Our cost of funds is still high: Shyam Srinivasan

Q&A with Federal Bank MD & CEO

Kerala's Federal Bank considers itself as the most aggressive player in the car loan market now. The bank is offering both car and housing loans at Base Rate (its minimum lending rate). Shyam Srinivasan, managing director and chief executive of Federal Bank, shares with Somasroy Chakraborty the strategy to grow the bank's retail lending business in coming quarters. Edited excerpts:

You have cut the interest rate on car loans and extended your discount offer on home loan rates. But why have you kept your Base Rate unchanged since May, 2012?

Lending rate is a function of funding cost. Our cost of funds is still high. Hence, we kept the Base Rate unchanged. After the reduction in policy rate (on January 29, 2013) we decided to pass on the benefits to our customers wherever possible. We will evaluate the liquidity situation and funding cost in coming weeks before reducing our Base Rate.

 

Do you expect deposits rates to fall because of the reduction in cash reserve ratio?

It will depend on competition and liquidity situation. We don't expect deposit rates to alter dramatically in the near-term.

How is the loan demand? Is there a greater focus on retail businesses now?

We are witnessing pick-up in loan demand in select segments. While the demand for SME and home loans is improving, the response is mix in auto loans. The gold loan demand continues to remain strong. Corporate credit demand is still not significant. In the first nine months of this financial year, while our advances increased by 19% the growth in retail loans was close to 24%. For 2012-13, we are guiding for 14-16% growth in our advances. We will aim for 20% credit growth next year. On the liabilities side the focus remains on customer deposits. We ran down around Rs 3,000 crore bulk deposits so far this year. The non-resident deposit is also an important business for us. It has grown by 50% this financial year.

How do you plan to grow your retail loan portfolio?

We are taking a number of initiatives. For instance, we have launched a national auto loans hub in Kochi. The hub will be a single window for processing and sanctioning of auto loans on fast track. Our lending rates are very competitive. We are also expanding our branch network. Currently, we have 1,030 branches. We plan to have 1,250 branches by March, 2014.

Do you have plans to enter credit cards business?

There is no plan to enter that business as of now. We will continue to focus on secured retail lending.

Is the asset quality stress easing now? Will the new provisioning norms hurt your profitability?

The credit quality of our retail and SME portfolio is stable. But large corporate accounts continue to stay choppy. We are still working through one or two vintage accounts. In terms of loan restructuring, we have sorted most of the difficult cases. If incremental loan restructuring continues to be modest, there won't be much impact on our profit and loss account. I believe that banks do not restructure loans just because that option is available. There is a need to support customers when the environment is harsh. But with cost of restructuring becoming expensive, banks will now be more cautious.

Do you plan to raise capital in near future?

Our capital adequacy ratio was 14.9% at the end of December, 2012. It is fairly adequate and we do not need additional funds for next 12 months.