Federal Bank managing director Shyam Srinivasan talks about how deposit growth post demonetisation has helped the bank and its peers in dealing with the decreasing cost of lending.
Federal Bank reported a 26% year-on-year rise in its net profit for the quarter ended December. Speaking to Pranay Lakshminarasimhan, Federal Bank managing director Shyam Srinivasan talks about how deposit growth post demonetisation has helped the bank and its peers in dealing with the decreasing cost of lending. Excerpts…
Are you expecting any kind of announcement in the Budget pertaining to recapitlisation of public sector banks?
In the Budget, I don’t know if there will be a big noise on the PSU banks’ recapitalisation. The only mention may be about the Indhradhanush commitments being honoured. And evidently, non-performing loans will trail off, because the problem of NPLs is already becoming smaller, even for the large PSUs. So capital per se may not have that much of a conversation is my reading. With good deposit growth and NPLs sort of trending down, I only see the Indhradhanush-led capital infusion happening, nothing more.
Recently published data about credit and deposits in the banking system suggested that deposits have slowed down after the initial surge after demontisation. Is it an area of concern?
Deposit growth is unlikely to happen materially from here on and differently from what would have happened pre-demonetisation. Growth may trail down, i.e. delta of deposit growth from here on may come down. But what has already come in as deposits, at least if 40% of that stays, along with a material impact on digital, then you could see sticky, low-cost deposits increasing. And that should definitely help. I am certainly not of the view that it will continue to grow at the same pace, because that is almost impossible. But having said that, with this sudden, sharp shift in digital behaviour, I would expect a fair amount of the money that came in to stay as deposits.
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How much money did Federal Bank garner as deposits post demonetisation?
We got demonetisation-related money of close to Rs 12,500-13,000 crore, of which Rs 6,500 crore was as deposits. As we speak, close to R4,000 crore is remaining with us as deposits. And the ratio is more or less similar for most banks. Federal Bank’s market share in deposits is about 0.9%. We had a slightly higher share of the demonetisation money coming in because we benefited from some catchments where cash was traditionally higher.
The cost of borrowing for the customer is crashing substantially with banks cutting MCLRs in the recent past. Will that impact your margins materially, going forward?
Banks cutting their MCLRs is also to spur demand, right? The idea is that if demand comes back, pricing will stabilise. Margin is a function of your cost of lending, cost of borrowing, blend of deposits, volume, and the contra-entry to your revenue when you have higher slippage. In other words, income derecognition. If your income derecognition reduces because slippages have tempered down, your margin is protected. And how much you recover from the past goes into your interest income. So if you look at a blend of all of that, margins should be reasonably in that zone. Unless somebody trades volumes for margins, where they consciously cut to the bone.
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What kind of behavioural shift has Federal Bank observed among its customers with regard to using digital means of transacting?
In the December quarter, mobile transactions went up to as high as R800 crore, and remember that it was just R50 crore at the beginning of the year. And in January itself, it has already crossed R1,000 crore. Because people are fundamentally approaching transactions differently now.
Post-demonetisation, a lot of small merchants started accepting payment through e-wallets. However, a lot of them complain about fees and taxes they need to pay for that. Do you see them shifting to UPI or BHIM in future for the same purpose, and if yes, how soon do you see it happen?
Every day it is increasing. UPI transactions have crossed R1,000 crore and it is growing quite rapidly. But UPI from person-to-merchant has to increase. Nandan (Nilekani) launched our UPI merchant application last week and ours has picked up quite materially. We are now doing Ernakulum, Mumbai, and Bengaluru as our trial markets, and very soon it will be pan-India. The limitation is actually on the side of number of people to go and sell. It is not about the features. As more and more banks start doing that, it is certain that UPI and BHIM would become better options compared to whatever other options there are available in the market. It would be cheaper for the merchant and the one extra leg would not be required.