We want Federal Bank to be the 'Rahul Dravid' of banking space: MD-CEO

In a Q&A, Shyam Srinivasan says he wants the lender to be a predictable and trustworthy brand. He also expects home loan interest rate wars to erupt in the festive season

The business for retail loans is looking up along with a sharp improvement in collection efficiency. With RBI clearing another term till September 2024, Shyam Srinivasan, MD & CEO, Federal Bank tells Subrata Panda and Abhijit Lele that he wants the lender to be like Rahul Dravid--a predictable and trustworthy brand. He expects interest rate wars to erupt in the home loan segment in the festive season. Excerpts:

Following the second wave, how are things changing in terms of credit offtake? 

Visibly, there is some momentum in retail. We are seeing some pick-up in small businesses as well. Corporations are giving mixed signals.  Also, all of us are hoping and praying that there is not much intensity in the third wave. And, if that happens, hopefully the worst will be behind us. We will see 8-9 per cent year-on-year (YoY) credit growth in H1, and in the entire financial year, we think the pick-up will be better and we should see 10-12 per cent YoY growth.  

The bank has reworked credit card offerings with variable interest rates. What are your plans for this business? 

We launched the credit cards business in April-May this year, after staying away from the unsecured business for many years. Our approach on credit cards has been to cater to a lot of existing customers as we have enormous data around that. So, we have started off with that. We will look at fresh to bank customers but that is phase II of the activity. Unfortunately, the ban on MasterCard disrupted the business for 45-50 days but now we are back in the market with Visa. The rates we are charging are quite bespoke and not one-size-fits-all rates.

We are starting with existing customers as we have an established liability base of well over 10 million customers. We think, initially, about 10 per cent of that base is the universe that we will be offering our pre-approved cards. Currently, 25,000-30,000 cards have already been issued, and by the end of FY22, we should, probably, hit 150,000. 

You are increasing activity in the credit card space when stress in the unsecured retail segment remains elevated. Are there any concerns? 

As a preamble to credit card launch, for the past two years, we were doing personal loans, digitally originated, to our existing base and the book is now Rs 2,000 crore. And, that has held out very well throughout the pandemic. So, we have reasonable confidence in the portfolio. We are not looking at building a giant book in a short period of time.

How do you see the rate cycle moving, going forward? 

The general view is that we are at the bottom end of the rate cut cycle. It may start hardening from here but how soon and how fast will depend on a lot of factors, including inflation. But, we are seeing enormous liquidity in the system and that itself is keeping the rates low. As liquidity gets sucked out, we may see rates firming up, even without a rate increase. 

But, the market has seen rate cuts on the home loans ahead of the festive season by peer banks. What are banks' plans?

Generally, on the credit side, we do not like to be very aggressive on pricing. Having said that, for our good customers we are flexible in giving them good rates. I am not looking to grow our market share by 4x  because, usually, that is where you invite pain. Now, with one of the big banks’ dropping rates, we will see some pricing war in the next two weeks. And, we also have to be competitive. But, certainly, I do not want to be the lowest and attract a large market share. We are very much in the league when it comes to competition.

Your term has been extended by the RBI till 2024. What will be the focus areas in the next three years for you?

We are passionate about building the most admired bank. And, admired does not necessarily mean the largest bank. And, we want to be admired on many counts, including profitability, governance, trust, and dependability as a brand. And, I think, we have made reasonable progress. So, when you see three years down the line, we should be somewhat like “Rahul Dravid”, clean, straight, predictable, and a trustworthy brand. 

You had given guidance of incremental restructuring of Rs 400-500 crore. Does that continue?

In Q1, we had seen slippages of Rs 640 crore, and restructuring was about Rs 850 crore. So, slippages and restructuring overall were Rs 1,500 crore and we may see a similar number in Q2. The good news is, the collection efficiencies have shot up.  Happily for us, the small and medium business establishments are performing even better than we had thought they would. In any quarter, the restructuring demand peaks near the end of the quarter.

Federal Bank has joined the Account Aggregators (AAs) ecosystem. How will this benefit in the long run and what is the bank hoping to achieve out of this?

The AA concept is great because I believe it can be equivalent to UPI. From a vision point of view, I think it’s superb and gives everybody an equal chance to grow. Particularly if you are a small player, you have a lot to gain. So, I see this becoming meaningful over the next three years. The potential for it to grow is immense. It will be very enabling for lenders and customers. 

The bank has tied up with a lot of fintechs. What is the strategy there? 

Our mantras have been “digital at the fore and human at the core” and “branch light, distribution heavy”. We had stopped increasing branches in 2015. In my first five years, we added almost 600 branches. And, in the next five, we added 25. But our business has grown 3x. So, the idea is, branches have a role to play and we must leverage that but we need distribution but we do not need a physical presence. So, the idea behind all these partnerships with the fintechs is to get access to a new client base, which we, normally, do not attract. We have a technology back bone and they have the required front-end activities. Our run rate of per day new acquisition is more than doubling because of these partnerships. Initially, we are looking at these as non-credit partnerships so they are largely liability partnerships. 

You were aiming to grow inorganically by acquiring a microfinance business. Any progress? 

Nothing has crystallised. We're not even talking to anybody now but it is on the radar. At this point in time, we don't have a deal on hand. But, we remain interested in the business. And, the time is now more right because even the biggest microfinance lenders are beginning to see that there are limitations to grow without having a banking partner. So, in a few quarters, something may emerge.