DBS Bank, Southeast Asia’s biggest lender, believes Singapore could emerge as a “conduit” for China’s massive renminbi-denominated savings to be channelled into the subcontinent for meeting India’s infrastructure funding requirement.
“With $3 trillion in reserves, China is a tremendous source of savings and will continue to be in the foreseeable future. And, India has a tremendous need for savings. If you think about infrastructure projections in India, they are several hundreds of billions of dollars and the financial system’s ability to finance all the requirement is somewhat limited. So, it is what I would effectively call a marriage made in heaven,” says DBS’ chief executive officer, Piyush Gupta.
India’s flagging infrastructure sector will need up to $1 trillion (Rs 4.5 lakh crore) worth of investments over the next five years, the government has maintained, with a substantial portion of this coming from the private sector.
“You have savings surpluses in China and savings deficits in India, and being able to intermediate those flows between where the money is and where the money is needed is an obvious answer. For obvious reasons, that flow of money doesn’t directly work very well but working it through Singapore is easier for that flow to be intermediated,” he added.
Asia’s recent appetite for the renminbi has been substantial. After regulations last year relaxed the rules for transacting the Chinese currency in Hong Kong, the Special Administrative Region (as HK is fromally termed) has taken a strong liking to the it.
“In Hong Kong today, the renminbi is almost eight per cent of the deposit base, in less than one year. Our own projection is that by the end of this year, the renminbi will be 12-13 per cent of the deposit base,” Gupta said. He was speaking to reporters on the sidelines of the South Asian Diaspora Convention here today.
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“In four months (after their introduction), for us at DBS, renminbi deposits are larger in Singapore than they are in Hong Kong, and that tells you how much demand and appetite there is for renminbi-denominated assets in the region. I’m convinced that five to 10 years down, Asia will be an important renminbi trading block,” he said.
However, since there may still be discomfort over such funding directly coming into the subcontinent, if Singapore and banks like DBS were involved, it could increase the “acceptability factor”. “If they come through a Singapore conduit, then it begins to get far better acceptability,” Gupta explained.
For DBS, aggressively growing its business in China and India, there could be an intermediary role. “For Indian companies, the source of borrowing becomes DBS and our source of fund gathering is in China. People are transparent to the fact that we are intermediating savings from there and using it out here,” he said.
DBS itself is looking to increase its participation in the Indian infrastructure sector, especially in energy, telecom, ports and bridges. “We have large amounts of capital in very liquid pools. We can bring our balance sheet to bear on the market and because we have experience, particularly from Singapore, but also the region,” Gupta said.
“We are going to focus on developers or infrastructure providers and industries where we have comfort and once we get more comfortable with the process, we can scale up our activities,” he added.