We want to be a key player in distressed assets: Deutsche Bank's Shaparia

In less than two years, Deutsche Bank has injected close to a billion dollars into its 17 branch, 16 city India franchise. At a time when many of its bigger rivals in the country appear to have hit the pause button, the German financial powerhouse has quickened its stride.

KAUSHIK SHAPARIA, chief country officer of Deutsche Bank in India, spoke to Raghu Mohan about the bank’s local ambitions. Edited excerpts:

You have just announced a large capital infusion in India on top of a similar investment barely  two years ago. Where do you see opportunities for growth?

We deployed additional capital of close to Rs 2,700 crore at the end of July, on top of nearly Rs 3,800 crore that we invested less than two years ago. We have never been busier with supporting our clients with the advice, expertise and solutions they need to overcome the near-term business challenges. Our pre-tax profit during the first half of this year (January-June) is up by 40 per cent. Our India operation continues to be a key contributor to the Group’s IBIT (income before interest and taxes), and we are the top contributor to IBIT at a regional level. Over the longer-term, India is poised to take on an even larger role in the global economy. As an international bank with a strong domestic presence, we see opportunities in supporting our domestic and international clients seeking to do business here and overseas.

There is an expectation that once the loan moratorium is lifted, banks will make make fairly large loan-loss provisions. 

The moratorium will have to be lifted at some point, and you will see quite a big spike in defaults when that happens. Our forecast is that India’s GDP will contract by 6.2 per cent in the current financial year with growth likely to turn positive only during the last quarter. Covid-19 will have a significant bearing on the ability of borrowers to service their loans. Non-performing assets were already quite high before the pandemic hit us, and the central bank expects that this will increase by close to 50 per cent during the current financial year in a baseline scenario, though my own view is that defaults will likely be much higher. Banks’ unsecured loans and exposure to micro, small and medium enterprises would typically be the first to take a hit. The impact on our India portfolio is expected to be limited.

Tell us about your business in the distressed debt space.

We foresee opportunities to provide financing solutions with the objective of providing liquidity for carrying out operations, facilitate orderly restructuring and improving the capital structure of corporates. We also envisage multiple avenues for financing acquisitions of stressed, but commercially viable targets. Last-mile financing to complete pending projects will also be required. The refinancing of existing debt to preserve liquidity would also be in demand. We expect the secondary market for distressed debt trading to get a further boost. So, too, more one-time settlement solutions which will get facilitated both through secondary trading and primary financing. We remain committed to our Global Credit Trading division, which drives our distressed-asset financing business.

What’s your view on the serious flaws in the inter-creditor agreement framework? 

Stressed asset resolution is a time-consuming and intensive process. I agree that a lot that remains to be done to streamline things. We have recommended to the ministry of finance that foreign portfolio investors be permitted to purchase distressed loans in the secondary market, and also to relax external commercial borrowing norms for distressed-debt resolution. It’s also important to have the criteria for bidder eligibility clearly defined and to maintain the sanctity of contracts, and to improve the process and involve institutions to bridge the information gap. The involvement of senior management has to be encouraged and officials empowered to take decisions at resolution meetings. 

You’ve had a small presence in retail banking here for nearly 15 years, but in the past we have seen quite a flip-flop in your commitment to that business. 

It’s true that we did review whether we wanted to retain our retail banking business a while ago, but in April 2018, we took a clear call that this is a business we wanted to stay invested in and grow. In June this year, we announced the integration of our wealth management and retail banking businesses to create the International Private Bank (IPB). We expect the IPB to be a major strategic contributor to our growth and profitability in India. While our 17 branches in 16 cities may seem like a small footprint for the business, the locations we are present in account for over 40 per cent of the country’s deposits and nearly 60 per cent of loans. Moreover, our digital proposition complements our branch presence very nicely. During the pandemic, we have observed a surge in volumes on our digital platforms which, while on the one hand is an outcome of the current environment, is also a reflection of shifting customer preferences.