Commercial Bank Management

DBS India
Banking On The Unbanked

Section B : Group 6

Khushali Agarwal (021)

Rupina Papan (047)
Paarth Hebbalkar (154)
Divya Agrawal (206)
Gandharv Aggarwal (208)
Arunima (434)
Nori Spandana (456)
DBS and Foreign Banks

The Development Bank of Singapore

• Founded in 1968 with purpose of financing key activities of economic growth in Singapore
• Opened first branch in India in 1995 in Mumbai and took around a decade to open the second
branch at Delhi
• By around 2014, DBS India’s 12 ban network accounted for 4% of entire global loan book of the
group.
• With economic downturn, the NNPA and GNPA were on rise in the Indian Economy and DBS was not
veiled to bear the effects of its after shock as well.

• As at March 2013, there were 43 banks from 26 countries, manned by around 25000 people.
• Other hand there were 26 public sector banks manned by around 800,000 employees. This speaks
about the penetration of the bank and kind.
• During and after 2008 crisis, foreign banks responded by curtailing their operations, selling off
businesses and assets and trimming their exposure.
Focus of Financial Inclusion

• Largest number of unbaked population in the

world
• Pradhan Mantri Jan Dhan Yojana, brought under
its ambit 150 million new bank accounts with
137 million Rupay Cards
• Increasing role of small finance bank to
undertake deposit and lending
• PPI, BC, NBFC, telephone companies, super
market chains etc played role by setting up of
payments banks
• Banks offering mobile services like IMPS
(Immediate Mobile Payment Services) by NPCI
• Advent of UPI
Wholly Owned Subsidiary Scheme

Purpose Guidelines

• To control the flight of foreign banks post • They could open more branches in tier 1
the 2008 crisis given they have first expanded in tier 2-6
• Delineation between assets and liabilities
of domestic bank from foreign parent • Atleast 25% of total branches opened in a
• Ring Fencing capital infusion and keeping FY should be in rural unbanked areas
it put
• Facilitate foreign bank participation in • Total number of branches opened in tier 1
Financial inclusion. Statistics say only 8 to not exceed total opened from tier 2-6,
foreign banks were present in rural India inc. of northeaster regions
out of 250
• To increase the MSME lending in the • Entitlement and lags to be carried forward
portfolio of foreign banks in next FY.
Future Strategy ?

• In 2014, Mr. Aditya Shah joined DBS, with major focus

on expansion through consumer banking and SME
Business.
• After evaluating opportunities and challenges, DBS India
decided to apply for the WOS License in April 2015

Future Strategy – MSME?

• MSME played critical role in socio economic development

accounting for 8% of the GDP in 2012. Also in providing Number of Micro, Small and Medium Enterprises (MSMEs) in India
employment and facilitated industrialization of rural and
(2015-2016 to 2019-2020)
backward India
Year Micro Small Medium Total
• Operated at Lower cost of capital as compared to large 2015-2016 421006 70926 2645 494577
industries 2016-2017 2147491 216751 8619 2372861
• High priority sector, but minimal lending done by foreign 2017-2018 1344234 166480 6619 1517333
banks (As on 2010, foreign banks contributed only 5.8% 2018-2019 1870282 241343 9403 2121028
of total lending ) 2019-2020 2206885 295367 10981 2513233
Future Strategy ?

Future Strategy – Consumer Banking?

• In consumer banking segment – Bank focused on HNWI and Affluent segment concentrated
in Tier 1 cities – tech savvy
• To open new branches in Tier 1 cities under WOS scheme – Bank had to open new
branches in Tier 5 and 6 cities
• Major problems for setting up centres in Rural India – Tier 1 to Tier 6
- Very Low Incomes
- Highly fragmented
- Limited education
- Minimal knowledge of financial institutions
- Cultural inhibitions (mistrust of foreign banks

• Solution to Rural Expansion

- Business Correspondents, ie local bank reps, school teachers
- Mobile banking
Focus ON MSME Sector

Contributions of MSME in economic and social

development:
• Forms 8 percent of the Gross Domestic Product
• Responsible for 40% of manufacturing output
• Accounts for 40% of the total exports of country
• Generates the highest employment growth rates;
providing employment to about 106 Mn Indians
Key Characteristics:
• MSME operates with comparatively lower cost of
capital than large industries
• Relatively untapped; foreign banks contribute a
mere 5.8% of the total lending.
Focus ON Contribution to PSL

• PSL Norms
PSL Target
Domestic banks &
Foreign Banks with >20
branches 40% of their total lending
Foreign Banks with less
than 20 branches 32% of their total lending

• Foreign banks don’t have branch network and

access to rural areas.
• DBS is looking to have a presence across the
country and its PSL accounted for INR 46,797 Mn
of a total lending of INR 164,712 Mn; about 30%.
Wholly-owned Subsidiary (WOS) Scheme

Reason for Objective of

introducing the Scheme: the Scheme:
The financial crisis of 2008 led to many As per the RBI notification, the
foreign banks packing their operations objective of having a separate legal
and leaving the country. This resulted entity was a ‘Clear delineation between
in a outflow of capital in India. As a the assets and liabilities of the domestic
result, RBI started deliberating on the bank and those of its foreign parent
scheme in 2011 and it was formally and clearly provides for ring fenced
introduced in November 2014 capital and assets within the host
country”

Option for Banks:

Banks operating in India before August
2010 had the option to continue in either
the Branch Mode or the WOS mode.
However, for other banks, WOS was
mandatory given a set of conditions
Wholly-owned Subsidiary (WOS) Scheme

Increasing the participation of foreign banks in

the objective of financial inclusion. This
involved serving the under-banked or
unbanked population of the country

Increasing the lending by foreign banks to the

Other fast growing MSME sector in the country. The
Agenda sector was a heavy contributor to GDP growth
and the MSME’s needed capital for expansion

Increasing the contribution to Priority Sector

Lending (PSL) by foreign banks. At the time,
banks with less than 20 branches needed only
32% of loans dedicated to PSL as compared to
40% for others
WOS Scheme: Guidelines for the Banks
For a bank to be considered for the WOS scheme, it needed a minimum paid up capital of INR 5 billion. For
expanding their presence in Tier 1 centres, the banks first needed to expand their network in Tier 2 to 6
centres. Details of categorization of centres is given in the table below. Other conditions included:

The total number of For Each branch If the bank is unable Any shortfall in
At least 25% of total
branches in Tier 1 opened in Tier 2 to 6 to use the allowance establishing required
branches in a year to
not to exceed the centre, the bank of branches in Tier 1 branches in Tier 2 to
be in Tier 5 and Tier
combined total of would be allowed to centres, it could do 6 centres must be
6 Centres (unbanked
Tier 2 to Tier 6 set up a branch in so in the next 2 completed in the
rural centres)
branches in an year Tier 1 centre years next year
 Challenges in implementing WOS

High Operational Costs Economic Viability of Tier III – Challenges of Unbanked Rural Competing against local banks
VI cities? Centres for SME segment
 DBS in 2014 experienced a  DBS intended to expand it’s  India faced major challenges  Foreign banks contributed
low profitability and increase business into new segments. in terms of financial inclusion only 5.8 % of total lending to
in NPA as compared to Though Tier I, II cities had the and had very low credit SME sector. Public sector
previous years. Opening new reliable consumer base it was penetration score. Rural banks were the major
physical branches under WOS difficult to say so about the unbanked area posed a major lenders.
scheme would increase it’s Tier III – VI cities. challenge to opening new
operational costs further. branches due to  Building a consumer base
 Tier VI cities had population - Low average Income of the targeting SME sector and
 The high costs involved along size less than 30,000, would it population tapping into the segment
with it’s low profitability be economically viable to - Highly Fragmented would be a challenge when
issues posed challenges for open branches in such - Mistrust for foreign banks in compared to large public
DBS locations and keep them rural population sector banks of India
operational - Low financial literacy
 The legal process and
paperwork hassles were
another challenge
 How DBS tackled the Challenges

Reducing Operational Costs Onboarding new customers Taping into growing digital & Launching Online offering for
through “Phygital” through technology and mobile users in rural areas SME + Tally
innovation

 DBS opened new branches in  DBS ensured economic  The low tier cities & rural  For SMEs access to bank
India under WOS through viability through scaling up India was witnessing an credit was difficult
phygital model (physical + with low costs increased rise in number of
digital mode) mobile users  In order to address
 The mass affluent consumers challenges in SME sector DBS
 Combination of branches and adopted digital offerings  DBS used this opportunity to partnered with Tally, a
kiosks (manned and quick and provided the launch Digibank, a leading ERP player in SME
unmanned) were made to volume to enhance it’s completely mobile based space
build a touchpoints for funding options banking system for it’s users,
consumer making it easier to reach the  It offered a completely digital
 Created a multi channel rural consumer base at low backed by physical, paperless
 Most of the product offerings digital acquisition model costs and hassle free system for
were made digitally availing credit to SMEs.
increasing the outreach and
reducing costs
 Other Initiatives by DBS to expand it’s consumer base

Data Driven Engagement SME Roadmap in India

• Using Data Driven approach to better • Tap into Tally’s customer ecosystem –
profile consumers and make tailored offer integrated ERP + banking platform
offerings
• Incentivise SMEs to:
• Unsecured Lending – Using algorithm - E- payments
based lending model - Real time auto reconciliation
- Cashflow projection
• Accessing consumer networks through
partnerships. • Build digital loan proposition
Traditional + non traditional data to drive
• Ecosystem partners – Experian, analytics based underwriting
creditvidya
• Tax data from GSTN
• Easy onboarding through Digital
verification and KYC
 Current Scenario after WOS Implementation

PHYGITAL Strong interest for

foreign companies to
shift their supply chains
to India in the post-
CoVid world

PHYSICAL DIGITAL
Target of 50 branches by
end of 2021
• Focus on • Focus on new
strengths methods
• Increasing • Aggressive
efficiency, profits expansion
Now has 35 Branches in
• Essential for 25 Cities
addressing SME
client base
Implemented on March
1,2019
THANK YOU !