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Informist, Friday, Aug 9, 2024

 

--Federal Bank MD: Trying to balance credit, deposit growth in FY25

--Federal Bank MD: Can meet 20% credit, deposit growth aims FY25

--Federal Bk:Corporate lending picked up on high capex across sectors

--Federal Bank: Net corporate lending growth seen at 10-12% FY25

--Federal Bank: To meet FY25 NIM aim on business mix, low-cost funds

--CONTEXT: Federal Bank set FY25 NIM aim at 3.15-3.25%

--Federal Bank: New LCR guidelines to bring asset-liability balance

 

By Narayana Krishna

 

HYDERABAD - Federal Bank Managing Director Shyam Srinivasan said the bank's corporate lending has picked up as capital expenditure across several sectors is improving. "Corporate lending is coming back very strongly. I think capex (capital expenditure) is improving. Infrastructure projects are coming up… Alternate energy projects are coming up… road and highway projects are coming up," Srinivasan told Informist.

 

He said Federal Bank's corporate loans are seeing growth of 10-12%, which sometimes even goes up to 15%, but it sheds around 2-3?pending on the asset quality. "So, the incremental disbursements could be 15%. But some of the lower-yielding assets we may let go, or we may not renew those. So, to that extent, the blended rate may be 10-12%," he said.

 

Federal Bank has set its credit growth target at 20% for 2024-25 (Apr-Mar), and aims to maintain a similar rate of growth in deposits as well. As of Jun 30, Federal Bank's net advances were at 2.21 trln rupees, up 20% on-year, while deposits were at 2.66 trln rupees, also up 20%.

 

"We believe if nothing untoward happens, if the deposit growth sustains, 20% of credit growth is possible. But here, we want to be careful that the growth is supported by good deposit growth. As of now, signs are looking quite comfortable (to meet the target)," Srinivasan said.   

 

He said the current growth target for bank credit, which is a mix of retail and corporate loans, is achievable, adding that the bank has performed along similar lines in Apr-Jun.

 

"If you see our investor deck, you will see that we have consciously become very diversified. That's an intentional strategy. And this is not just one quarter. Please look at our deck for the last 12 quarters. You will see the same diversification across sectors and geographies is a constant factor. And that's the philosophy of the bank," the Federal Bank MD said.

 

"We don't want excessive concentration in any one segment or product because that causes its own mismatch. So, we try to distribute our growth, diversify our growth."

 

Srinivasan said the bank's focus for 2024-25 is on high-quality performance across segments and continuing diversification to ensure delivering profitable, high-quality growth. "This is what we focus on. We will hopefully continue to focus on this even when my successor comes; that's what he will push for," he said.

 

Srinivasan is set to retire next month. The Reserve Bank of India in July had approved the appointment of former Kotak Mahindra Bank executive Krishnan Venkat Subramanian as Federal Bank's managing director and chief executive office with effect from Sep 23. The appointment is for a period of three years.

 

FOCUS ON LOW-COST FUNDS

Federal Bank is focused on low-cost funds to achieve its net interest margin aim of 3.15-3.25% for the current financial year.

 

"We believe it will be driven by the mix of business and the cost of deposits. That's a big driver. Our newer growth is coming from businesses that are relatively on the higher margin side. So, as a blended outcome, we'll take care of that margin," he said.

 

Srinivasan said the Federal Bank's current account, savings account (CASA) ratio to total deposits is 30% now, and similar levels will be maintained for the full year.

 

However, he said the current account, savings account ratio is not all that contributes to the overall margins, but cost of funds also plays a role.

 

"I think we should not any longer look at the CASA ratio in isolation. CASA ratio should be seen in the context of your cost of funds... It is coming from individuals as opposed to bulk deposits. We have the highest retail deposit ratio in the country, amongst all," he said. More

 

NON-PERFORMING ASSETS

Federal Bank's ratio of net non-performing assets to total advances stood at 0.6% as of Jun 30. Srinivasan said the bank will maintain its non-performing assets ratio at the current level for the full year.

 

"Our credit quality is strong. Federal Bank's biggest strength is high-quality credit. We have been doing that for many, many years. And there's no reason that should change," he said.

 

FUND-RAISING PLANS

Srinivasan said Federal Bank's proposed plans to raise up to 60 bln rupees in the current fiscal year were aimed at keeping ready the enabling resolution, which enables the bank to raise funds as and when required.

 

"It is an enabling resolution. Up to 6,000 crores (60 bln rupees) is what we were taking approval for. And depending on how the requirement is, we can raise it. But usually, we don't raise that much. It's not really required. We've just kept it as an enabler," he said.

 

He further said that in previous years, the bank had an enabling resolution to the tune of 30-40 bln rupees but didn’t raise that much. Last year, Federal Bank raised around 3-4 bln rupees only, and so far this fiscal too, it has not raised beyond that, he said. He said the bank has not decided on a timeline or instrument to raise the funds.

LCR GUIDELINES

 

Srinivasan said the recent guidelines issued by the Reserve Bank of India on the liquidity coverage ratio for banks are, as of now, in draft stages, and the central bank is still seeking feedback from stakeholders.

 

The RBI in July released draft guidelines on the Basel III Framework on Liquidity Standards — Liquidity Coverage Ratio, which proposed that banks should assign an additional 5% run-off factor on internet and mobile banking-enabled retail deposits. It also proposed tighter norms on the valuation of high-quality liquid assets and to bring other sources of banks' liabilities under the liquidity coverage ratio framework.

 

"But the central idea is to make sure that there is no mismatch in asset-liability. Credit growth and liability growth are balanced. And given all that is happening in the environment and there is relatively greater competition for deposits, I think the regulators are trying to ensure that no inadvertent mismatches emerge," he said.

 

Srinivasan said the final liquidity coverage ratio guidelines are not yet out, but the message from the central bank is clear – there should be no inadvertent liquidity mismatch.

 

For Federal Bank, deposits and credit grew at the same rate in Apr-Jun, he said, adding that if they keep growing at the same pace, "we should be in a good place". "If we grow credit too far ahead of deposits, then it will create gaps," he said.

 

At 1526 IST, shares of Federal Bank were trading at 197.54 rupees on the National Stock Exchange, up 1.94% from its previous close.  End

 

US$1 = 83.94 rupees

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Tanima Banerjee

 

 

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