DBS Bank India planning to double SME book in 3 years
DBS Bank India has set sights on doubling its exposure within three years, after having achieved its target of a billion-dollar small business book, according to a senior bank executive.
The move reflects the lender’s confidence in a segment that contributes nearly 30% to gross domestic product (GDP), besides serving as a vital cog in India’s job creation engine.
“We are growing our SME (small and medium enterprise) book and we have added new products. Similar to startups, it is not only a lending business, but there is also a liability side of the business,” Rajat Verma, managing director and head of institutional banking, said in an interview.
The bank’s SME business contributed 20% to its institutional banking revenue in January-March 2024, from 19% a year earlier. These percentages, however, exclude its offshore institutional book.
The growth trajectory of the small business segment, which is “in 30s”, should continue at the current level, he added.
“I am a great fan of consistent growth over a period. 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.”
DBS Bank India Ltd, a wholly-owned subsidiary of DBS Bank Ltd, Singapore, started operations in 2019. India allows foreign banks to operate either as a branch or a wholly-owned subsidiary of the parent.
“We have touched the $1 billion (fund and non-fund based SME exposure) mark for the SME business, and it is one of the businesses that is expected to drive our growth. This also includes loans given to startups,” Verma, who moved from HSBC India in 2023, said. The asset quality of the small business book is “very good, and the default level is low despite growing quite rapidly”.
The bank’s gross non-performing asset (NPA) ratio stood at 5.61% on 31 March 2023, down from 9.5% in FY22, as per to its FY23 annual report.
According to Verma, while a conglomerate may have 30–40 or even 50 banks in a consortium, depending on the type of the conglomerate and its debt requirements, an SME has two or three at most.
“So, the choice of a banking partner is critical, and likewise for the bank, too. We are focused on SMEs and the business is growing fast while the quality of assets remains healthy,” he added.
According to Reserve Bank of India data, quality of small business loans has improved for the entire banking sector.
Gross NPA ratio in micro, small and medium enterprise (MSME) loans for banks fell to 4.7% of all outstanding loans as of 30 September, compared with 6.8% in March 2023, and 7.7% in September 2022, according to the Financial Stability
Report released in December.
Aggregate bank loans for MSMEs grew 29% to ₹10 trillion in 2023-24, according to a separate data set from RBI.
One key factor contributing to the sector’s improved asset quality metrics is the decrease in information asymmetry, he added. “These include the data available from credit bureaus, data on the founders, as well as GST (goods and services tax) returns.”
Verma said DBS Bank India’s strategy is to partner medium and small businesses for the long term. “I am interested in making sure we onboard clients who will stay with us for 5–10 years.” The bank is interested in SMEs, as well as mid-caps, and largecaps, he added. “So, SME is a feeder to mid-cap. The midcaps feed the large-caps.”
Meanwhile, the bank’s environmental, social, and governance financing book crossed the SGD 1 billion mark (about $740 million) in 2023. While it was initially aiming for 60% growth on that base by the end of CY24, it now anticipates surpassing this target by a significant margin, Verma said.
The bank’s SME business contributed 20% to its institutional banking revenue in the JanuaryMarch period