| DBS Bank India Limited | ||||||
| Rating Reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Detailed Rationale |
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CRISIL has reaffirmed its corporate credit rating of 'CCR AAA/Stable' on DBS Bank India Limited (DBIL). |
| Analytical Approach |
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For arriving at the credit assessment, CRISIL has considered the standalone profile of DBIL using the financial accounts of DBS India branch, which were amalgamated with DBIL, effective March 01, 2019. CRISIL has also factored in the strong support DBIL expects from its parent. |
| Key Rating Drivers & Detailed Description |
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Strengths * Strong support derived from DBL The credit assessment of DBIL reflects expectation of continued strong support from its parent, DBL similar to the support extended to DBS India branch in the past. DBIL is strategically important to the parent, given the latter's focus on enhancing and diversifying its presence across Asia. India is one of the key growth markets in the medium to long term. DBIL should benefit from a high level of operational synergies with the parent, including senior management oversight, and common risk management systems and standards and treasury platforms. Support is also expected through representation of DBL's senior management on DBIL's board. The parent had regularly infused capital in DBS India branch and may continue providing need-based financial assistance to DBIL to keep capital ratio above 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 and strong management and operational integration, leads to a high moral obligation on DBL to support DBIL. * Adequate capitalisation Capitalisation of DBS India branch is adequate, with adjusted networth (including share capital and reserve) of Rs 4,578 crore as on March 31, 2018, supported by regular capital infusion by DBL. In December 2018, the parent injected around Rs 1284 crore of Common Equity Tier 1 (CET1) capital. In the last four fiscals, DBS India branch had received roughly Rs 2,800 crore from the parent. Similar capital support is expected for DBIL as well over the medium to long term. Tier-I and overall capital adequacy ratio were 14.0% and 19.0%, respectively, as on December 31, 2018 (11.3% and 16.1% as on March 31, 2018). Adjusted networth coverage for net non-performing assets (NPAs) improved to 23.5 times as on March 31, 2018, from 10.0 times as on March 31, 2017. On an ongoing basis, DBIL is expected to maintain Tier-I and overall capital adequacy ratio above regulatory minimum at all times over the medium to long term. Weaknesses * Average asset quality DBS India branch's gross NPAs were 3.1% as on December 31, 2018 (5.0% and 3.8% as on March 31, 2018, and March 31, 2017, respectively), largely on account of stress in the bank's legacy corporate portfolio. The Bank's slippages (fresh accretion of NPAs during the year/net advances at the beginning of the year) have shown a declining trend and were 2.3% in fiscal 2018, as against 3.4% the previous fiscal. Incremental lending to vulnerable sectors, such as infrastructure and construction, have 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 for growth. Ability to manage asset quality while pursuing growth plans will continue to be monitored. * Earnings profile constrained by pressure on asset quality In the past few fiscals, rise in NPAs and some one-off factors have impacted its earnings profile. Net loss of Rs 532.8 crore was reported in fiscal 2018, as against profit after tax (PAT) of Rs 12.8 crore in fiscal 2017. The loss could be attributed to rise in yields and one-time restatement of deferred tax assets, resulting from tax rate differential in anticipation of transition to DBIL. Furthermore, higher provisioning and increased operating expenses (relating to several initiatives) has kept profitability under pressure. Return on assets and return on equity were -1.17% and -11.59%, respectively, in fiscal 2018, compared with 0.03% and 0.28% the previous fiscal. Over the near term, profitability is expected to remain under pressure owing to execution costs on various initiatives. Any sustained improvement in profitability over the medium term will, likely, be driven by the ability to contain slippages in the corporate portfolio, and ramp up retail and SME business while maintaining adequate asset quality. |
| Liquidity |
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DBS India branch's liquidity is healthy, with liquidity coverage ratio of 142.6% as on December 31, 2018 (124.4% as on March 31, 2018), against the regulatory requirement of 100%. The excess statutory liquidity ratio was 15.9% of net demand and time liabilities. Benefits from access to systemic sources of funds, such as the liquidity adjustment facility from RBI, access to the call money market, reciprocal bank lines, and support from the parent, also support DBIL. |
| Outlook: Stable |
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CRISIL 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. The outlook may be revised to 'Negative' if a material change in DBIL's strategic importance to, ownership by, or linkages with, DBL; a significant downward revision in S&P's view on the parent's credit risk profile; or considerable weakening in asset quality and earnings profile of DBIL weakens key credit metrics. |
| About the Bank |
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DBL is wholly owned by DBS Group Holdings Ltd (DBS Group), in which the Singapore government held 29.3% stake as on June 30, 2018. 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. DBL made a post-tax net profit of SGD 4.1 billion (approximately Rs 21,000 crore*) for the year ended December 31, 2017. Total assets were SGD 460.5 billion (approximately Rs 23.6 lakh crore*). |
| Key Financial Indicators | ||||||||||||||||||||||||||||
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
| Annexure - Details of Instrument(s) | ||||||||||||||
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| Annexure - Rating History for last 3 Years | |||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | |||||||||||||||||||||||||||||||||||||||
| For further information contact: | ||||||
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