Federal Bank revises deposit rates in select segments: CEO

Shyam Shrinivasan, MD & CEO, Federal Bank, says that the bank has raised deposit rates for select buckets like retail customers, below Rs 15 lakhs for one to two years and the second in 90-120 days category. The rates are realignment to ensure competitiveness.  

Below is the edited transcript of his interview to CNBC-TV18. Q: Have you raised deposit rates; is it across the board or in specific buckets?
A: Yes, we have raised deposit rates for select buckets like retail customers, below Rs 15 lakhs for one to two years and the second in 90-120 days category. It is more of realignment of rates in line with our competitors to ensure that we are competitive.  Q: Six months and one year must be one of your most crowded buckets?
A: We saw real rates competition in one year plus category. Our rates were at 8.75 percent, some of our competitors were at 9-9.25 percent. We aligned it with the market at 9 percent. Q: Will lending rates fall? Your cost of money is up by a quarter percent in two buckets which I would assume. My fixed deposits are all one year, I would assume it is a crowded bucket for all banks. Considering that you have raised by quarter percent should we expect that we will not see a fall in lending rates?
A: The fall in lending rates will be a function of announcement that will come in January and further. If there is a rate cut then it will translate directly to lending rate.
We already saw new assets in the last quarter and particularly November-December being price down 25-50 basis points from its earlier rates in the previous quarter. The rates will trend down. This re-adjustment doesn't mean much in the below scheme of things. We almost for a year reduced our dependence on purchase funds and bulk deposits. The strategy is largely retail deposits and one has to be competitive in this space. If a rate cut comes in the subsequent quarters, then price will down. You don't see a large build in 15-20-30 days in one bucket, which will distort the overall cost of funds. Q: Repo rate would largely be a signal in terms of reducing your cost. Whatever has been done on CRR seems to be behind. The market at least is not expecting a CRR cut along with the repo in January. Do you think even if there is indication of a 50 basis point reduction from the RBI, will you incrementally pass that or has the market already factored in?
A: The median of base rate in the market is still in the ten plus. There are a few banks, giant banks that have sub-10 percent. The median will shift towards the 9.75 percent or so. I think there would be an industry shift; median will shift closer to 9.75 percent. We will belong to that bucket because we are at the 10-plus mark right now. Q: Should we expect trimmed margins for you and the industry?
A: On a full year weighted basis, I do not see a dramatic dip in margins. Q-o-Q depending on how the buckets are positioned for different banks from their deposit book one may see reduction in margins at some point in time. But on an annualized basis it will not be very sharp. Q: In terms of corporate exposure you do have exposure to roads and there have been negative reports about lack of financial closure in National Highways Authority of India (NHAI), in fact not giving out any orders this year. Do you see some stress emerging from that going forward or has it been factored in?
A: I do not see a major risk or stress. We have not added any new projects into our portfolio, most of them are above one year. We have not seen any stress, but we need to keep high vigil in this area. Q: Would you say that stress has started coming down at all? Sentiment has turned somewhat positive, but has reality on the ground helped?
A: Mixed. The big names that were heading into some kind of stress have not been able to work themselves out as yet and it may take a couple of quarters, because their readjustments required are quite substantive. The border line low end tickets which were getting stressed I think are beginning to correct itself and that is largely sentiment led. Q: According to a report, your power and roads accounts for about 20 percent of your total large corporate exposure, but exposure at risk is limited to 12 percent of the large corporate book with a lot of emphasis on SEBs. Is this a correct description that 12 percent of your large corporate book is probably exposed largely to SEBs and therefore the risk of them not paying you on time?
A: Some boards that were restructured were Rajasthan and some Reliance in Delhi. Post restructuring they are adhering to the restructuring terms. I believe these may run into problems again in time, but they are core to the development of the country and we cannot expect power to have a challenge.
Yes, there will be some stresses at different points in time. I don't think power will become a major problem and will it cause credit challenges. So we do not have any new exposure other than the ones that we have been carrying and they are tracking to what the restructuring norms are at this point in time. Q: The equity market in general is interested in a lot of the old generation private banks with regard to mergers and acquisitions. What do you see as key impediments? I think valuations would be a problem the asking rate maybe too high. Do you see that as the key impediment or could there be other things that could hinder such deals?
A: Our focus is to do business as usual and getting the organic act right. Q: Our question is not whether you are a potential takeover candidate. You have been in the industry long enough partly as an observer of the Indian scene in Standard Chartered and now as an active player. What is your sense? Do you think investors’ laying so much of bets on inorganic expansion of the potential new licenses is a credible bet?
A: It opens the doors for them to have greater anticipation and expectation of growth through an organic route. But, no potential investor would catch a falling knife. People will search something that is truly accretive and the criteria could be varied. There will be some filters that people will put in and through that filters you may find there are not many readymade right ones for the take. So the more important route in my judgment for the near-term would be a build organically even for the new comers.
Odd purchase and merger option maybe there, but it is limited at this stage, because people in this industry today is more keen to hold onto their current portfolio and current business model and grow out of it. But having said that if somebody is putting a price check on them they maybe willing to have a conversation, but there are some serious structural issues which you cannot overcome in a shot span of time.

Q: Even Kotak Bank stated on the record that they would be very glad to do inorganic expansions. Why is not anything happening in terms of the old private sector bank space? Not all of them are promoters and many of them are even held rather widely even a hostile takeover or an open offer. Why do not all these things happen?
A: There are operational challenges. It may be attractive on paper not difficult to execute. Many of them have rich legacies. They have client bases which are related to a particular market and you cannot extrapolate it. There may be different cost structure, employee workforce structure and different pay scale. Practical realities will start kicking in once you decide to go about it. Some may match both the buyer and the buyee’s desire, but it may not be a wide spread phenomenon.