Steady NRI deposits boost Federal Bank's liquidity

When times are difficult it will take a long, long time if one is waiting for a particular organisation to come back on the rails back to good health just through process of restructuring, cash is king. So, I think it is a very good move that the banks and the conglomerates involved are looking at sale of assets to kick-start the growth of the company again. I think it is a very good trend and should continue till the economy picks up and life becomes normal again.

Q: You said you do have exposure to infrastructure, though not the names that we earlier referred to. What would be the percentage of the infrastructure and any of these companies are under stress and have they expressed interest that that is the route that they are going to go through by selling their stake in non-core assets to pare down their debt?

A: We have always had an exposure to infrastructure, but not a very high percentage. We have exposure to power sector, both distribution, generation and integrated, but fortunately, most of the distribution companies have been restructured over the last 7-8 months in-line with government's plan, issuance of bonds for 50 percent and the state government guarantees. So, that has been done for the major part of the distribution companies. There are one of two small ones that are still left to be done.

We are not even sure if they are going for it; all the distribution companies have not elected to go for it as yet, so some might come up again. On the generation side we have not seen that stress so far, but if the sector faces stress in terms of the input coming through, in terms of coal, if the coalgate is not resolved, then one could see some stress in the coming months or in the next half year or so. But hopefully, by that time the logjams would be resolved, because the focus of the government is to kick-start all this, because there is a vital need to kick-start these infrastructure projects, because it had a spill down effect on every sector, on parts of the economy.Q: Federal Bank is another bank which had hit the 49 percent limit with regards to foreign institutional investor (FII) limits back in August and now you have received Foreign Investment Promotion Board (FIPB) approval to hike it to 74 percent, but I do not think that you are waiting for the Cabinet Committee on Economic Affairs (CCEA) approval. Can you just take us through where you all stand with regards to your application and what would it mean in terms of the headroom that you have for further FII equity coming in?A: From around mid-2000s, we have had 74 percent approval, but when the government brought out the ruling in April that the automatic route for 49 percent is okay, but only beyond that specific approval is needed, its then that the Reserve Bank of India (RBI) advised us to go to the FIPB for formal approval of the 74 percent that we had and this got triggered around August because it started breaching that 49 percent.

So, we are applying to the FIPB and even though we have not got written approval, we know it is approved because it is on the website of the FIPB and that shows that the 74 percent has been approved, it has to go to the CCEA and we expect that to be coming shortly. Frankly, there has been no change. It is not that we applied for more. We had 74 percent. It was primarily because of the government's directive in April that we had to go back and renew it for specific approval rather than just have the earlier approval. There is no real change even though it has created news in the market because four or five banks are in the similar situation.

Q: Federal Bank is also one of the banks which got inflows of these FCNR deposits. Theoretically, do you think because of the strong flow of these deposits the net interest margin (NIM) of the bank could go up in the coming few quarters?

A: Even though we are a major player in the NRI market, we bring close to 7 percent of the NRI flows primarily because we are a Kerala bank and all Kerala banks benefit from the large expatriate Malayali population. This last round from NRI money which came in, and the swap that the RBI offered, we did not get a huge amount in that.

Our deposits were steady deposits. USD 34 billion would also have a large part of leveraged deposits, whereas on deposit side, our core deposits come from regular remittances and that actually reduces our cost of funds because a large part of it is in savings accounts. Even though the RBI's scheme would have cost about 8.6 percent which is also very attractive rate and about USD 34 billion has come, we did not have a huge amount in that, ours is a regular steady business that comes in.

Q: How is the liquidity situation currently for Federal Bank and do you have enough headroom maybe to reduce rates on maybe even select products?

A: On select products like housing etc. the ALCO would look at the rates situation. We are comfortable on liquidity primarily because our deposit growths have been very good. Even if you look at the September results we did show a very good uptick in the NRI deposits primarily because the rupee has gone up to 67-68 and that brought in a flush of money. So, deposit is not a very major problem and if we have to accelerate on the asset side, a combination of the deposits plus, we have plenty of leeway to borrow from both the RBI and the short-term deposit market, so it is not a problem at all. The issue today is that the corporate credit growth is a little slow in India while the deposit growth is robust, so that we are hoping that all the bankers are looking forward to change as it run up to the election and beyond to have a good year next year, this year has been very slow on large corporate credit.

Q: If corporate credit growth has slowed what is your expectation of what the total loan growth will be? First, what the corporate credit growth will look like in FY14 and then what the loan growth will look like and have you scaled down your expectations?

A: I cannot give specific numbers because we are at that time of the year, but I can tell you a general direction. Federal has always positioned itself to be more of an SME bank. We do have the large corporates, we do the infra, we have large private sector and government, all that is there, but the SME business has not really suffered too much even in this last 7-8 months. If you are a supplier to certain sectors which are doing badly then you have strained liquidity, you have delayed payments and all that, but there are many sectors like exports, hospitality, education which has not suffered very much, the weak ones would, but as a sector it has been okay. Multinationals and FMCG have also done very well. So, in terms of growth, the large corporate like any other bank in the country we have not seen huge uptick, but on the other sectors we are comfortable. If you ask me next week I will give you more specific numbers.