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. The bank believes that the integration of all platforms, systems and people of both the banks is now complete. It will now be able to leverage its growth from 530 branches spread across 350 cities. In an interview, Surojit Shome, managing director and chief executive officer of DBS Bank India, clarified that the bank will take another 18 months to overcome the impact of the amalgamation on profitability. edited excerpts,
It has been a little over two years since the amalgamation of DBS with LVB. Tell us where you currently stand.
Despite the repeated challenges of Covid, it has been a very productive two years. Firstly, we have now managed to integrate all the branches of LVB on a common core banking platform. All our branches can offer all products of the platform on consumer side, SME and large corporate side. We have also completed renovation in most of the branches. On the people front, we completed integration of all grades in both the organizations. By October, we had signed a five-year bilateral agreement with the clerical and subcontractor’s union. As part of this, we made some major amendments to provide basically for the full integration of compensation, which meant that those who are on a pension were converted to defined contributions.
On the portfolio side, 50% of LVB’s wholesale portfolio was stressed. Our current net NPA has come back to 1.42% from around 2%, and our gross NPA has come down to 7.7% as on 30th September. And we expect it to drop below seven and below six. Over the next six months, we are actively working on restructuring and recovery; We’ve also done some portfolio sales. Our target is to bring down the net NPA below 1%.
How has the deposit book grown in the last two years?
at the time of the merger, I think it was probably 4,000 crores- 5,000 crores. If you remember, in LVB, about 15% of its deposits are called high-cost deposits. So, we let them go. In fact, I would say that about 70-80% of them are gone because they have matured, but the other 20-25% have not matured yet, 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 a driver of business growth. I think what’s important is the ability to have a large enough physical presence. Our essential strategy is to create a physical plus digital strategy. We don’t need to add another layer of integration to execute our strategy as there is nothing that stops us from doing it organically. And capital is not something that is a problem. We continue to put in capital after amalgamation or amalgamation. we put close 3,500 crore in 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 large corporate business to a 40:30:30 (large corporate: SME: consumer). We are already at around 55% in large corporates, and the remaining 45% is between the SME and consumer segments.
What kind of revenue revival have you seen from LVB?
It has improved, but slowly because when we have gold loans, we can only grow through branches once we integrate the platform, which was done this year itself. We have connected more than 2,000 people, about 1,000 of them are sellers. So, we will now drive the actual growth because the last thing we wanted to do is have two platforms, two different sets of products and different customer experience before we have to do an aggressive customer acquisition. We will do this from January. Quarter-over-quarter top line from the September quarter ending 2021 to the September quarter ending 2022, we’re up almost 30%. And I would say about 50% of that growth is because we’ve made better use of branches and expanded network.
Can we say that the impact of mergers on your profitability is a thing of the past?
Not yet, for three reasons. First of all, remember, we took a huge hit of goodwill. And goodwill, as per Indian accounting standards, we have to write off 20% every year, and that deadlock is still there. Second, we made a large provision for pension liabilities roughly in two or three lots 600 crores. Third, we were running two separate data centers and two sets of core banking solutions, all of which integrated in the last month. This means that the cliff effect of things that we will not use now will end in the next year itself. Then, there is noise around NPA sales as we work through that portfolio. I would say it will take two years for our P&L to really reflect the clean trajectory of the underlying business. Then, there is noise around NPA sales as we work through that portfolio. I would say it will take two years for our P&L to really reflect the clean trajectory of the underlying business.
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