Federal Bank, based in Kochi?s Aluva suburbs, is one of the largest old-generation private sector banks in the country. The bank has had a consistent track record of growth and profitability. Being a focused bank, it has stuck to its strengths. For FY 2010-11, the bank posted a net profit of R556.46 crore against R439.67 crore for the year ended March 31, 2010. For the first quarter of the current FY, the bank posted a net profit of R146.16 crore. Shyam Srinivasan, managing director & CEO of the bank, talks to FE?s Rajesh Ravi on its strategy and expansion.

What is your take on the current monetary policy?

I don?t know if the regulator (Reserve Bank of India) has any other option. There are divergent views on the subject, with some saying that the monetary policy is not the correct tool. But from the regulator?s point, it has taken a very conscious and consistent stand of using the monetary policy as a tool to blunt inflation. Unfortunately, there are many factors driving inflation. But some recent indicators, including a good kharif crop, suggest that interest rates may be peaking. One can?t predict when it will start coming down, but I have a sense that we may be just one rate hike away from the peak.

How is Federal Bank

adapting to the changed situation?

While we have been able to pass on some of the costs to customers, we have also consciously absorbed some of the burden. Of the last two rate hikes of 75bps, we passed on only 25 bps. Rate hikes have certainly taken away a part of the profit, but we can keep the losses down by better expense management and other tools.

Low-cost NRI deposits have been a major strength of Federal Bank. How do you plan to grow your business in that segment?

NRI remittances have gone up significantly and the drivers are very evident. One is the weakening of the Indian rupee, which is a good sign for NRIs sending money home, particularly for people who use remittances to support a family here. Higher interest rates are another reason for them to send money home.

We have positioned ourselves very strongly in the remittance sector. Today, nearly 7% of India?s remittances come through Federal Bank. Our share has grown in the last one year. It will increase further due to many reasons. We have substantially increased our international presence. We have tie-ups with around 55 exchange houses. Our distribution network is also very good. We have a product called Fedflash, which transfers money instantly to the customers account.

What are your targets for credit and deposit growth for this FY?

Our guidance at the beginning of the current FY says 20% growth in advances and supportive growth in deposits. We have just concluded our H1 and we are fairly confident of achieving the targets. But credit growth is not the correct measure of the health of a bank. You can have short-term credit growth by giving loans to top companies at base rates. We are keen on the shape of growth and continuously focusing from where our growth comes and the right pricing.

What are your expansion plans ?

We have traditionally been a very strong SME and NRI bank and our future expansion is also focused on it. So, we are opening new branches where NRI customers can send money back to their family or in areas where SME customers have large presence.

We have a very strong presence in Kerala?almost 55% of our footprint is in Kerala. We are choosing select markets outside Kerala. States like Gujarat, Tamil Nadu, Maharashtra and Punjab where NRIs have a significant presence will see us more active. In a few day?s time, we would be opening 66 new branches in a single day. Of these, 35 will be outside Kerala. This will take our total branches to 820 and, by this time next year, we will be close to 1,000 branches. We have close to 900 ATMs.