DBS Bank India managing director and head of institutional banking, Rajat Verma, said that the asset quality of its small business book is “very good, the default level is low despite growing quite rapidly”.
Having achieved its target of a billion-dollar book in the small business segment, DBS Bank India now plans to double its exposure in three years, a senior banker said, underscoring the lender’s optimism around a sector that contributes nearly 30% to the gross domestic product (GDP) and is a significant job creator.
“We are growing our SME (small and medium enterprise) book and we have added new products. Like start-ups, it is not only a lending business and there is a liability side of the business too,"Rajat Verma, managing director and head of institutional banking at DBS Bank India said in an interview.
Its SME business revenue has increased to 20% of its institutional banking revenue in Q1 2024, from 19% in Q1 2023. These percentages, however, exclude the offshore institutional book.
Verma believes the current growth trajectory of its small business segment, which he says is “in the 30s", should continue at the current level.
“I am a great fan of a consistent growth rate over a period of time. It is not good to do 40% one year and then 10% the other year but 20-25% consistently; the book could double in the next three years."
Launched in 2019, DBS Bank India is a wholly-owned subsidiary of DBS Bank Ltd, Singapore. India allows foreign banks to operate either as a branch or a wholly-owned subsidiary of the parent. The other bank to set up a local subsidiary was SBM Bank India, while the rest operate as branches.
“We have touched the $1 billion (fund and non-fund based SME exposures) mark in the SME business and we think it is one of the businesses which will drive our growth. This also includes loans given to start-ups," said Verma who joined the bank in 2023 from HSBC India.
Verma noted that the asset quality of its small business book is “very good, the default level is low despite growing quite rapidly."
The bank’s overall gross NPA ratio stood at 5.61% as on 31 March 2023, down from 9.5% in the previous financial year, according to its FY23 annual report.
According to him, while a conglomerate might have 30-40 or even 50 banks in a consortium, depending on the type of conglomerate and how much debt they need, an SME would have two or three at most.
“So, the choice of banking partner is a critical one, and likewise for the bank too. We are focused on the SME space and it is a business that is growing fast while the quality of assets remains healthy," he said.
Data shows that the quality of small business loans has improved for the entire banking sector. The gross non-performing asset (NPA) ratio in micro, small and medium enterprises (MSME) loans for banks declined to 4.7% of outstanding loans as of 30 September, from 6.8% in March 2023 and 7.7% in September 2022, according to the latest Financial Stability Report released by the Reserve Bank of India (RBI) in December.
Aggregate bank loans to MSMEs grew 29% to ₹10 trillion in 2023-24, according to a separate data set from RBI.
Verma said that one reason for the sector's strong asset quality metrics is the reduction in information asymmetry. “These include the data available from credit bureaus, data on the founders, GST (Goods and Services Tax) returns, besides others."
According to Verma, DBS Bank India’s strategy is to partner with these companies for the long term. “I am also interested in making sure that we on-board clients who will stay with us five or 10 years down the road," he said, adding that the bank is interested in SMEs, midcaps, and large caps.
“So SME is a feeder to the mid cap. The mid cap is the feed to the large cap." Meanwhile, the bank’s environmental, social, and governance (ESG) financing book had crossed SGD 1 billion (about $740 million) in 2023. While it had planned to grow from that base by 60% by the end of calendar year 2024, it now expects to exceed this substantially.
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