The RBI’s concern on Federal Bank’s co-branded credit cards isn’t a technology issue but an operational one and the bank is hopeful that in 2-3 months, it will get restarted, MD & CEO Shyam Srinivasan tells Piyush Shukla in an interaction. Srinivasan, whose tenure as MD ends in September this year, said the bank’s board is in advanced stages of discussions with the RBI on succession plans. Excerpts:
Federal Bank’s March profit-after-tax numbers missed estimates due to higher opex. What is the outlook for FY25?
Growth in spends and operating expenditure (opex) is primarily due to requirements in technology, regulatory and people segments. We should never look at these in isolation. It must be looked from a perspective of what is the cost-to-income ratio that we are pursuing. There are good and bad costs.
Our opex expansion is in-line with revenue expansion. Sometimes, you have to invest ahead in the area of technology. Around 6.75% of our expense is towards building tech capabilities and we would like to keep it inching up every year. The direction of the bank is getting closer to 50% cost-to-income ratio in FY25, and to meet that, the priority is on income expansion. Last year, our overall NII grew 15% and overall advances grew close to 20%. We should start seeing that gap narrowing. Preferably income expansion and credit growth should match one another but in a high deposit cost environment, it is tougher. We will aim to lower the cost-to-income ratio below 50% in FY26.
What corrective actions have been taken to restart co-branded card business?
In early April, RBI advised us to take certain corrective actions. We have discussed the preventive measures with the regulator so we have to make final submissions. In our case, it wasn’t a technology issue which takes many months to rectify. The action was only on the operations part. One round of submissions from our side will go to the regulator this month. We will likely discuss it back and forth and hopefully in the 2-3 months, we will get started. And then, there will be a phase wise improvement. We have not cut our partnerships for co-branded cards.
What would be the impact of RBI’s draft guidelines on project finance?
Banks will compile feedback together and submit it to the RBI. At this point in time, there will be some challenges in growing infra book. We don’t know if it is prospective or retrospective in nature. Some part of weight will be transferred to end customers too. In the long run, this may be good because it will bring discipline and order. Our infra exposure is relatively modest and we only do projects of high quality and if we do incremental provisioning, we will post closer to `4,000 crore in following year and growing, so `50 crore-`60 crore won’t make a dent. We have to understand final contours of policy. RBI usually takes industry feedback and accommodates it in final norms.
What is the guidance on credit cost?
Last year was exceptionally good and so was the fiscal before that. So we should hopefully keep that momentum going, for the last two years credit cost is between 25 basis points-30 basis points (bps) for full year, hopefully it will be in the same space.
Will you continue being associated with the bank as an advisor after the end of tenure?
We will figure that out. Officially, I don’t think I have an opportunity. I don’t think I’ll continue on the bank’s board, as they are not good governance practices. We have some of our associate companies—insurance—I may do something, but these are not in the realm of discussion as of now.
Has the bank submitted your successor candidate’s name to the RBI?
The board of the bank is in advanced engagement with the RBI. If there is something to report, we will. I can only tell you that the board is working very closely, it has a good list of candidates to choose from, the selection panel has done good job, and we have time till September.
Is the bank required to notify exchanges after submitting candidate names?
No, but when any communication comes from RBI, we inform the exchanges. Rest assured, the bank would be in safer hands.
What would be your key message to the successor on business growth.
We chose to be the most admired bank, we focused on that everyday. It is a pursuit for excellence, and in the face of excellence there is no finish line. I hope my successor pursues that with rigour. We have done well, there are only two-three banks who haven’t had significant scratches of any nature on a sustained long term basis and have grown by 15% CAGR. If you take non-acquisition led growth, we are number one.