Federal Bank to convert NBFC unit to marketing arm

Federal Bank will turn its defunct non-bank finance company into a direct selling agent to market its products, according to the private sector bank's chief financial officer, George John. In 1999, the bank had surrendered the license for Federal Bank Financial Services.

"There was duplication of work like giving loans. So we surrendered it," John told today. Last week, Federal had sought the Reserve Bank of India's permission to convert the unit into its direct selling agent, he said.

Federal Bank, which has its headquarters in Kochi, is interested in buying other banks with significant branch network. John didn't name any bank that Federal was eyeing. "I can only say that we are open to more acquisitions," John said.

An acquisition must not interfere with its aim to keep non-performing assets below 1 per cent of total loans, he said. Earlier this month, Federal merged Ganesh Bank of Kurundwad with itself.

"The entire integration process will be completed by Nov 30," John said. John is confident that RBI would approve further acquisitions by his bank because the recent buyout will have no negative impact on its balance sheet.

In the quarter starting January, John expects the merger to boost Federal's income 30 per cent, while having negligible impact on profit.

However, its net non-performing assets are likely to rise to around 0.86 per cent from 0.76 per cent of total assets because of acquiring Ganesh Bank, which had NPA of around 9 per cent.

The acquisition will have a marginal impact because Federal's advances book is Rs 120 billion strong compared with Ganesh's Rs 880 million.

After the merger Federal Bank has 507 branches. It will add 30 more by October.