A sizeable loan to a metal company turned bad, affecting the bank's asset quality during the June quarter, Shyam Srinivasan, MD & CEO of Federal Bank told CNBC-TV18. In addition, provisions towards some of its treasury deals also weighed on earnings, he said.
Federals Bank's quarterly net profit declined 36 percent year on year, and total income rose 9 percent.
Srinivasan said the bank's deposit base showed steady growth, but loan growth was muted at 10 percent as large companies were cutting back on loans.
He is confident the bank will be able to maintain a net interst margin of 3.25 percent for the whole year. He said the retail portfolio of the bank, with the exception of loan against gold, was showing good growth. Loans against gold were not finding enough takers because of falling gold prices, he said.
"In the area of retail, besides home loan we are looking at very confidently stepping up of our personal portfolio which we are now seeing good traction", he said, adding "SME, agri, home loans, personal loans will see a good growth - anything in the north of 20 percent."
Below is the transcript of Shyam Srinivasan’s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.
Latha: Take us through your quarter numbers with a special emphasis on that asset quality number which is not looking too good?
A: Quarter one profit was Rs 141.39 crore. Overall credit growth was about 10 percent odd and deposit growth was about 16.50 percent. The growth in deposits has been fairly strong and very granular in nature. Our retail deposit is now about 96.5 percent of the deposit book is retail and NR which is our strong segment has grown remarkably well at 29 percent.
Cost of deposits have come down to 7.12 an improvement of about 15 basis points from the same quarter last year. Savings has grown 19 percent and current account-saving account (CASA) has grown to now 31.5 percent of our deposit portfolio has CASA. The franchise on the deposit side continues to be strong.
The credit deployment, credit growth continues to be muted as you notice our credit growth has been above little over 10 percent on a year-on-year (YoY) basis. In particular, this quarter in the large corporate we saw significant pair downs probably because customers saw opportunities to fund it lower through other market instruments so credit growth continues to be muted. SME, which is a strong segment of the bank, has seen a growth of almost of 17 percent YoY an even growth in this particular quarter as also the agriculture business has grown substantially.
On retail, our home loan portfolio is growing well. Our gold loan continues to be muted, in fact de-growing to some extent and this has been on the consequence on the back of falling gold prices.
Overall net profit for the quarter was dented on account of two very specific events. One was the impact on account of a large account in the metal space slipping that was about Rs 134 crore. The impact on account of provisioning and the interest income reversals on that account had an impact of almost Rs 70 crore on the profit and loss (P&L).
The treasury provisions, which is more market related, was Rs 49 crore this quarter. So two specific events – one, a large account slippage and the treasury provisions have had an impact on overall profitability. Operating profit on a YoY basis has grown Rs 15 crores about 4.5 percent and the net interest income has grown roughly 9 percent on a YoY basis.
Latha: Give us a little more colour on this asset quality? Even if it is just one metal company, this is still a 23 percent rise in gross non performing loans (NPLs). Give us your outlook on how asset quality will proceed hereon.
A: Last eight quarters, we were trending in the direction of improving every quarter. This quarter, this one particular account has influenced the outcome. It is a function of denominator growth and lower slippage both of which we are actively seeking. We don’t have any significant large ticket ones that are looming large so we would like to make sure that the trend only improves from here.
Sonia: You were just telling us how in terms of credit growth you are seeing significant pair downs in credit for large corporate this quarter. So what is the outlook for FY16? When do you expect a pick up and in which sector?
A: Our strong segments have been SME and agri for many quarters and even this one they have grown 17 and 19 percent. So, we will certainly see a similar or better growth in a full year basis in SME and agri. Retail, if I disaggregate gold, we are growing very strongly.
Gold continues to be fairly muted largely on the back of falling gold prices. In the area of retail, besides home loan we are looking at very confidently stepping up of our personal portfolio which we are now seeing good traction. So, SME, Agri, home loans, personal loans will see a good growth anything in the north of 20 percent.
In the area of corporate it continues to be, I would say area of watch. Though, I am hopeful by end of the year even that will trend in the mid teens but for now that continues to be very muted in fact de-growing from a sequential quarter point of view. YoY it has grown about 4 percent.
Sonia: Apart from asset quality weakness the street is also concerned about how your net interest margins have fallen about 20 basis points this quarter to 3.1 percent. When would you expect a recovery?
A: Our full year last year was Rs 320. We will still hold on to Rs 320-325 for the full year. Our cost of deposits as you have noticed has dropped 16 basis points that should give us that.
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