DBS faces potential cultural conflict as it picks up ailing Indian lender

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MUMBAI / BENGALURU / SINGAPORE, Nov. 18 (Reuters) – DBS Group’s decision to take over ailing Lakshmi Vilas Bank will give Southeast Asia’s largest lender the boost it has long wanted in India, but aligning the cash crops of the two banks could prove tricky.

LVB, facing increasing bad debts and governance issues and an inability to secure its capital, is expected to be integrated into the Indian subsidiary of DBS as part of a plan proposed by the Indian central bank, which took control of the 94-year-old Chennai-based lender on Tuesday, citing a “serious deterioration” in its finances.

The plan will accelerate the expansion ambitions of Singapore, India-based DBS and potentially transform it from a largely digital bank in the country to a bank with hundreds of branches.

DBS currently has just over 30 branches in India, while LVB has over 550 and over 900 ATMs. DBS, which has a market value of around $ 47 billion, will inject 25 billion rupees ($ 337 million) into its Indian subsidiary for the proposed merger.

“Branches are the crown jewels and offer a ready-to-use network at a very affordable price,” said Willie Tanoto, analyst at Fitch Ratings in Singapore.

But the turnaround and integration of LVB, which employs more than 4,000 people, will pose challenges for DBS, even though the Singaporean bank has been in India since 1994 and in 2019 converted its Indian operations from a branch to a subsidiary in 100%.

India’s banking union has already expressed reservations about the potential DBS deal.

The Bank Employees Association of India (AIBEA), which represents around half a million bank employees, protested the proposed merger and instead called for a merger with a public sector lender.

“The government needs to preserve the essence of an Indian bank and give it to a domestic lender instead of handing it over to a foreign bank,” said CH Venkatachalam, secretary general of AIBEA.

LVB did not immediately respond to an email from Reuters seeking comment on the proposed merger, while DBS declined to comment.

In terms of culture, there are differences between the two banks, with DBS staff trained in digital skills and strong underwriting processes in a multinational bank, while LVB has a more traditional customer-centric approach.

Their branches also differ in appearance and touch. LVB branches have steel benches for waiting customers and numerous posters on the walls and windows, contrasting with a more minimalist style often seen in branches of multinational banks.

“At first glance, there will be challenges in terms of cultural integration as well as process orientation of people who have not worked in a new age bank,” said Venkat Iyer, partner of the recruitment firm Aventus. Partners.

Macquarie analyst Suresh Ganapathy said beyond cultural differences, there were other issues at play.

“DBS employees will have much better capabilities in terms of digital banking, credit scoring and underwriting,” said Ganapathy.

Some analysts have pointed out that DBS has a strong track record of acquisitions, such as its takeover of a failed Taiwanese bank in 2008 and the acquisition of ANZ’s wealth management and retail businesses in five Asian markets. , finalized in 2018.

A fund manager said the deal was a strategic adjustment, but he also pointed to a potential cultural conflict.

“The key unknown at this point is execution, especially for a turnaround acquisition like this, where Lakshmi Vilas Bank, which appears to have operated under a different risk appetite and intensity of internal controls, will need to be aligned. on the prudent and conservative culture of DBS, ”said Xin-Yao Ng, Asian equity investment manager at Aberdeen Standard Investments, which owns DBS shares. ($ 1 = 74.1521 Indian rupees)

Reporting by Nupur Anand in Mumbai, Chris Thomas in Bengaluru and Anshuman Daga in Singapore; Additional reporting by Abhirup Roy in Mumbai and Nivedita Bhattacharjee in Bengaluru Editing by Euan Rocha and Jane Merriman

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