Federal Bank is trying to cut down on its large corporate book, while pushing lending towards retail and small & medium enterprises, says Shyam Srinivasan, the managing director and CEO. While the growth on the retail front has been impressive, it still doesn?t shield the bank from the slowdown. In an interview with FE?s Vishwanath Nair, Srinivasan says margins will improve during the year. Excerpts:
Net growth in the second quarter has been slower at 12.5% compared with last year. Margins too have been lower. What went wrong?
There is no right or wrong number, we do not have to grow 30% every quarter. The second quarter number reflects the environment and the overall challenges. Second most important thing is that our focus has been in streamlining the portfolio quality and ensuring that credit quality in the portfolio increases. On that front we have done well. We want to keep that trajectory going. We are also ensuring that our footprint expansion remain on track. If you are expanding your network and at the same time ensuring portfolio?s growth is all good, there is bound to be some margin compression and if that happens, there will be some reduction in profit growth. You have to look at margins sequentially on how they are faring.
How have the advances panned out during the quarter? What is your expectation for the fiscal?
Retail and small and medium enterprises (SME) are growing reasonably well. The large corporates consciously ran down a lot of bulk advances. So there was a material de-growth in this quarter. We lowered our exposure to large corporates almost by R3,000 crore. Short term opportunities with very high rated companies are more seasonal and are never predictable because they also have borrowing needs which vary at different points of time. To that extent, we are focussing to grow our retail and SME books by 20-25% annually. That momentum we started seeing in the second quarter this year. We would like to keep that momentum. Large corporates can be chunky when there is short term borrowing by select rated companies.
Concentration of deposits you received from Kerala were 55% of total deposits. Do you think this is because of your identity as a Keralite bank? What is your outlook on deposit rates?
During the quarter, our deposits grew to R49,518 crore, of which current account savings account (CASA) deposits were 29%. When we say Kerala, we include non-resident deposits as well. Nearly 21% of the bank?s deposits come through NRIs. We have 7 lakh such customers and a large chunk of them have their origin in Kerala. Therefore, the base of Kerala deposits will certainly be there. What happens to deposit rates going ahead will depend on what RBI does in the forthcoming monetary policy. But I don?t see rates falling below 8-8.25% because there are competitive products available for customers in the market in that range.
What has been the trend in the non-resident deposits?
Since August-end, NRI remittances have started trending down. Because the rupee started strengthening and the interest rates were not at the peak. However, we still expect this to grow further as the rupee is still lingering around R52-53 per dollar.