Aim to grow loan book by 15% this year: Federal Bank

Federal Bank is aiming for a 15 percent growth in its loan book for the current year, says Shyam Srinivasan, MD & CEO of the bank.Federal Bank's second quarter numbers were disappointing, with provisions rising sharply year-on-year because of a deterioration in asset quality.The bank's slippages--borrowers defaulting on restructured loans--rose to Rs 410 crore during the September quarter, compared to Rs 320 crore during the preceding quarter.Srinivasan tells CNBC-TV18 much of the slippages have come in the corporate and SME loan accounts.He says the bank has been conservative on fresh loans, but expected the second half of the year to be better than the first half.Below is the verbatim transcript of Shyam Srinivasan’s interview with Sonia Shenoy and Latha Venkatesh on CNBC-TV18.Latha: Let me start with the biggest pain point that the market is pointing out to. Gross non-performing loans (NPL) have risen by 15 percent quarter-on-quarter (Q-o-Q) in just 90 days, how much have fresh slippages increased?A: All the Rs 405 crore that we saw as slippages this quarter, is the new slippage for the quarter. Therefore, the delta over the previous quarter that you pointed out of 15 percent is largely on account of some accounts that are traditionally stressed in the corporate segment have slipped. And when I say corporate I meant the credit exposures greater than Rs 25 crore. So, those were accounts that were in the restructured portfolio.If you see our gross non-performing assets (GNPA) plus restructured, it remains the same. What has happened is some parts of the restructured portfolio that was undergoing stress and could not meet their minimum credit requirements had to be recognised as NPA and that is what happened this quarter.Latha: You mean your slippages came only from your restructured book? Your standard loans or non-restructured book is not generating fresh NPLs.A: If you see the GNPA plus restructured, it is roughly about 7.6 percent and it has been there or thereabouts for many quarters now. So, it has not seen any significant new addition. A couple of weeks back when I spoke to you guys, I did mention that there are some accounts that I have known in and out, they have become out and in some ways it is good because it gives us the potential to go out and recover the dues because most of them are well collateralised.Sonia: So, you have an exposure to the Ratnagiri Power Plant or to Essar Steel?A: Without getting client specific, yes, we do have two metal accounts, and those are large industry led accounts. Our share has been coming down considerably over the quarters. We have brought it down to below 40 percent of what it was at its peak. But that said, we are part of these two accounts that are standard for now and needs close watch.Sonia: Your digital product, Selfie, that everybody was talking about has it in any way helped increase your current and savings account (CASA) ratio?A: The revolutionary product has given us good fillip. We have seen growth in our savings per se and our CASA has moved to 31.67 percent this quarter as opposed to 30.47 in the previous quarter. This has not happened just by denominator of bulk deposits coming down, it has also happened by CASA growing and current account has grown on an average basis, 23 percent.Latha: What were your margins therefore and how much can they improve?A: 3.11 for this quarter. It was 3.12 for the earlier quarter. Here I must point out two things. The full impact of the base rate reduction of the previous quarter of 25 basis points is coming through. That is about Rs 22 crore impact. As also, the impact of the unrealised income when an account slips, that has had an impact of almost Rs 20 odd crore. So, to that extent, the overall income being impacted by these two significant events has had an impact on our overall revenues. Margin for the quarter is 3.11.Sonia: Let us come to your topline now. Your net interest income (NII) is one of the big disappointments as well. It has not grown at all. Why is that?A: We have been more than conservative on new origination of credit for many quarters. So, when we have had challenges on slippages, which largely our accounts, which we have had for very long, these are not originations of more recent nature, but that said, it is in our portfolio. The happy part is most of them are out. The unfortunate part is we had to go through the pain of taking it out. But that said, the credit growth in small and medium enterprises (SME) is quite robust. We saw sequentially 7 percent growth. So, annualised, we think that is about 25 percent growth opportunity.Our blended credit growth for the year, we are still guiding for more than 15 percent and we have a very active and a tight robust plan for reinvigorating our corporate credit growth. We have a new Executive Director (ED) who has come on board and a full plan that is board approved is in motion. So, we are a lot more confident of credit pick-up in the areas we want to in the quarters ahead.Latha: I think I missed a number. Your credit has grown by about 4.5-5 percent, how much will it grow you said for the full year?A: We are still guiding for a 15 percent full year credit growth.Latha: Second half?A: By definition, second half will be good is what I said.Sonia: DCB responded to the small and payments bank challenge by expanding its branches by 50 percent. Does Federal Bank see the need to do that?A: If you tracked us, I am sure you have. We have 1,250 branches. That makes us fourth largest private sector bank in India even ahead of some of the more recent banks that have merged. So, I do not think ours is a footprint issue. The other banks that you mentioned have had much smaller footprint. Ours is an efficiency from what we have already expanded is our crucial challenge. So, the quarters ahead, almost 65 percent of our network is in semi-urban, rural and non-metro locations and that is where most of the small banks are coming in to compete and we are reasonably well-placed.On digital, I do not think we are shy of initiatives or efforts and I think that is something that we are only accelerating into and we believe that we can compete head-to-head on that front. So, I am not in any fashion, I would say, intimidated by the launch. We are certainly acutely aware that there is a large theme coming in with various capabilities but we are no less.Latha: That point is taken, you can respond, but like I was just discussing with Vibhav Kapoor of IL&FS, you can get burned on both sides. The payment banks can take away the current and savings account, your cheap deposits and the small banks can take away some of your small borrowers. Ultimately your competition is increasing by 50 percent – 21 new guys coming in. What happens to the whole industry? Everybody’s margins go down by 100 basis points?A: That is where each institution’s mix and efficiencies will kick in. So, if you ask us, we are not visualising more than 10 basis point impact. The bigger impact is in -- as passage of time -- the credit competition. The payment banks will largely compete for the deposit business. The credit competition is what is going to drive the overall margin -- I would not say shrinkage, but margin impact would play it differently.So, the challenge in our foreseeable future, you could say 12-36 months is going to be on three counts. One is how efficient is the system going to be? Legacy systems do have hidden costs that we have to certainly reorient which we are doing and which we are pushing very hard. Second is the adoption of technology based offerings on a more middle-India and Bharat has to take off in a big way. But that is no different for anybody else. So, I would think these are two things. And the third is on the credit side, developing products which is not entirely credit substitute and that is certainly coming.