Goldman Sachs is confident that Federal Bank is back on growth path. A report by the investment expects loan book to grow 20 percent over FY15-16. It believes the asset quality woes in retail and SME have largely subsidised.
Speaking to CNBC-TV18, Shyam Shrinivasan, MD and CEO, Federal Bank says the quality of the portfolio has improved considerably across many quarters and more recently the stability is visible. “We look forward to similar or better performances in the quarters ahead particularly retail and SME businesses which have trended quite well.”
According to Shrinivasan, the costs on account of new branch establishment, which had affected the bank over many quarters, have stabilised. The bank does not hold large portfolios of stress and aims to bring down its non-performing assets (NPAs) and non-performing loans (NPLs) going ahead. Shrinivasan is confidently looking to achieve a credit growth of around 18-20 percent going ahead.
The private sector lender, which had an exposure of Rs 85 crore to Kingfisher Airlines has been successful in recovering around Rs 10 crore out of total outstanding loans.
The bank is also in a process of declaring KFA a willful defaulter.
Below is verbatim transcript of the interview:
Q: Out of a couple of takeaways from Goldman Sachs report, one of them was that the asset quality woes have largely subsided especially in retail as well as in the SME segment. The previous quarter was quite strong in terms of asset quality. Do you think you will further improve it in Q2?
A: Yes we believe that the quality of the portfolio has improved considerably across many quarters and more recently the stability is visible. We look forward to similar or better performances in the quarters ahead particularly retail and SME businesses which have trended quite well.Q: Profits will improve because of greater operative efficiency. If you could give us any kind of numbers in terms of what you are targeting?
A: I would hesitate to give a forecast but for many quarters both the incremental footprint, we have increased our network considerably outside Kerala. We now have almost 600 branches outside which resulted in some costs across many quarters. We have now stabilised that and we are looking to get more operating leverage ensuring that the low cost deposit business is growing well in both our markets, as also ensuring the underlying momentum in retail and SME which has been trending well. The outcome of these two with an improved credit portfolio should start bearing better outcomes. But I look at the inputs more strongly.Q: If your gross NPAs fell to 2.22 percent in Q1, do you think that you could improve it further in Q2, what would be the guidance? Would it be sub 2 percent at least anytime in FY15?
A: Certainly that is the direction plus minus a few basis points here and there would be driven by if there is any abnormal activity in any quarter. But directionally if you have been tracking us we were in the mid, high threes.
We have trended down to the early two and we look to see that continuing, we don’t have any large portfolio of stress that is not been addressed. So with an improving environment, with a lot of the corrective actions beginning to bear fruit, I see it trending in this direction.Exact number will be an outcome of that particular quarter if there is any event but directionally that is what it will be.
Q: What about credit growth, what is the outlook for that for the rest of the year?
A: We are seeing reasonably good traction. Consider Q1 and Q4 of last year, the two data points have both grown more than 4 percent in that quarter. So annualised, that itself is about 15-16 percent and this is spread across all our businesses, retail, SME and the large corporate. With an improving environment, with the busy season coming up that is trending a little upwards. So in the 18-20 percent kind of credit growth is something that we are confidently looking forward to.
Q: Will it primarily be towards retail?
A: It is split across. In Q1 the highest growth was the large corporate typically in the Rs 25 to 50-60 crore credit exposure portfolios. But we have also seen reasonable growth in retail and SME. So it wont be biased on any one segment, it will be reasonably balanced with retail as SME tends to look better in this part of the year.
Q: Would you have exposure to any of the vulnerable accounts that have been spoken off for example Bhushan Steel, as well as Lanco Infratech and may be even KS Oils where the bankers are looking to sell off some assets?
A: Not appropriate to discuss specific names but KS Oils was on our portfolio long back and we have already taken 400 percent write-off on that. On Lanco we don’t have anything.
Q: Your non-interest income has been a point of concern amongst the analyst community that it might not be as robust in terms of growth. What are you envisaging in terms of your total non-interest income growth in FY15 and what would it be led by?
A: NII growth has been beginning to show better traction. We are looking at all the elements of fee income growth, be it retail or on the fx side for SME and large corporate businesses. It is seeing traction, yes it has been a relatively slower part of the corrections that we were putting in place but many of the ingredients are beginning to fall in place.
I am quite confident that our rate of growth of fee income will be higher by at least 200 bps more than our advance growth. I am talking about 20-22 percent growth in fee income. And that will be the first data point for us to ensure that it is more a steady and stable growth going into the next year.
Q: There have been reports that you all are also looking to declare Kingfisher as wilful defaulters and there were reports earlier indicating that you all have recovered around Rs 10 crore. What is your total exposure to Kingfisher and can you give us more clarity on what the process of declaring the Kingfisher management or certain promoters as wilful defaulters?
A: The overall exposure was about Rs 85 crore. Yes we have recovered about Rs 10 crore. We are going through various steps to ensure that we have done what is appropriate, given the management adequate time to respond to the various queries.
We are going through various steps, we have initiated our steps from our side of the process already to declare them as a wilful defaulter.
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