Southeast Asia's largest lender, DBS Group Holdings, has been aggressively expanding its footprint in India and China as it faces margin pressures in Singapore and Hong Kong. The Singapore-listed company's CEO Piyush Gupta tells CNBC's Christine Tan that business is booming in India.
Q. India is big on your radar. How exactly are you positioning DBS in India?
Our business in India is actually going gangbuster. It's today the third largest business of our group, and somewhere between 7 percent and 8 percent of our total group profits, which is very good. The way the Indian regulations work is every time you open a branch in the metro, you are required to open a branch in a suburban area. And so we have opened half a dozen branches in places like Surat, Moradabad, Kolhapur and Cuddalore which are fairly small areas and we have a footprint over there. But it's not at this stage that we're going into rural and start doing agricultural banking.
We are very encouraged by the new pending guidelines on wholly-owned subsidiaries which are hopefully around the corner some time. If those guidelines come through, then we will get the opportunity to start branching out in India exactly like any of the national banks. And if that happens then yes we will go back and reconsider the scale and size of the footprint that we would wish to create.
Q. What sort of branch size in India do you want to have, to have a meaningful impact on the country? Are you talking about at least 100 branches?
Yeah, I can see us having a hundred branches. Yes, absolutely.
Q. You're eyeing bigger contributions coming from China. You've set a goal of 10 percent of group revenue coming from the Mainland in the next 10 years, from the current 4 percent. What specifically are you looking to ramp up your business there?
Our biggest focus is the corporate market and it's really two sub-segments. One is an Asian company going into China and that includes our customers out of Korea, out of Taiwan, Hong Kong, Singapore and so on. The second is the Chinese companies, the red chips, who are seeking to come out of China and particular companies which have trade flow and trade flow patterns into Southeast Asia, which is a natural market for us. Both of the segments are large, the opportunity is big and we are extremely well-positioned to go into those segments.
Secondly, we continue to try to go into the private (banking) and S.M.E space in China, again leveraging on the entire suite of products that we have. And lastly, affluent banking wealth management. We think there are opportunities in each of these three spaces.
Q. More than 80% of DBS's net profit comes from Singapore and Hong Kong because interest rates in these two markets follow the U.S. You are facing a margin squeeze when it comes to your lending activities. Do you see any end to this margin erosion?
Our Singapore margins have held in the last couple of quarters, and they've held because we have been able to take some action: some balance sheet actions to do that. Very simply, we have increased the duration of our book and gone up the yield curve. We have the capacity to do that because we have such a large savings account deposit base in Singapore and it has given us the ability to manage that. In Hong Kong, margins have been more of a challenge and that continue to be the case. As you correctly surmised, Singapore and Hong Kong follow the U.S.. So really the question is when do rates start going up in the U.S.?
Q. When do you think that will be the case?
I don't see that happening in a hurry. The data flow in the last few weeks from the U.S. has been weak. So given the soft patch, it is highly unlikely that Mr. Bernanke is going to run to an exit policy anytime soon. I think you are talking at least a year down the road. Perhaps even longer.
This interview is an excerpt from CNBC’s longest-running feature program Managing Asia. Catch the full interview with Christine Tan over the weekend at these times: 1 July at 1730 (SIN/HK), 2 July at 1900, 3 July at 1930.