ancestral connection. Faster growth in the country could even open up the possibility of a stock-market listing in Mumbai for the India subsidiary, says Bloomberg Intelligence analyst Diksha Gera.
The deal nixes speculation that the RBI might turn to the state-run Punjab National Bank to rescue LVB if it couldn’t find an acceptable rescuer on its own. Punjab National, allegedly taken for a $2.1 billion fake loan-guarantee ride by an uncle-nephew jeweler duo, is hardly the picture of operational strength and financial vitality depositors want to see in a white knight.
To that extent, the RBI’s decision to broaden the search beyond a “national team” is a good sign. It shows that the regulator wants control of banking assets to be in strong hands. If they incorporate locally, overseas institutions will be considered at (almost) par with homegrown ones.
DBS’s rivals like Standard Chartered Plc, Citigroup Inc. and HSBC Holdings Plc have deeper India ties and bigger branch networks. But their interest in establishing local subsidiaries never perked up because of the stipulation that 25% of new branches in any year should be in unbanked rural areas. However, now that DBS is getting to build scale in India’s capital-starved banking system via an amalgamation blessed by the regulator, there may be similar opportunities in store for others, particularly HSBC.
The British bank needs to cut its excessive reliance on the Hong Kong market, where it’s caught in the middle of a financial cold war between China and the U.S. DBS Chief Executive Officer Piyush Gupta has put the balance sheet of the bank’s Indian unit to use and promised to bring in an extra $336 million in capital. Noel Quinn, his counterpart at HSBC, should take time off from his cost-cutting agenda and weigh the opportunity. LVB was just a small private-sector bank, but the Indian government also wants to consolidate its 12 state-run lenders into four. There could be an M&A prize for becoming Indian.