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MUMBAI / BENGALURU / SINGAPORE – DBS Group’s decision to take over the struggling Lakshmi Vilas Bank will give Southeast Asia’s largest lender in India the boost it has always wanted, but aligning the business cultures of the two banks could prove difficult.
LVB, facing increasing numbers of bad loans and governance problems and a failure to secure capital, will join DBS’s Indian subsidiary under a plan proposed by India’s central bank, which took control of the 94-year-old lender on Tuesday. years based in Chennai citing a “serious deterioration” in its finances.
The plan will accelerate the expansion ambitions of Singapore-based DBS in India and potentially transform it from a largely digital bank in the country to one with hundreds of branches.
Currently, DBS 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 (S $ 63 billion), will inject 25 billion rupees (S $ 452 million) into its Indian subsidiary for the proposed merger.
“The branches are the crown jewels and offer a ready-made network at a very affordable price,” said Willie Tanoto, an analyst at Fitch Ratings in Singapore.
But turning around and integrating LVB, which employs more than 4,000 employees, will pose challenges for DBS, despite the Singapore bank having been in India since 1994 and in 2019 converted its Indian operations from a branch to a subsidiary of full ownership.
India’s banking union has already expressed reservations about the possible deal with DBS.
The Banking Employees Association of India (AIBEA), which represents around half a million bank employees, protested against the proposed merger and has instead demanded a merger with a public sector lender.
“The government should 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, AIBEA secretary general.
[[nid:504611]]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 at a multinational bank, while LVB has a more traditional customer-centric approach.
Its branches also differ in appearance and touch. LVB branches have steel benches for waiting customers and numerous notices on the walls and windows, contrasting with a more minimalist style often seen in the branches of multinational banks.
“Prima facie, there will be challenges in terms of cultural integration as well as process orientation for people who have not worked in a new age bank,” said Venkat Iyer, partner at recruiting firm Aventus Partners.
Macquarie analyst Suresh Ganapathy said that beyond cultural differences, there are other issues at play.
[[nid:502715]]“DBS employees will have a much better capacity in terms of digital banking, credit appraisals and underwriting,” said Ganapathy.
Some analysts noted that DBS has a strong history in acquisitions, such as its acquisition of a failed Taiwanese bank in 2008 and the acquisition of ANZ’s retail and wealth management businesses in five Asian markets, completed in 2018.
A fund manager said the deal was a strategic fit, but also pointed to a potential culture shock.
“The unknown key at this stage is execution, especially for a game-changing acquisition like this one, in which Lakshmi Vilas Bank, which appears to have been operating under a different risk appetite and intensity of internal controls, will need to align with the prudent and conservative culture of DBS, ”said Xin-Yao Ng, investment manager of Asian equities at Aberdeen Standard Investments, which owns DBS shares.
