Interview | Federal Bank’s unsecured retail segments working well: MD

We will continue to keep our retail wholesale ratio at around 55-45, Srinivasan said.

Federal Bank's unsecured retail loan portfolio is performing well and the lender plans to ramp up the segment in the next few years, managing director and CEO Shyam Srinivasan told Moneycontrol in an interview. Over the next few years, the bank’s unsecured business, which currently stands at 3 to 4 percent, may become 10 percent, Srinivasan said.

With the International Finance Corporation (IFC) planning to expand its stake in the Aluva, Kerala-based lender, the bank’s solar and renewable portfolio will get a boost, Srinivasan added. The bank posted growth in all segments in the April-June quarter and it is looking at a diverse and broad-based expansion, Srinivasan said. Edited excerpts:

How do you assess the bank's growth in the April-June quarter?

From a growth point of view, it was a seasonally good quarter with broad-based growth. Business momentum has been good and we expect it to likely stay that way in this financial year.

Both on the asset side and on the liability side, we saw, sequentially, almost near to 4 percent growth or so annualised, near 20, and y-o-y also it was 20 percent growth.

Also read: Federal Bank Q1 Results: Net profit jumps to Rs 854 crore, asset quality remains stable

Federal Bank launched a co-lending deal for microfinance. Do you plan to acquire a microfinance entity or small NBFC?

We are still a small player but we are quite happy with the growth in the microfinance sector. We are actively diversifying our MF portfolio across states and currently, we are operating in 11 states. Further, we are planning to expand to other states in the coming years.

Microfinance in a non-weather or non-political affected period repayments as strong, as it has been for us. And we put a lot of technology on that, from a point of view of underwriting, from a point of view of onboarding. And hopefully that will continue.

The bank’s corporate portfolio grew substantially on a YoY and QoQ basis. Which sectors worked out well and what are the lending plans?

Growth in the corporate sector is broad-based, like most of our segments. Our average ticket size tends to be around Rs 80 crore to Rs 100 crore.
We are trying to become the top third or fourth banker in the corporate sector for clients. Majorly, sectors like solar and renewable are working well for us and we are looking at strong growth ahead.

Also read: Federal Bank to soon come up with a policy on green deposits

IFC plans to infuse funds in the bank and increase its stake. How will these funds be used?

Our partnership with IFC is helping us to focus on green, solar and other socially relevant areas. Recently, we did a QIP (qualified institutional placement) of about Rs 3,000 crore. The plan for raising funds is to help our growth plan for the next three to five years.

We will continue to keep our retail wholesale ratio at around 55-45. Also, some businesses where we see good growth opportunities are credit cards, personal loans, microfinance, vehicle loans and corporate.

What is the trend in the gold loan portfolio?

Our gold loan portfolio comprises a total of 10-11 percent of our total loan book. We do not wish to push this portfolio to more than 15 percent. During Covid-19, we saw significant growth in the gold loan portfolio and post Covid-19, the growth has been decent.

Also, the margins have been a bit lower in the gold loan portfolio, where earlier the margin was in the high teens at around 17-18 percent, now we see it at around 10-11 percent.

Banks are expanding their retail and unsecured portfolios, which the RBI wants to be kept in check. How do you see this?

Our retail unsecured segments are working well. There are red flags in certain businesses but we have not been red-flagged.

We are having a mixed business and we will maintain a mixed one. Also, in the next few years, our unsecured business, which is currently around 3 to 4 percent of our business, may become 10 percent.

Also read: Fedfina to raise up to Rs 1,400 crore from IPO by end of 2023

What is your take on the central bank digital currency (CBDC)?

We are one of the banks associated with the central bank in the pilot. The process is busy and we see that a lot of effort will be needed in the use of CBDC… we believe that people will start using CBDC, but it will take time.