MC EXCLUSIVE See a big opportunity in medium-yielding segments: KVS Manian, MD & CEO, Federal Bank

KVS Manian Managing Director and CEO Federal Bank

Around this time next month, KVS Manian, would have completed a year as MD & CEO of Federal Bank. As he recalls the year gone by, much of his efforts seems to have gone in finding the gaps, whether in terms of business, processes or people and filling them gradually. That explains why the bank has added layers to its consumer business, particularly in the secured and unsecured spaces such as LAP, auto loans, credit cards and business banking. Constituting for a bulk of medium-yielding products, these segments may grow faster than the rest, a strategy critical to alter the loan and margin mix of the bank. The word on the street is that the bank has set up a small team to evaluate acquisition targets. Without divulging much information, Manian confirmed that the bank is on the look out for acquisitions, but nothing is immediately round the corner. Edited excerpts:

In a month from now, you’ll complete a year in Federal Bank. How satisfying has it been so far?

No private bank can claim 18 - 20 percent market share in any place or even a pocket. Apart from SBI, we are the largest in Kerala. Strong home base gives the core strength to the franchise and one which is not built on rates. It is a relationship and brand-based franchise and that’s a huge strength. We have a very strong market share in the non-resident business, probably the best among private sector banks. We are also the largest private sector bank in gold loans. On human capital, in this part of the country, we are the best employer. Our attrition ratios 2-3 percent when competition talks of 25 – 30 percent. Of course, there is more to do; we need to go more national (on our presence) and do more CASA. Our fee ratios can be better. We have a good journey ahead of us and it can be quite exciting for the bank, for me and our teams.

What does being the 6th largest private bank mean to you and would moving one up the table be your immediate aspiration?

You need some scale for relevance. But, the point is not whether we get to an exact number. There are many ways to measure being in top five. One is just the size, but it can also be based on profits, market cap and so on. We are dominant in Kerala. But we can become more relevant in the larger part of the country.

You've fortified your team with an interesting set of people including in wealth management. What was the idea behind these changes?

While there are very strong elements in the franchise, there is more to do and there are gaps which needed to be filled and some of that talent has to come from outside. I have not made many changes in the N-1 level. I have got more people at N-2 and N-3 layers which adds to the core of the team. Wealth, trade and forex and global transactions are areas we found the gaps. Our consumer franchise was very highly dependent on home loan as a product, which is not a highly returns accretive product. It is (also) very competitive. The bank needs a portfolio of products in consumer (business) which can give better yield and returns. We thought that it is important to get talent for our (credit) cards business, which is now a very small business and needs to scale up. Similarly, our LAP (loan against property) and auto businesses are very small and we needed to bring more focused attention to them. While we had some internal movements in the consumer side, we created two roles for unsecured and secured loans to bring more focus to LAP and auto loans. We got talent from outside because we didn't think that there was enough internally to fill these slots. Eventually, a franchise's strength also lies in whether it can attract right talent and I think we are in a good place on that. A good balance between internal and external talent is critical.

What is your strategy on credit cards? You have restarted business with Scapia. What is the update on OneCard? How do you want the mix of own cards vs co-branded to be in three years from now?

On cards, there are two parts to the strategy, which we have recently reworked. Inorganic (option) is the fintech partnership and organic is our own cards. In fact, we have a big opportunity in scaling up organic cards (Federal Bank cards), which is what we are doing now. Our number of cards issued have gone up significantly over the last few months and we want to sell cards to our existing customers. We are the 4th largest bank in terms of net card addition. Our penetration on cards is still low. As a product, cards is an important part of that and it feeds into our fee strategy. On the inorganic front, our two large partners were Scapia and OneCard. With Scapia, we have relaunched after we came out of the embargo. We have repositioned and renegotiated commercials. It's a travel focused card and we are getting very good response on that card. On OneCard, we are still in the process of restructuring the acceptable way of operating and should relaunch it in the next few months. We will look at newer partner in for co-branded cards and evaluating cash cards and fuel cards.

What would be your desired split between secured and unsecured books?

In due course, I would like to see our unsecured get to the late single digit number level like 7 – 9 percent. Within unsecured, microfinance (1.6 percent of loan book) is not an area that we want to push. In the last two quarters credit cards book has grown significantly. We want to continue to grow that. Personal loans hasn’t grown yet, but the book has to be a mix of internal customers and new to (Federal) bank customers. We have to be careful about that as banks have better (experience) with existing customers than NTB customers.

The bank was very strong in corporate side and then it took a cautious stand. How do you see the corporate book shaping up and what would Federal Bank’s strength be in this portfolio?

Federal as a bank, should be more focused on the mid-corporate segments. We are not appropriate for very large corporate (loans) and our current cost of funds is not appropriate for that. With the mid corporate customers, the bank can get the right share of wallet in all products such as collection, payments, foreign exchange business and cash management business. We need a holistic portfolio wallet share of a client to make money in the corporate banking business. Some segments like financial sector where we think transaction banking business is important we have fortified the teams.

What would be your strategy for growth?

We have been relatively more focused on, home loans in the consumer banking segment and the corporate book, forming almost 45% of our book and that is low-yield relatively. Our growth strategy is that we can’t grow very fast in these segments because they will continue to be low-yielding products. The medium-yield (segment) is where I see big opportunity which consists of LAP, auto loans, gold loans, commercial banking and business banking. We can over a period of time change the mix of on the asset side.

You’ve recently ventured into wealth. Would you consider pivoting into a manufacturer in any of the non-lending businesses from being a distributor?

If we want to be the fifth largest bank, it is important to have a wider offering because it helps the retention of customers and it builds the bank as a holistic franchise. In the short run I would focus on getting the core right, though in the medium term we will look for a wider offering including manufacturing in some of the health related products.

There is a buzz that a small team under your guidance has been set up to look at acquisition candidates…

We are alert to opportunities on the inorganic space, but nothing is on the table to say just now that there will be an acquisition.

Shyam Srinivasan’s objective was to position Federal as the most admired bank. What would be your motto?

Shyam has left a stable franchise. We will continue to aim for being the most admired bank; that journey is not complete. Shyam took Federal more national and that is work in progress. I think we need (national) relevance. My journey is to establish the relevance of Federal Bank in outside Kerala and with that we will be the most admired bank. So the journey continues.