‘Healthy credit growth & reducing stress will boost performance’

SHYAM SRINIVASAN, Federal Bank’s managing director and chief executive officer, is of the opinion that growth in loans and reducing stress will improve net interest margins (NIM) to 3.2 per cent. While speaking to Abhijit Lele and Shreepad Aute of Business Standard, he said the bank has shed bulk deposits worth ~25 billion in the first quarter and that will boost performance. Edited excerpts:

Is the bad phase for the banking sector over?

We have to take the bad with the good and move on. We all want to believe that the bad phase is over. We don’t want to ever see a bad phase again. Actually for us, the operating performance is continuously strong. It is not a broken case. But the market unfortunately reads different signals differently. We are confident of underlying momentum and growth.

Coming to growth in advances, your bank has shown a healthy 23.6 per cent year-on-year growth. For large corporates, it is even higher at 31 per cent. What is the guidance for the coming quarters?

For the last 9-10 quarters, we have been saying we will grow credit at 20-25 per cent. That growth we have delivered for many quarters. And we remain confident that it is possible

further. The growth in credit book is fairly broadbased. We believe there is enough opportunity to grow the retail, corporate and SME segments.

Revenues from the credit side — net interest income — has grown at a healthy 22 per cent and margin was 3.12 per cent. Is it the same trajectory we will see in the coming quarters or will there be some improvement? What will help to better the performance?

Our full year (FY19) guidance for NIM is 3.2 per cent. NIM expansion is a function of many things. Of course, it is important. The mix of growth and the reversal of interest income is also important. If slippages start moderating, then the reversing interest income reduces. I am hopeful that as we move ahead in the year and credit quality continues to improve, that (better margins) should be visible.

Is the power to price loans giving you strength to charge better rates and give benefits (for margins)?

To some extent, pricing is led by competition because everybody is pursuing quality credit. Naturally, a good borrower is in demand. But business models are changing in a manner so that we look at relationships also. As you get into a full relationship with a client, you are not pricing the product but the relationship. We are trying to get more customers. We started work on this two years back and that has started showing results.

Deposits have grown 16.07 per cent and share of CASA is at 33.47 per cent of the total deposits. Is there a scope to increase the share of CASA further? How much of the bulk deposits did the bank shed in the first quarter?

We are keen to push that up by at least another 100 basis points. You are seeing only 16 per cent growth in deposits because at the end of this quarter we had shed some bulk deposits. So, underlying deposits growth is even higher. The bank has shed bulk deposits worth ~25 billion in the first quarter.

The Reserve Bank of India’s new rules for restructuring stressed loans announced in February 2018 have had significant impact on banks. What is the implication of it for the bank’s standard restructured assets? Where does the gross NPA stand at the end of March 2019 from the current 3 per cent mark?

Our restructured standard assets stood at ~14.25 billion at the end of December 2017. That has come down to ~5.85 billion now. And in that, there are no chunky transactions. There is only one big account – Air India. Others are small accounts. We are reasonably hopeful that it will be of good quality. More than credit ratio, I am saying full year credit costs would be 65-70 basis points. We will have to watch out and keep on improving it.

Your bank and IDBI Bank were planning to exit from the Life Insurance joint venture. But now, Life Insurance Corporation is acquiring 51% stake in IDBI. What is your take?

As of now, nothing has changed. We have to wait to hear from IDBI about its decision. It is involved in some procedures. Some clarity will emerge in the next two-three weeks.

Federal Bank indicated that it may pick stake or acquire a micro finance institution and recently there were reports of the bank talking to take a stake in Madura Micro Finance. What is the benefit of this investment?

I can only comment when something crystalises. We are interested and have been talking to a few interested parties. We will see how it progresses. We will have greater clarity in the next quarter or so. The interest is to ensure that we get a fairly granular portfolio in geographies where we do not have much presence. So, it is a good combination in terms of being return on investment accretive. They institution should be well run and have good distribution network, giving it the opportunity to expand.