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Informist, Monday, Oct. 28, 2024

 

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--Federal Bank: Primary focus is growing current, savings account deposits 
--Federal Bank: Should be able to withstand liquidity issue in Q3, Q4 
--Federal Bank: Aim to improve core fee income quarter-on-quarter 
--Federal Bank: Multiple leverages need to be pulled to maintain LCR 
--Federal Bank: Aim to grow loan book without impacting asset quality 
--Federal Bank: Confident that credit card portfolio is under control 
--Federal Bank: See issues in microfin space getting sorted in next 2 qtrs 
--Federal Bank: Must be cautious in launching high-yielding unsecured pdts 
--Federal Bank: Need to ensure loans, deposits grow hand in hand 

 

By Kshipra Petkar

 

MUMBAI – Federal Bank sees issues in the microfinance book getting stabilised in the next two quarters, the bank's management said in a post-earnings analyst call Monday. The management said it has definitely seen an uptick in the delinquencies in the microfinance book, but these are much lower as compared to the industry level.

 

"Two-thirds of our portfolio resides in the southern geography and our credit filters all along have been really conservative, which is helping us. We do see this MFI (microfinance) issue hopefully stabilising in the next two quarters. There will be a marginal uptick (in microfinance slippages), but nothing more than that. Definitely nothing more than that," the management said.

 

The bank reported fresh slippages of INR 4.28 billion in Jul-Sept. Most of the slippages were from retail and agriculture segments, as per the bank's investor presentation.

 

The management also said that its primary focus is on growing the current and savings account deposits in the coming quarters. "Keeping our cost of deposits in mind, keeping both the requirements of CD (credit-deposit ratio) ratio and LCR (liquidity coverage ratio) in mind, but with a higher focus on the CASA growth, we believe that we should be able to withstand any liquidity concerns that may potentially come up in quarter three and quarter four," the management said.

 

The current, savings account deposits were up 11% on year to INR 809.26 billion. The CASA ratio fell 110 basis points on year to 30.07% as on Sept. 30. On a sequential basis, the CASA ratio improved by 80 basis points. The improvement was supported by strong growth in resident and non-resident savings book, the bank said in its investor presentation. 

 

On growth in non-residential external deposits, the bank's management said it is seeing more traction in these deposits. "We do believe, in fact, just as we speak, we've looked at some data on market share on normal NR (non-residential) savings accounts, NRE accounts, which is both savings and term, our market share has actually been going up quarter on quarter, month on month."

 

While speaking of loan growth and maintaining credit-deposit ratio, the bank's management said that it's aim is to ensure that loans and deposits grow hand in hand. There are several levers to maintain margins, the management added. The bank's new managing director, KVS Manian, said that some banks are launching high-yielding unsecured loans, which is what Federal Bank will remain cautious of.

 

On loan growth, the bank's priority will be on growing the book without impacting asset quality. The bank's management said it has seen a slight uptick in the rate of slippages in credit card and personal loan segments, and had a cautious approach. The management said that the bank will continue to grow in these segments as they do provide opportunities.

 

The bank's management also said that they aim to improve the core fee income on quarter. In Jul-Sept the fee income increased to INR 7.84 billion from INR 6.52 billion reported in Apr-Jun.

 

On improving the liquidity coverage ratio, the bank said that there are multiple levers to deal with it. "It's about the tenor of the loan, the profile of the loan, retail versus high value, the mix change, the callable, non-callable. So there are several factors which we are working on," the management said.

 

The management also said that "Increasing the CASA and deposits will continue to be an area of trust. So a combination of all this is what we are confident of maintaining and improving the LCR level." The bank's management said that the treatment of digitally enabled accounts may need review.

 

Federal Bank is also in talks with the Reserve Bank of India and is working internally to start re-issuing co-branded credit cards after it stopped post RBI's guidelines.

 

On Mar 7, the central bank revised the guidelines for debit and credit card issuance and conduct for banks and non-banking finance companies. The norms said card issuers would have to put in place a mechanism to monitor the end use of funds spent through business credit cards, and that the two entities could enter into a co-branding partnership with card issuers without prior approval of the central bank, as was previously required. Following this, the Federal Bank stopped issuing new co-branded credit cards.

 

"In the imminent couple of weeks, we should be able to approach RBI with the confirmation that we've done all that is required to be done on this model and post that really it will be for RBI to review and come back. But our conversations with RBI have indicated that we are on the right path," the management said.

 

On Monday, the bank reported a net profit of INR 10.57 billion for the quarter ended September, up 11% on year and the net interest income was up 15% on year to INR 23.67 billion. Monday, shares of Federal Bank closed 0.7% lower at INR 184.99 on the National Stock Exchange.  End

 

Edited by Deepshikha Bhardwaj

 

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