Won't cut base rates, but peers might in Q4: Federal Bk

In an interview to CNBC-TV18, Shyam Srinivasan, managing director and chief executive officer, Federal Bank says the bank may not be able to cut rates any further, but says other banks may be able to cut base rates only around the next policy.Below is the verbatim transcript of Shyam Srinivasan's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: You have cut your base rate even before the credit policy. What does it look like now, is there any scope for banks to further drop their deposit rates, what is the trend over the next couple of months looking in terms of rates from the banking sector?A: Our new rates were effective yesterday, we have announced it a week ago. We had anticipated not significant move yesterday quite like what it was. Our trending cost of deposits was trending down so we had some room to cut rates and given the busy season, we wanted to be relatively comparative. I don’t see us in a position to cut rates further. About the industry, I guess different times have different maturing sectors of the deposit book so some opportunity would come but I would believe that it would be more like mid-Q4 around the next policy.Sonia: What is the update as far as asset quality is concerned because things had gotten worse for you in the quarter gone by, your provisions have spiked a lot. For the second half of the year, do you see any improvement at all in your stressed assets?A: The accounts as you would have seen in the earlier two quarters also that had slipped more in the restructured space. That is looking more bearable just now. A couple of metal accounts are still dodgy; we are working through to see if there are solutions. So that would be one that I would flag as the potential risk but nothing new or nothing that is unexpected has come up and that is on the back of many quarters of relatively modest underwriting and new credit origination. So we are quite comfortable from a point of view of new slippage but that has threat which has been in and out for quite some time continues to worry us, we are working with the clients.Latha: Do you have a feeling that at least the total amount of slippages is under control or would Q3 also throw up some nasty surprise here and there?A: Last two quarters were almost 100 percent higher than our average run rates. I do expect Q3 and Q4 to be lower than those new highs and somewhere between the new highs and the over average, I don’t think it will be lower than the quarter that went by.Latha: How is that new selfie of your working that 4 minute, open your account? Is your deposit growth improving because of that?A: Our new account opening particularly from the clients which we were traditionally not very attractive for has picked up quite substantially. Our savings growth has been quite handsome. It was in Q2 and Q1, and Q3 looks quite good and we think our current account savings account (CASA) moving up has given us the space for the significant rate cut we took more recently. So I think the growth in savings continues to be robust.Latha: Give us a number. How many percentage CASA growth as well as percentage deposit growth for FY16?A: Percentage CASA growth was around 19 percent H1. That would continue in that zone or slightly better. Deposit growth is a function of how much term we want to pick up. So I will be happy if blended deposit growth is somewhere in the mid-15. Even credit growth is very tepid at least so far. So I think deposit growth is a number that very price elastic depending on what the term rates are. We want to be competitive, not out of the market but not overly generous on term rates. So I think mid-teens is where I would say the deposit growth would hold up for the year.Sonia: You did mention that there is some pressure that you continue to see in some of the metal accounts. But I was reading a research report by Deutsche Bank where they mentioned that they are bullish on Federal Bank because of the diversification and the distribution and the loan mix because of an increased proportion of the retail and the SME portfolio. How are you seeing on the retail side in the loan book and how will that help you in terms of loan growth?A: You should take a multiyear view. We have continuously gone more granular, the retail SME is being growing particularly SME grows north of 20 percent on a CAGR basis for over three years and that should continue. Even the quarter that we are sitting in, I see very good growth in our new focused geographies, SME is trending well and our rate of submissions have gone up and being more competitive on pricing and distribution that should continue to hold us well. Over the longer period our focus is a more diversified base not either geographically or segmentally concentrated in any one area and that diversification will give us the balance that we are looking for.Latha: The Reserve Bank of India (RBI) seems very keen on giving some kind of a loan giving power to retail marketers, the Snapdeals and the Flipkarts, they are looking at some kind of their ability to finance the people whose products they sell. Obviously it will be a tie up in non-banking financial companies (NBFCs) or some such move, as well the payment banks who initially were designed as deposit generating but not loan giving entities, they seem to be very keen to ensure that they become direct sales agencies (DSAs) of NBFCs, that is they will also give loans. So basically SMEs or some kind of micro guys are going to be reached through these entities very soon. Digital can grow pretty quickly, do you think the SME portfolio generally is going to see a lot of competition for guys like you?A: The market is not homogenous. You will not be able to determine saying the Snapdeals or whoever will probably do a Rs 5 crore or Rs 10 crore loan on the website or on the mobile application. So it will be more Rs 20 lakh, Rs 5 lakh, Rs 2 lakh, Rs 50,000 more consumer finance in that area which is anyway very widely fragmented and distributed today. It is not in any fashion anybody's monopoly.So I think that growth will only flow in the opportunity for most. I am not so worried. Second point is that it should be collaborative, so the bank may lend to the NBFCs, the NBFCs may lend to the Snapdeals of the world. So I would think that this will only expand.I am not very nervous about this. The mid-market, the working capital requirements, the more bonafide borrowers who are borrowing for the conduct of business in 20-50-60 lakhs and crore will certainly be bank dependent and the reverse will happen, we will also start penetrating into the digital opportunity. So I remain buoyant about that. On many interview I have mentioned that, I quite believe that this expansion is very good for everybody. We have set up a full digital team within the bank so they will compete head on with whoever is in the market.