Will maintain NIMs at 3.3%; FCNR not main focus: Federal Bk

Federal Bank is likely to maintain its net interest margins at current level, says MD and CEO Shyam Shrinivasan. He says the margins of the company have improved on the back of some fundamental improvements like the current account savings account (CASA) and the certificate of deposit (CD) growth. The private sector lender’s net interest margins climbed 17 basis points year-on-year to 3.30 percent for second quarter ended September.

Speaking to CNBC-TV18 post results, Shrinivasan says the foreign currency non-resident (FCNR) is not the major focus of the bank as it does not have a large physical footprint outside India. The bank may not be able to grow the FCNR deposits beyond USD 50 million, he adds.
Federal Bank beat street estimates as its second quarter (July-September) profit after tax rose 5 percent year-on-year to Rs 226 crore and net interest income increased to 8.4 percent Y-o-Y to Rs 548.4 crore. Below is the verbatim transcript of  Shyam Shrinivasan’s interview on CNBC-TV18 Q: Your gross non-performing loans (NPL) came down but net NPL went up. Do you wantonly chose to provide for less?
A: Yes, we were quite encouraged by some of the progress both on retail small and medium enterprise (SME) and large corporates. The gross NPL has come down. There was excess provision in a few accounts that had greater than 200 percent security and we were providing above the IRAC norms, so only those have been corrected and so, there is no significant correction in provision. Q: Can you give us some sort of ballpark estimate of how the second half of the fiscal will pan out? Will you be able to hold onto these margins or are you expecting some pressure because of higher cost of funds?
A: Our margins have expanded on the back of some fundamental improvements. Our Current Account Savings Account (CASA) plus low-cost is almost 32.8 percent, so it has gone up almost 300 bps and we have benefited significantly from the franchise expansion which has helped the CASA growth.
We are particularly inspired by the NR growth beyond Kerala. So, we have had a fairly healthy and robust growth in our low-cost deposits and our certificate of deposits (CD) ratio has slightly improved to 74 percent this quarter, a combination of that gave us margin expansion. If our credit quality continues to hold then interest reversals are marginal and this kind of margin is something we are seeking to hold onto. Q: How much have you been able to attract in the new foreign currency non-resident (FCNR) scheme?
A: A few weeks ago I mentioned that FCNR is not particularly a big focus for us because we do not have a large physical footprint outside India. Ours is more of real domestic remittances that come from the NRs which in rupee terms have grown very significantly.
FCNR is a very small component and I do not believe it will go up beyond USD 50 million in our case, because we do not have a leveraged route that we are working out, ours is more the regular franchise growth. Through the tier-1 route, we can do about USD 100 million and so, the combination we have about USD 150 million, but I must caution that the FCNR is not necessarily low-cost. Q: The big positive was the fall in the gross NPLs. How will it trend in the second half? Have you peaked off for the moment?
A: I do not give a very futuristic guidance, but the trend is very encouraging. Retail, SME and agri for almost 12 quarters have been consistently improving, so that trend will certainly improve. On the larger ticket it has been little choppy. Last quarter was only because one large account of National Agricultural Cooperative Marketing Federation of India (NAFED), outside that, the trend has been encouraging, this quarter Rs 23 crore.
We do not have a large pipeline of restructuring cases or a large pipeline of very high threatening accounts, but we have to watch the market and make sure that we are not out of whack and continue to have the same intensity in recovery and collections. The recoveries and upgrades in our numbers this quarter was higher than the slippages. We are seeking to keep that trend, but we are working in a very volatile environment. We will make sure that it is the focus of the bank.