Federal Bank turned in a fairly good set of numbers for the March 2012 quarter with net profit up 38% y-o-y, partly driven by lower provisions. Moreover, there was an improvement in the asset quality. The bank?s MD and CEO Shyam Srinivasan expects 20-22% loan growth this fiscal, a higher pace compared with 2011-12. In an interview, he told Pranav Nambiar, the stronger bank network, especially in the tier-2 and tier-3 towns, would help fuel the growth this year.
Federal Bank?s net interest margins (NIMs) have slipped sequentially?
Our net interest margins (NIMs) were down sequentially 40 bps to 3.79%. This was partly due to an increase in cost of funds and a 25 bps impact due to an additional restructuring of some funded interest term loans (FITLs). While we have pared our base rate and although the cost of funds may not come down significantly going ahead, we do not expect any further deterioration in our NIMs.
The bank?s profits have increased sharply?
The net profit grew 38% y-o-y led by a steady growth in loan growth of credit and a rise in the net interest income (NII) of 11%. There was also a write back in non-performing assets (NPAs) provisioning to the extent of R41 crore which helped reduce our provisions for the quarter. Our provisioning coverage ratio is now 81%.
How does the asset quality look?
The Kingfisher exposure has been declared an NPA but slippages for SME and retail improved sequentially and we expect this to continue going ahead. The fresh slippage for the quarter was R269 crore, while recoveries plus upgrades stood at R332 crore. In the quarter, we saw a fall in overall gross and net NPAs to 0.53%. Some of the large corporate clients are facing stress but we do not see major worries here.
What was the quantum of the assets restructured in the March 2012 quarter?
New loans to the tune of R920 crore were restructured in the three months to March, 2012, while for the full year it stood at R980 crore. Of this, around R800 crore was accounted for by Air India and the Rajasthan State Electricity Board. However, we have no large restructuring accounts in the pipeline.
How do you read the demand for loans going ahead?
The slowdown in the economy may not impact us too much. Last year, loan growth came in at 18% on the back of strong growth retail, housing and gold loans. We also saw a fair amount of demand from the small and medium enterprises (SMEs) and agriculture segment. This year we see a faster loan growth in the region of 20-22% driven by our branch expansions, particularly in the tier-2 and 3 regions where we are not seeing a slowdown. Growth again will, by and large, be led by home loans, gold and SME loans.
The size of the gold loan portfolio grew 160% in 2011-12 and currently stands at R3,600 crore, or nearly 10% of the loan book. We expect this to grow fast partly because of the slackening of non-banking financial companies (NBFCs). The loan to value ratio of our gold loans currently stands at 66%.
Are you able to garner deposits?
We grew our deposit base by 14% y-o-y to R49,000 crore in 2011-12 and also saw an improvement in our current account and savings account (CASA) ratio to 28%. With our branches expanding into tier- 2 and 3 regions, we expect further improvement in CASA.
As far as our non-resident Indian (NRI) deposit base is concerned, it recorded an increase of 35% to R11,184 crore last year. Though, we still remain a largely south-centric bank with around 650 of our 950 branches based in the region, we added about 166 branches last year which included branches in other parts of the country. We are exploring opportunities in places like Gujarat and Maharashtra to build up a larger national footprint.
