Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AAA/Stable’ rating on the corporate credit facility of DBS Bank India Ltd (DBIL). The rating on the certificate of deposits programme has been­­­­ reaffirmed at ‘Crisil A1+’.

 

DBIL is a wholly owned subsidiary (WoS) of DBS Bank Ltd., Singapore (DBL; rated ‘AA-/Stable/A-1+’ by S&P Global Ratings [S&P]). The ratings on DBL by S&P reflect the bank’s market position as the largest bank in Southeast Asia and the market leader in Singapore, strong deposit funding, and resilient asset quality. These strengths are partially offset by sizable direct exposure to Greater China, where economic prospects have become less certain.

 

The ratings on DBIL continue to reflect the strong support that it receives from DBL, DBIL’s healthy capitalization and improving asset quality. These strengths are partially offset by average, albeit stable earnings profile and a relatively modest market share.

Analytical Approach

For arriving at the ratings, Crisil Ratings has considered the standalone credit risk profile of DBIL and has also factored in the expectation of strong support from its parent, DBL.

Key Rating Drivers & Detailed Description

Strengths:

• Strong support derived from DBL: The credit assessment of DBIL reflects the expectation of continued strong support from its parent, DBL, as demonstrated in the past. DBIL is strategically important to the parent, given the latter’s focus on enhancing and diversifying its presence across Asia and particularly India, which remains one of the key growth markets. DBIL should benefit from the high level of operational synergies with the parent, including senior management oversight, common risk management systems and standards, and treasury platforms. Strategic importance of DBIL to the parent is also evidenced through adequate representation of DBL’s senior management on DBIL’s board. The parent has demonstrated track record of regularly infusing capital in DBS India branch and in DBIL post its conversion to a WoS, and the same will continue in the future to enable DBIL to keep capital ratio above the regulatory minimum.

 

Furthermore, DBL has complete ownership in DBIL, and should maintain its significant majority ownership over the medium term. This, along with shared brand, strong management, and operational integration, leads to a high moral obligation on DBL to support DBIL.

 

• Healthy capitalization: Capitalisation remains healthy as reflected in the CET-1 ratio and overall capital adequacy ratios (CAR), and networth (represents share capital and reserves) of 13.3%, 15.8% and Rs 12,579 crore, respectively, as on March 31, 2024 (12.6%, 15.0%, and Rs 10,282 crore respectively, a year ago). As on September 30, 2024, the CET-1 ratio, overall CAR and networth was reported at 12.4%, 14.6% and Rs 13,116 crore. Furthermore, the capital position is supported by regular capital infusion by DBL. Over the last nine fiscals, DBIL (including erstwhile DBS India branch) had received around Rs 9,100 crore from the parent including CET-1 capital and subordinate debt, out of which Rs 1,920 crore, Rs 1,040 crore and Rs 2,500 crore of CET 1 capital were infused in fiscal 2024, fiscal 2022 and fiscal 2021, respectively to support the scheme of arrangement. The capital support is expected to continue over the medium to long term. Moreover, asset side risk is cushioned by adequate networth (share capital plus reserves) coverage for net non-performing assets (NPAs), stood at 100 times as on March 31, 2024.

 

On an ongoing basis, DBIL is expected to maintain CET-1, Tier-I and overall CAR above regulatory minimum at all times over the medium to long term.

 

• Stabilizing asset quality: After amalgamation with the erstwhile Lakshmi Vilas Bank (eLVB), reported asset quality metrics had deteriorated with gross NPA inching up to 12.9% as on March 31, 2021 from 2.6%, a year earlier. However, NPAs have improved over time driven by recoveries and write offs. On March 31, 2024, GNPA stood at 3.3%. Moreover, with provision coverage for NPAs (excluding technical write-offs) being high at 93.0% as on March 31, 2024, net NPA stood at 0.2% on the same date (1.2%, 1.6%, 2.8% and 0.5% as on March 31, 2023, March 31, 2022, March 31, 2021, and March 31, 2020, respectively). In first half of fiscal 2025 as well, asset quality remained sound with gross NPA reducing to 2.8% whereas Net NPA remaining stable at 0.2% as on September 30, 2024.

 

Under the RBI August 2020 and May 2021 resolution framework for Covid-19-related stress, the bank implemented restructuring on accounts and the total outstanding as on March 31, 2024, was Rs 199 crore.

 

From the perspective of risk management, incremental lending to vulnerable sectors has been reduced; a focused strategy has been adopted as per which lending is only to well-rated large corporate groups in select sectors.

 

The retail and small and medium enterprises (SME) portfolios are expected to be scaled up over the medium term, leveraging upon the digital platform and extensive branch network of eLVB for growth. Ability to manage asset quality while pursuing growth plans will continue to be monitored.

 

Weaknesses:

• Average, albeit stable earnings profile: The bank reported a profit after tax (PAT) of Rs 377 crore in fiscal 2024 as against a net profit of Rs 228 crore in fiscal 2023 (Rs 167 crore in fiscal 2022). Correspondingly, return on assets (ROA) was reported at 0.33% for fiscal 2024 (0.22% for fiscal 2023). Over the medium term, profitability is expected to remain at a similar level.

 

• Relatively modest market share: With gross advances of Rs 53,869 crore and total deposits of Rs 79,438 crore as on March 31, 2024, the bank remains a small-sized player in the banking sector of India.

 

Its advances and deposits, though growing gradually, account for a small share of the overall banking sector at ~0.3% [1]for advances and ~0.4%1 for deposits, as on March 31, 2024. While deposits grew at 29.4% over fiscal 2024 and 25.3% over fiscal 2023, advances witnessed a modest growth of 10.7% and 7.4% over the respective periods. The bank also has an investment portfolio which stood at Rs 55,329 crore on March 31, 2024, marking an annual growth of 28.5% over the fiscal.

 

Going forward, the ability of the bank to scale up its operations and gain a meaningful market share in the Indian banking sector, will remain a monitorable.  

[1]Basis Crisil ratings’ estimates

Liquidity: Superior

DBIL’s liquidity has been healthy, with liquidity coverage ratio of 121.75 % as on September 30, 2024 against the regulatory requirement of 100%. The excess statutory liquidity ratio was 23.70% (Rs 20,855 crore) of net demand and time liabilities, as on the same date. Benefits from access to systemic sources of funds, such as the liquidity adjustment facility from Reserve Bank of India (RBI), access to the call money market, reciprocal bank lines, and support from the parent, also support DBIL.

Outlook: Stable

Crisil Ratings believes DBL will maintain significant majority ownership in DBIL and continue to provide strategic, financial, and management support to the latter over the medium term.

Rating sensitivity factors

Downward factors:

• Downgrade in the rating of DBS Bank (parent entity) by S&P by more than one rating category.
• Continued weakening of asset quality and earnings profile.

About the Company

DBL is wholly owned by DBS Group Holdings Ltd (the DBS group), in which the Temasek Holdings (Private) Limitedheld ~29% stake as on February 10, 2023. DBL is a leading financial services group in Asia and has a growing presence in three key Asian axes of growth: Greater China, Southeast Asia, and South Asia. Apart from commercial lending, it focuses on wealth management, investment banking, and treasury activities. The DBS group made a post-tax net profit of SGD 3 billion (approximately Rs 19,787 crore[2]) for the third quarter ended September 30, 2024. Total assets were SGD 789.6 billion (approximately Rs 52 lakh crore2).

 

DBIL had total assets of Rs 1,29,893 crore as on March 31, 2024. Earlier, it had been primarily focusing on corporate credit (mostly in the upper and mid-market segments), however now the bank is looking to diversify its business and build its retail and SME franchise over the medium term. It had total net advances of Rs 52,201 crore as on March 31, 2024.

 

On November 25, 2020, Union Cabinet had approved the scheme of amalgamation of eLVB with DBIL. Subsequently, RBI had also released the final scheme of the amalgamation and announced that amalgamation would come into force on the appointed date i.e. November 27, 2020. All the branches of LVB are functioning as branches of DBIL with effect from this date. The integration of systems was completed basis the end of day position of 09, December 2022.

[2]Exchange rate used – INR/SGD: 65.37 as on September 30,2024

Any other information: Not Applicable