Singapore: Singapore’s DBS Bank, which acquired India’s Lakshmi Vilas Bank (LVB) last November, plans to accelerate its business by doubling down on growth markets of India and China.
DBS Group CEO, Piyush Gupta, said this when briefing investors, analysts, and the media at its virtual annual general meeting (AGM) last week.
In spite of the health crisis and economic chaos caused by the COVID-19 pandemic, Southeast Asia’s largest lender by total assets achieved its highest ever operating profit of SGD 8.4 billion (USD 6.3 billion). This was an increase of two per cent over the previous year. Total income held steady at SGD 14.6 billion (USD 10.9 billion) which was about the same as in 2019.
Breaking down its performance, the bank said that net interest income was impacted by lower interest rates, but this was offset by growth in loans, deposits and wealth management fees, investment gains, and strong treasury performance.
Total full year income from treasury markets rose 33 per cent to SGD 2.9 billion. This was aided by improved digital pricing capabilities, enhanced processes, and application resiliency. The bank was able to take advantage of the trading opportunities created by last year’s market volatility to increase trading income by 54 per cent.
With economic and business uncertainties weighing heavily last year, the bank tightened budget controls and managed to lower expenses by two per cent. General expenses such as travel, and advertising declined. Staff costs benefitted from government grants.
The bank experienced a low rate of delinquencies from borrowers and loan moratoriums have declined significantly from their peaks.
However, it warned that the low interest rate environment will continue to be a challenge.
Looking ahead, it says that it will continue to invest in enhancing its digital capabilities in both retail wealth management and supply chain digitalisation. It plans to launch a digital exchange leveraging blockchain to enhance efficiency of wholesale payments and grow capital solutions.
It will also double down on growth markets of India and China.
In China, DBS chief, Gupta outlined three key areas of focus, which are its upcoming securities joint venture (JV), the consumer finance market and the China Greater Bay Area.
The new JV in China which was announced last September should be ready to go to market in the next few weeks. He added, “We are convinced that China’ s opening-up in the capital account is going to present tremendous opportunities. We’ re already seeing some benefits of that, as institutional investors from China come out and international investors go into China. So that’ s hopefully a big area of growth for us.”
Known as DBS Securities (China), the JV company will provide onshore products and services for both domestic and international customers. Businesses that DBS Securities will engage in include brokerage, securities investment consulting, securities underwriting and sponsorship, as well as proprietary trading. DBS has a 51 per cent stake in the JV and has four Chinese investment and asset management firms as partners.
DBS which currently has a consumer finance JV with the Postal Savings Bank of China, is on the verge of launching a wholly owned consumer business in China.
With regards to the Greater Bay Area, DBS continues to be optimistic about the area and is looking to use its presence in Hong Kong to integrated deeper into the market. The Greater Bay Area consists of nine cities and two special administrative regions in South China, including the cities of Hong Kong, Macau and Guangzhou.
As for its plans in India, the bank plans to leverage its acquisition of Lakshmi Vilas Bank (LVB) to expand its India franchise. It is looking to overlay DBS’s digital capabilities with LVB’s customer base and network to accelerate its business. For SMEs (small medium sized enterprises), it plans to broaden asset-backed businesses.
For retail, it aims to scale up personal savings and current accounts and expand its personal loan portfolio and grow its wealth management proposition plus address the needs of niche non-resident Indians.
Amid market speculation surrounding its takeover of LVB, Gupta assured shareholders that it was not a “forced marriage”. The cash-starved LVB was amalgamated with DBS Bank India to accelerate the group’ s digital banking push in South India. “The reason we put our hands up is because we knew it will give us the opportunity to expand both organically and inorganically,” he said.
The deal significantly increased DBS India’s retail customer base from 23 per cent pre-merger to 48 per cent, by adding two million retail and 125,000 corporate customers.
Gupta said: ” This is very important because to grow in a country like India, we need a good source of retail sticky deposits and LVB is able to achieve that. When we overlay our digital capabilities on top of this base that we amalgamated, we think the prospects for us are very good.”
DBS had recorded amalgamation expenses of SGD 33 million and general allowances of SGD 87 million for LVB, with provisional goodwill of SGD 153 million.
Maha lockdown to cost Rs 40k crore: Report For the LVB acquisition, the non-performing loan assets (NPAs) transferred to DBS stood at SGD 212 million. It is fully secured with general provisions at a conservative 9.5 per cent of performing loans or SGD 183 million. Coverage of NPAs was 76 per cent which is considered aggressive.
“At this point in time, we do not believe that we have to take on anymore incremental cost of credit on the LVB portfolio. We think we provided for anything that we might have expected to see in the course of this year,” said Gupta. DBS expects the merged entity to achieve profitability in the next 12 to 24 months. (ANI)
Many managers of Indian origin occupy the corner rooms of global companies but few match the leadership style of Piyush Gupta, CEO of Singapore’s DBS Bank. How did he manage to shake up a government-owned bank? What are the key principles of his management strategy? Why did DBS choose to take over Lakshmi Vilas Bank? What did he learn from the streets of Delhi where he grew up? Gupta shares his value systems and strategies in an interview with ET. Edited excerpts:
The ET jury has chosen you, the CEO of DBS, as the Global Indian of the year. Twenty-six years ago you decided not to join HDFC Bank and instead pursue your own goals. How do you feel when you juxtapose the two? I have thought about it often. I continue to be very close to Aditya Puri, so we have compared notes and the journey. With the kind of franchise he built, I sometimes wonder whether it was a smart decision at that time and it would have been interesting to be part of that great building journey. On the other hand, given that he stayed in his job for 26 years, what it would mean is that I would have been number two and never the number one. The reality is that at some stage it is always helpful to execute your own strategies. On balance I can’t complain. Not taking that step at that time actually helped me through a different journey, which was quite fulfilling in its own way–multiple countries, roles, including a failed entrepreneurial stint which I would not have seen either.Last year was extraordinary for you – the acquisition of Lakshmi Vilas Bank. You dared to do what no international bank has. Why? When we raised our hands to subsidiarise in India, a lot of people asked how come you want to subsidiarise when nobody has done. And, I have maintained all along that we want to subsidiarise because we are genuinely bullish about the future of India and to capitalise on that you must be entrenched. You cannot be a niche player that operates in the top 10% of the market–you got to go down deep. If you see all the growth in India in the last 20 years, it is the consumer financing space, SME space and if you really want to benefit from it you have to be in that part of the market, and for us the only way was to subsidiarise. We were already thinking about these opportunities –what would make sense and had a strategic road map. We were mentally prepared and had done some homework around a range of possibilities and that allowed us to respond very quickly.
Does the role of white knight remain valid? One of our basic things in doing inorganic deals is we must have the bandwidth. It’s got to be strategically aligned with what we want to do, it has to make economic sense and you must have the management bandwidth to go ahead. And therefore, if it’s a much bigger deal, we may not have the management bandwidth to do justice to it. If it was a much bigger challenge, I don’t think we would have been able to handle. For the next couple of years we have our hands full in integrating LVB. We are going to focus on aligning the culture, technology and build on what they have for now.
Cryptocurrencies are being called the 21st century gold or tulip depending on whom you talk to. Where are you in this debate? We launched the first bank-sponsored digital exchange in December, which lets you tokenise assets and securities. It also helps you custodise digital services. It also helps us buy and sell cryptocurrency. So by our action we are creating capabilities for crypto, digital currencies and tokenisation for the future. But Bitcoin as a replacement for money is still challenging. Money is a medium of exchange, a unit of account and store of value.
Bitcoin seems to be all the rage… Bitcoin is not a good medium of exchange because even though Elon Musk says he will take it for Tesla, it is very hard to do transactions because you can only do nine transactions per second while Visa and Mastercard can do hundreds of thousands. It’s also difficult to make it a unit of account because it is so volatile. When the value changes 60% to 70% every two three days, how do you take it as a unit of account? However, as a store of value it can work because if you think of gold, which has no intrinsic value, but we collectively as humanity have decided it is a good for jewels and a good asset. So we can collectively build a story that this limited supply asset is a store of value and that might happen. You could get to a stage when Bitcoins serve the nature of digital gold as opposed to digital money.
You have had a leadership role for decades. What did it mean when you started and what is it now? A couple of things about leadership don’t change — to set a true norm, a sense of direction, build a culture in a company, to create a team — these things don’t change. Hallmarks of leadership are willingness to take accountability, to come up with ideas and have initiative, to question the status quo and most importantly to inspire people to go down a path they don’t even know exists. What does happen is the ways you express leadership tend to change over time. In the three and half decades I have been there, it’s quite clear, as generations and technology change, the manner and method you lead needs to evolve. You move from more top-down vertical leadership to horizontal leadership and learning to lead people through influence and being participative in your leadership format and ideas. But the fundamental is having a clear sense of purpose, focusing on building culture and getting the right empowered team , which don’t change very much.
You talk about culture and change. Aren’t they conflicting – isn’t one stationary while the other is not? I am a big believer in shaping culture by design. Often you will find that there is a culture of a country and then you go to a company, which has completely different culture. Why is it that the company culture trumps the country culture? It happens because you can shape culture in a way. In DBS for example there is a sense of camaraderie, a family spirit and Asian values, which I kept. But there was another part of the culture which I shook up and that was (being an) offshoot of the government. A lot of decision making was quite bureaucratic. We went through committee structures. People were scared to take decisions. It was quite sarkari in many ways. I had come from an orientation where entrepreneurship, risk taking, individual accountability were important. So to me the big question was—how do I marry the culture of individual enterprise with the culture of harmony and collective operations that DBS has?
While institutions require change, there is resistance. How do you handle it? In our case we stumbled on it. It was not a well-thought-through thing. We drafted a programme of change which had three basic pillars — becoming customer centric, changing the technology architecture and the culture change. As I reflect back, the first pillar of putting customer at the centre liberated everything else. We hired people for customer design, we taught people customer journey but underlying that was the belief that if it makes sense for the customer the bank will support the activity with what needs to be done. The main thing that changed the culture and overcame resistance was the people’s belief that they had a simple rubric—“If it makes sense for the customer, it’s okay to do.”
But there are various stakeholders pulling in different directions… But if you want to drive change like this, it has to come right from the top, the board. I was quite blessed because my board and the chairman right at the top bought into this culture change and driving a transformation of DBS very early. So much so, that they were willing to take short-term pain for long-term gain. Early in our journey, I remember they gave me an X amount and said you spend it to drive the change I wanted and they will deal with the shareholders and the market because it was the right thing to do. So I think you need to make the investments for the long-term and for that you need the commitment not only from the senior management but all the way to the board. Once you see that the message goes down to the troops, that helps overcome resistance. As adults we are also anchored by the way we do things, so you’ve got to create an atmosphere for people to experiment and learn by doing and you’ve got to reduce the premium on risk so it’s okay to make mistakes. Because if people are scared of making mistakes, they won’t take a chance.
Where did you learn the lessons of management? Most of the things I learnt about banking come from Citibank. I spent more than 25 years there and many of these things — getting your hands dirty, entrepreneurship, leadership — I learnt at Citibank. But a large part of leadership skills I learnt fundamentally do go back to being in India. I grew up in India in the 70s and many of the traits that I have acquired come from high school and college — the capacity to have a world view, to put things together coherently, to be able to communicate, and taking people along, to look for solutions. All these predate Citibank.
Q. How do you view the digital transformation journey of banks in India? Neal: If you see most digital transformations around the world, probably 99.99% of them won’t deliver on their promise, I’m not being contentious, it’s just that I have been long in this industry to see not a single software project being on time and on budget feature and that’s just the reality.
Digital transformation is not about software, 99.99% of it might not fail but might not live up to the expectation or the promises delivered by the consultancies who work in this space.
In many companies and banks over the years great IT capabilities have been built and CTO wanted to transform the architecture to make it more agile and open but got delayed due to budgets or prioritizing new products so it gets delayed and delayed and pushed back in creating agile architecture. The same story is with data, banks are brilliant in collecting data and lucky around data monetization. But historically, they’re bad at data and arrived towards the data monetization party too late. We’ve seen wonderful things with Big Techs and E-commerce giants partying on this free data they’ve got and how they’ve monetized.
Banks, by the time they realized and turned up for the party of data monetization, the police (referring to data privacy issues and scandals happened in the past) arrived and everyone is fearful and positioned as “we take care of your data”. While data is safe in banks but it’s lying and lost in disparate systems and nobody knows who owns the data. Banks should use and move the data within the systems and within the regulatory ambit to enrich the life of consumers and then the whole cycle of budget for the exercise repeats and the transformation exercises takes a back seat.
The biggest challenge with digital transformation is not the technology but the culture and people. Having worked across different organizations and industries, I know what good tech culture feels like. I never wanted to work with a bank, because I had been selling to banks for 20 odd years and I know the culture, the big difference between a tech company and a bank is the approach. Bank’s think from an ownership mindset over systems and its people but tech company’s entire model is partnerships. The second thing I noticed is banks are very hierarchical, micro-management, process based roles and I have never seen in any other organizations.
Thirdly, it’s around risk appetite. Banks are very funny, almost schizophrenic because their entire business model is monetizing risk but are skeptical of taking risks due to regulatory or compliance issues or culture. Capital Markets strive on risk, banks’ business is around pricing risk and Insurance companies model is avoiding risk, if you look at these three level it directly correlates to their innovation capabilities.
Banks need to experiment a lot, while it’s a regulated environment but it can start at small things, rigid processes won’t take it anywhere. Technology, Data & Culture is what will drive digital transformation and by the time banks realise it’s too late.
Digital Transformation should start at “Why are we doing this?” “What outcome do we want?” You don’t have to boil the ocean, just fix the bits and pieces which are going to make money. You don’t have to digitise everything, just digitise which is going to make money.
Do simple cultural transformation, you don’t need to get rid of your staff or hire Google employees. Get people the inspiration to try new things and give them the freedom to enjoy their work life.
On the Indian Banks: Banks in India are huge banks with huge staff bases, you can forgive them as compared to the banks in the West, because in India the smartphone churn came later but banks in western didn’t catch-up with the digital transformation even when they got smartphones quiet before India. The population in India is catching up quickly and banks in India have done a fairly good job.
I wouldn’t put India as the most innovative finance market from the bank perspective on what we are doing! I won’t put it in tier 1 innovation, but overall the ecosystem is doing well.
But I would put India on number one around putting up the national infrastructure Aadhar platform and UPI, etc. Regulators, FinTech & e-commerce have been doing a good job.
Q. How do you view Bank-FinTech collaborations? Neal: FinTechs started with competing banks but then eventually realised it’s too hard to go alone and in most of the cases customer acquisition cost and regulatory compliance is too high. Banks have distribution and FinTechs have tech and speed.
In any megatrend if you see, for e.g. e-commerce, The race between Amazon and Walmart, has merged in between from starting at extreme ends. That’s exactly what we are seeing between Banks and FinTechs. Banks are fintech-y and Fintechs are bank-y- more towards building hybrid models. (Neal explained this in a lighter tone)
FinTechs are agile, quick, focus on the client, think differently and don’t have historical roles and technology and quite a lot of it is not directly regulated. Banks are good at security, trust, products but slow, culture issues and expensive.
I know a lot of banks these days say they are FinTech companies that they magically transformed in such a short period of time but when I meet them they are “bankers”.
Questioning banks, Neal asks, do you want to be a bank or tech company? You’re not good at building softwares but as a bank you’re great at being resilient, safe, secured and reliant system and that’s the sweet spot for bank’s technology team and they’re really good at that and they should focus more on that and stuff which they own like digital banking platforms but if you want to do something new and interesting, in all fairness banks should partner with FinTechs and keep their capability with themselves.
That’s where the world is moving towards where you’ve many partners, for e.g. Neo-banking platforms in India. Banks should partner where it makes sense, usually around the UX, RegTech, SupTech, compliance. It takes an average 9-10 months to sell a technology solution to a bank, if you’re a small FinTech and you’ve got a small sales team, you’ve got to understand, is this going to be successful and qualify quickly, you’ve to understand why the bank is concerned if you don’t do pen testing. It’s changed quite a lot in recent times, banks do have a point. In fairness, banks don’t get hacked, I can’t recall any recent incident where someone hacked into and took all money, it doesn’t often happen because of bank’s control and FinTechs have to learn a lot in that.
Banks and FinTechs can build a nice symbiotic relationship and do things at which they’re good at.
Q. What are your views on neobanking entities? Neal: There are different models in this particular space, a bank rolling out a neobank like DigiBank by DBS Bank, even if it fails the bank can roll it back into its fold like how recently BBVA did it with Simple. The other model is building a digital bank from scratch like Standard Chartered did with Mox in Hong Kong, that’s quite an undertaking and there they’re looking at better operational metrics and it’s to be seen how it performs.
For banks doing this the DBS Bank way could be the right way to go which is a hybrid way essentially cutting your tech stack in half and keeping the backend stuff, put a bus or microservices layer and build net new code on top of that. All the front end stuff is new and over a period of time you can replace the stuff below as customers won’t know about it and at the same time bring changes in the culture.
At DigiBank, the bank staff were in a separate building, they had different reporting lines and slightly different roles but stationed more in an innovation lab kind of space.
The second model is getting a license from a regulator and building a bank from scratch like Xinja, Starling, etc. It’s a start-up; these things cost $50mn just for initial build for a full service bank. It’s funny how people tell me how successful these banks are and I’m like can you come back and tell me how successful they’re when they’ve lent some money or got some deposits. They’re essentially a prepaid card with a mobile application and that’s not a bank.
In fairness, I would not like to do that, it’s an expensive affair. The Xinja team was amazing but got blindsided by Covid-19, set high interest rates, the only way I have seen to succeed in a banking venture is to buy your clients, either buy them through free ATMs, free transactions, like In India, banks offer 7% deposit rates. Some way you’ve got to spend a lot of money to get people on your platform. These models kind of make money, Starling has turned profitable because they’ve a business model which works.
The third type are payment apps like Revolut, Monzo, etc. They do transactions, give flashy cards and everyone’s incredibly proud of their cards. We did one with Razer FinTech where if you tap a card the NFC is enough to light the Razer logo and these apps look to scale up on these transactions and hope they grow. Not all of them have been successful in terms of being profitable.
The fourth type, like neobanking platforms we’ve seen in India and in my mind that’s a brilliant play. You don’t need a license as you’re not storing the data. It goes directly to your partners core platform you’re managing the operations and I think that’s kind of great.
The final type which could be worrisome for traditional financial institutions is the neobanks created by e-commerce and tech companies giants because they’re good at technology and they’ve massive scale.
The top three banks according to me are WeBank (China), MYbank (China) and Kakao Bank (South Korea), because they’ve free distribution and tens of millions of clients, so the cost of customer acquisition is low and they’ve data for scoring.
I like the India model which is putting a wrapper on the bank and it’s a smashing idea. Building a digital bank from scratch is only for the brave but there’s money there as you’re doing the traditional bank model better. These ones like payment models we’re going to see lots of failures because the only way they work is by continuously pumping money.
India has taken the right path, some regulators have jumped on this too quickly in terms of Hong Kong and we might see how it will pan out. Singapore, it’s a tiny market but regulators are pushing as banks are refusing to innovate and taking it slow.
Essentially solving customer’s problems is the main idea, banks have been doing it the monolithic way and that’s what digital disruption is about. It’s not about technology, it’s about someone else solving your customer’s problem better than you and that’s digital disruption. Q. Any advice to the regulators? Neal: My advice to regulators is to read science fiction, what is playing out has already been defined, the future is defined. A lot of it is inevitable, regulators should read science fiction, understand tech megatrends because the way it rolls out affects how people operate in a society and how people will purchase products in future and they’ve a difficult job here.
Even if regulators have a team which thinks about future regulation based on future tech and societal trends you’ll be way ahead of the curve, things like blockchain, cloud-computing, we already have hands on it and we are still waiting for it.
While I did get blindsided by how crypto evolved but generally everything else is talked about and is inevitable. My guidance is around tech and societal trends, think about how regulations need to change in the future with fewer regulations.
The cost of regulatory burden for banks goes up and up every year and in fairness if you’re a regulator your job is to write regulation, if you don’t do that you don’t have a job while I do acknowledge Regulators do a fantastic job.
My point is, you keep adding layers on and on and if you write new stuff can’t you just take some other stuff away or simplify what you’ve done. Secondly, be clearer, it’s a challenge and you can’t be wrong as a regulator and they cannot be specific, and that leads to interpretation problems.
Regulators should use technology to enforce regulations, give out clarity and simplify things. In the last five years they’ve changed a lot and are doing a stellar job.
A plea in the Delhi High Court has challenged the scheme of amalgamation of Lakshmi Vilas Bank with Development Bank of Singapore (DBS), contending that its shareholders have been “left in the lurch” and the Centre and the Reserve Bank have failed to protect their interests. The petition was listed before a bench of Chief Justice D N Patel and Justice Jyoti Singh on January 13, but was adjourned to February 19 after the bench was told that the Reserve Bank of India (RBI) has moved a plea in the Supreme Court to transfer all pleas against the amalgamation scheme to the Bombay High Court.
The petition in the Delhi High Court has been filed by lawyer Sudhir Kathpalia, who was also a shareholder in Lakshmi Vilas Bank (LVB) and lost his 20,000 shares in the company due to the amalgamation scheme.
Kathpalia has sought quashing of the clause in the scheme which states that from the date of merger, “the entire amount of the paid-up share capital and reserves and surplus, including the balances in the share/securities premium account of the transferor bank, shall stand written off”.
The petition has said that under the scheme, DBS was not required to give any shares to the LVB investors in return and they were “left in the lurch”.
The amalgamation scheme was approved by the RBI on November 25, 2020 and the merger took place on November 27, 2020.
The petition has contended that the Centre and RBI have failed to protect the interests of the shareholders.
It has also claimed that DBS was chosen for the merger without inviting bids from other banks and financial institutions.
It has alleged that the “scheme of amalgamation was irregular, arbitrary, irrational, unreasonable, illegal and thus, void”.