Tight control on cost has helped report our strongest operating profit: Shyam Srinivasan, MD & CEO of Federal Bank

Federal Bank’s net profit for the September quarter declined 26 % year on year (YoY) to `307.6 crore, impacted by a significant step up in provisions. Shyam Srinivasan, MD & CEO of Federal Bank, talks to Rajesh Ravi about the bank’s performance and outlook. Excerpts:

Provisions for the quarter have almost doubled from the year-ago period. What is the outlook on slippages?
If the moratorium was not there, the slippages would have been Rs 237 crore, for which provisions have been made. For the quarter, the re-structuring was Rs 26 crore. The slippages for the quarter are only Rs 3 crore. We have provisioned Rs 402 crore in the quarter for restructuring as a pro-active measure for the same that may happen in the quarters ahead. It is for the entire portfolio. We have reviewed our book and analysed that roughly 2.5-3 % of our book may potentially need restructuring. And we have made a material provision.

In normal times, Rs 300-350 crore are the slippages in a quarter. Due to Covid-19 and the stress, if they are not eligible for restructuring, we have provisioned for more.

What is the highlight of the quarter? The bank has reported the highest-ever operating profit in the quarter. Do you think this can be sustained?
Growth has been quite strong on our liability franchise, in particular CASA, and gold loan business have grown above 50%. Growth in businesses that are relatively margin-accretive has helped and we have grown our fee income very well. A tight control on cost has helped in reporting our strongest operating profit. It is driven by operational performance across every line and we hope we can build on it. It is organic growth and should reflect continued improvement.

The gold loan portfolio is seen growing for the bank. What share of the book is gold loans and how much room for growth is there?
Currently, gold loan is 10% of the loan book and in the past, it has gone up to 15 %. So, there is plenty of room for growth. On the portfolio-level our LTV is between 72 and 73% and in the new incremental business, the highest we will offer is 80-85%

Already your cost of deposit is low .Do you think there is further scope for growth in Net Interest margin (NIM)?
NIM is a function of many things. First is cost of the deposit, second is the credit margin on the asset side and third is the kind of slippages you have. If there is a slippage, you will have to reverse the interest income, too. Right now, our NIM is 3.13 %. Our guidance for the year is 3.13-3.15% and we think we are in that zone.

Have you made any changes in your expansion plans because of the pandemic?
The main focus for the next six months till things stabilise will be to consolidate on gold loan and collection. And to avoid slippages, we slowed down because of Covid-19, but we are gaining share. I am hopeful that we will see a stronger pick-up in demand after things get better. In the last five years, we added only five branches. Our philosophy is branch light and distribution heavy. The idea is not many branches but more distribution points and to make branches more productive. Currently 86% of our transactions are digital.

Going forward what is your outlook on growth in business and profit ?
For many years we have been very conservative in lending and our approach to business. Our credit cost and NPA ratios are the best among banks across the country and in time like this good banks shine. Because we don’t have a problem to deal with, we can use the opportunity. We are operationally very strong, our provisions are good, credit quality is good and we are positioned for growth.