Federal Bank - Expansion Unbound
![]()
Shyam Srinivasan
CMD Federal Bank
What is the credit growth you are expecting for FY12,and which sectors will spearhead this growth?
We have been reiterating that our credit growth will be 20-22 per cent, and even now, a 20 per cent growth is quite possible. We run our business on five verticals: large corporates, small and medium enterprises (SMEs), retail, agriculture and NRI business. In retail, we have seen strong growth in both gold loans as well in home loans in some places, and we believe that this will continue to grow. In large corporates, we have witnessed a very good growth of 26.86 per cent in the last quarter. In agriculture and small businesses, certain segments are doing well. Among SMEs, the export-oriented segment is flourishing. In agriculture, specific areas like tea, rubber and cardamom are good performers. Overall, we believe that credit growth will happen across a fairly widespread mix.
What is your strategy for a pan-Indian presence, since currently, 60 per cent of your branches are in Kerala?
Today (October 18, 2011), we have opened 66 branches, out of which only 28 are in Kerala and the remaining 38 are in other states. The latter are distributed across the country, giving the bank an enhanced presence in Tamil Nadu, Gujarat and Karnataka. This should give an indication of how our incremental growth will be. We currently have 463 branches in Kerala and 360 branches beyond, which is a 60:40 ratio. However, this mix is changing. We will continue to focus on Kerala, and aim to be the number one bank there, but will work equally on having a significant presence in other select markets.
What is your take on the interest rate? Do you think it has peaked off?
I do not think the interest rate has peaked off yet, but it is nearing the peak. As far as I could read the signals from the regulator, they are not comfortable with inflation and are clear about inflation management being their primary focus. Therefore, there might be one more rate hike, as infl ation is stubbornly high. However, much depends upon how other factors like the external environment, global uncertainty and overall commodity prices pan out.
How are rising interest rates affecting the bank’s credit growth and asset quality?
I will not say that the rate hikes in the last year and a half have substantially affected credit growth, as we are still seeing 18-20 per cent growth, even higher in some banks. Customers are feeling the pinch though. Having said that, it has not yet started refl ecting substantially in the quality of credit. People are still managing the payments, but we will see some kind of slowdown in large investments and fresh projects. If you take a multi-year view, these temporary blips do not matter, but if you take a Q-o-Q view, there are some challenges.
What are the reasons for your bank having a higher NIM?
Our bank’s NIM for the last quarter was 3.87 per cent, and we see this closing at around 3.75-3.80 in this financial year. The reason for higher NIMs is, certain segments and markets where we are traditionally big players have slightly higher risks and higher rewards. In addition, a large chunk of our total deposits, i.e. 34 per cent, consists of low cost deposits, including a large NRI base that helps us to maintain large margins.
How do you see growth in the banking sector going forward as a whole, and what would be the triggers for FY12?
We believe that the banking sector will grow at 18-20 per cent in FY12. The challenge will be greater in FY13. Right now, a bulk of growth is happening due to large loan amounts sanctioned earlier, whose disbursement is taking place now. If policy reforms do not take place and the present conditions continue, we can expect a growth of just 18-20 per cent in the banking sector even in FY13. For the overall growth of the economy, it is important that a bulk of the expected reforms in land, coal linkages, corporate bond markets, etc. go through.