‘Good times may be around the corner’
Aluva (Kochi)-based Federal Bank has rewired to become a significant player in digital banking — “Simple, Digital, and Contactless” being the cornerstone of its strategy. In an interview with Raghu Mohan, SHYAM SRINIVASAN, the bank’s managing director and chief executive officer, is categorical that the worst is behind us, and the turn in the interest-rate cycle will not trip growth. Edited excerpts:
The recent financial results of banks suggest the worst may be behind us. What’s your sense?
What most of us feared would be the consequence of the pandemic on the credit quality of banks — happily and thankfully — has not happened. The many regulatory interventions that came in to support customers through the pandemic have also worked well. On balance, most of us have come out fairly unscathed with goodquality provisioning and portfolios. And that speaks for the fair amount of work done across the years.
Over the past three years, the industry favoured the low interest-rate regime. Now that we are in switchover mode, how do you crystal-gaze?
The consequence of rate increases has to be seen through two or three lenses. One is that it means that money will become more expensive, but so will the return on people’s deposits (improve). So, as long as the real (interest) rate doesn’t fluctuate widely, you can
cope with the challenges. If it’s a sort of a correction leading to a rate increase, and if it were to stabilise at that level and growth happens, I think the cause for worry is less. So, the jury is out on the GDP growth that we will see. The wild card is the Russia-ukraine war, but if you discount that and believe it will more or less stabilise, then a rate increase per se doesn’t mean bad news. I think all of us have factored in the repo rate going up by another 50-60 basis points over the next 12 months, and are designing and developing our plans around that. As long as the industry’s investment keeps
happening, it will spur GDP growth.
Can you give us the break-up of the loan book — corporate and retail — of the bank?
About three years ago, we had said we would keep our retail (and when I say retail, I mean all exposures, say, below ~5 crore) at about 55 per cent of the book. As we speak today, we are at 55:45 (retail: wholesale).
If the stress were to continue, do you see going a bit easy on retail, given the embedded risks in it? If there’s sustained job loss and an economic downturn, things will be different. But if we are seeing GDP growth happening (though at an elevated cost) then it’s not as bad a situation. We have to calibrate our plans, based on how things shape up in the economy. My own sense is with the emergence of credit bureaus, the various ecosystem developments that have happened in Jandhan, Aadhaar, mobile, digital, etc nobody wants to have a bad credit history. The eagerness to have a scratch-free credit record is very high. Now my view is that it won’t get as adverse, but there may be some sectors of the market which may see near-term pressure. Even through the pandemic, you didn’t see dramatic deterioration in credit quality.
You have said “Simple, Digital, and Contactless” will be the cornerstone of your strategy. How do you see this shaping up?
That’s the mantra we have been living through, and thanks for pointing it out! The mantra at the bank is “digital at the fore, human at the core”. I can rattle off a few developments that have been designed around that -- like “Feddy”, which is our chatbot through which you can virtually do almost all banking operations through a click on your device. You will not see any paper on my desk and it’s not just because I am doing an interview with you - everything is digital.
The government has put forward a plan for “digi-banks”. How do you propose to utilise this window?
I think it speaks to the same theme around selfservice, ensuring that capabilities for customers across the spectrum, across geographies are intuitively self-usable. I think in digital banking units, we have what we call “Fed-e Studios”; we have nine of them across the country.