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Business News/ Industry / Banking/  Lakshmi Vilas Bank acquisition to strengthen DBS's India business: Moody's
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Lakshmi Vilas Bank acquisition to strengthen DBS's India business: Moody's

DBS said it will pump ₹2500 crore into its India unit, if the RBI's plan is approved.

People walk past a DBS branch in Singapore. File photoPremium
People walk past a DBS branch in Singapore. File photo

The acquisition of Lakshmi Vilas Bank will strengthen DBS’s business position in India by adding new retail and small and medium sized customers, Moody’s Investors Service said.

Lakshmi Vilas Bank is set to be folded into the Indian unit of Singapore's DBS under a plan proposed by the Reserve Bank of India (RBI), which took over LVB on Tuesday due to a "serious deterioration" in its finances. India's government said it had also temporarily capped withdrawals from LVB, which has been scouting for a partner since last year amid mounting bad loan and governance issues.

The RBI's proposed plan would give the Singaporean bank's expansion ambitions a fillip as it would vastly increase the footprint of DBS in India. DBS has been in India since 1994. In March 2019, to expand the franchise and build greater scale, DBS converted its India operations to a wholly owned subsidiary, DBIL. DBIL is now present in 24 cities across 13 states.

DBS said it will pump 2500 crore into its India unit, if the RBI's plan is approved. This will be funded from DBS' existing resources, it added.

Moody's estimates that DBS India's customer deposits and net loans will increase by about 50%-70% following the merger. Lakshmi Vilas Bank will also add around 500 branches to DBS India's 27 branches, it 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% of group loans, from 0.9% as of 30 June 2020," Moody's added.

"DBS’s net loan exposure in India will remain small and will not alter the group’s credit profile. The effect on DBS's capital will be immaterial: additional risk weighted assets from LVB will decrease DBS's common equity Tier 1 (CET1) ratio by around 10 basis points according to our estimate, from a strong 13.9% at 30 September 2020," it added.

The acquisition will help DBS complement traditional physical branch banking with its digital strategy in India. India and Indonesia are DBS’s core foreign markets where it is actively growing its digital banking services, Moody's said.

LVB will add retail and SME customers to DBS Bank India's mostly corporate and SME-focused loan book, Moody's said. The acquisition will be positive for depositors and senior creditors of LVB because the bank will benefit from parental support from DBS, a very strong bank it added.



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Published: 18 Nov 2020, 04:35 PM IST
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