Unimpressed with the numbers, Jhunjhunwala questioned the bank’s lower pre-provisioning profits and its lack of focus on third-party retail products.
Portfolio investor Rakesh Jhunjhunwala gave a tough time to Federal Bank chief Shyam Srinivasan on the earnings conference call after the bank’s profits fell sharply for the second quarter in a row.
Net profit for the March quarter fell 44 percent year-on-year because of the new RBI guidelines on bad loan recognition requiring banks to make higher provisions. In the December quarter, the bank’s profits had been hit because of stress in its education loan book.
Unimpressed with the numbers, during the post-results investor/analyst call on Wednesday, Jhunjhunwala questioned the bank’s lower pre-provisioning profits and its lack of focus on third party retail products which has generated good revenues for some of Federal Bank’s rivals.
The ace investor, who is also the 54th richest Indian as per Forbes list of billionaires, holds 1.79 percent in Federal Bank at present. Jhunjhunwala has reduced exposure to the stock in the past few months. He owned 2.18 percent in the bank at the end of June last year.
The stock hit an all-time high of Rs 127 in October last year, but has since shed around 30 percent because of the disappointing financial performance.
Addressing Jhunjhunwala’s question, Srinivasan, who is the CEO and MD of the Bank, conceded that margins (3.11 percent from 3.42 percent a year ago) had compressed due to interest reversal on account of recognising some assets as NPAs and incremental costs on account of payment of gratuity and wages.
New business growth
In his characteristic drawl, Jhunjhunwala asked: “What about retail products like selling mutual fund products, health insurance, life insurance, credit cards, which is where the banks are making the money, the good ones?”
To which Srinivasan replied, “Which is why we have recruited new people for the new areas we are venturing into and a full-fledged team will work on that.”
Srinivasan further assuaged investor concerns by highlighting the bank’s stressed assets poolfalling to its lowest in the last 12 quarters. He said the bank will foray into four new “revenue accretive” businesses, which it did not step into earlier due to prudent measures.
Federal Bank’s retail unsecured lending book will make a phased entry into personal loans and related products along with lending to commercial vehicles segment.
“On the corporate front also, we have recruited a person on the treasury side and a senior person to look at the government business…We are investing in the franchise as we have the platform now,” he added.
Insurance stake sale uncertain?
Jhunjhunwala also expressed displeasure on the bidding process of its stake in IDBI Federal Life Insurance and the quantum, which is on sale for the past few months.
“It is in the very last stages, between two final bidders the negotiations are going on. In FY19, by July or August the full process will be consummated. We are waiting for the right price to arrive and decide on taking a call…They are bidding for 100 percent,” Srinivasan said.
Still not satisfied, the Big Bull pressed on, saying “I have no idea…our bank has some or the other problem every quarter. Sometimes there is education loans, now it is RBI circular. Anyways, God bless!” he ended his query session.
Srinivasan was quick to add, “We are a real business Rakesh.”This quarter’s performance will be critical for Federal Bank if it wants to retain Jhunjhunwala on its list of key shareholders.