 "Federal Bank CEO Shyam Srinivasan")
SHYAM SRINIVASAN tells Hamsini Karthik and Subrata Panda that the businesses where he envisions Federal Bank growing are credit cards, microfinance, commercial vehicles, gold loans and life insurance. However, rather than follow what he describes as the investment banking approach of creating a franchise only through acquisitions, he prefers to build his way to success. Edited excerpts:
You have shed the tag of being a Kerala-based bank quite significantly. How happy are you with progress?
Any one geography has limitations for growth. So, it has to be widespread, broad-based, and equally, it diversifies risks also. Have we made progress? The answer is yes. Can we do better? Absolutely, yes. And we will.
Your top three achievements so far?
The bank is now recognised as a provider of good-quality contemporary products, pan-India. We have brought in a lot of seniors from across the industry. So from a people capability, from a franchise expansion capability, from a sincerity and trust point of view, we’ve scored quite well.
You are not called an old private bank anymore. Is that something you are proud of?
The definition of the bank has to be not by the location of birth or year of birth, it has to be by competencies it will bring. Slowly, that tag is falling off, they are seeing us as a digitally relevant and contemporary franchise that can match up to all client needs. I want to be called contemporary, relevant, and digitally capable of serving a wide audience.
If given another term, what are your plans for the bank? How is the succession planned?
Normally, six months ahead of the end of the term of the managing director, the board sends the request for reappointment, that’s the regulatory requirement. I do believe my board is keen to do that. And God willing, it will go through. But the priority is reappointment of the current MD, and we have no reason to believe it should be any different.
What are the areas where you could have done more?
We are able to do well when the chips are down. That said, if you look at the world, which measures everything through the lens of stock price, we haven’t done as well. We could have done better. That may have meant some short-term tradeoffs, which I’m not willing to do. But I am ready to play the long game, which means sometimes governance takes premium over short-term tradeoffs. And our governance mechanisms are remarkable.
So, growth will not be the first priority and governance will take precedence?
Growth and control will be our priority. I would love for both to happen. And in the trade-off the toss-up will be quality of governance. Never short-term gains. And we’ve proven it over time. In 2013, when the industry grew 11-13 per cent in credit, we contracted 3 per cent. You know what happened from 2014 to 2017, how credit problems erupted in the country. But we did not have credit problems. So, the choice we made has played out well for the bank.
Most foreign banks contracted their books that year. Since you have a foreign-bank background, did that experience inform your strategy?
Yes, it did teach us a few lessons. If there is disproportionate growth, worry more. Don’t follow the herd. I genuinely believe in in large banks, because it is never a one-man show. I believe the board has a part to play, the team has a part to play. We do a more consultative approach of more people getting into decision-making on some things, so we lose some of the gains that others see.
Do you count Madurai MFI and IDBI Federal Life Insurance as missed opportunities?
No, our journey is largly organic. But there are parts of the bank that can be facilitated by looking for opportunities, which are inorganic. Microfinance is an area we are not that familiar with. That’s why one of the transactions we were looking for was a microfinance institution which, for certain reasons, didn’t materialise. So, we said, we must keep exploring. And we are talking to many, but there’s nothing on hand.
Life insurance, we believe, is a remarkable play, because the country is under-penetrated. We did express interest. But there are regulatory reasons. And RBI is looking at the whole structure. I’m guessing when the holding company structure and other things come out, there may be more clarity. So, our application is pending. The areas that we want to grow have to be businesses that are accretive in margin, and a nice extension of what we do, and where we can leverage the existing branch network.
Any pockets where you would want the bank to grow?
There are four areas where opportunities are margin-accretive: One, credit cards, and we are now poised for our own credit card launch in two months; two, microfinance; three, stepping up the commercial vehicle and commercial equipment business; and four, dialling up on our gold business, which has done remarkably well. Credit cards take a year to manufacture the business and set the house in order, but hopefully by March-April we will be live.
The two businesses where we must do better is commercial vehicles and microfinance, both of which have been hugely impacted by Covid. I don’t want to build a franchise only by buying something, because that is an investment banking approach. In commercial banking you have to build your way to success. Ours is a build-your-success model.
What policy would you adopt to raise capital?
Last March, we said we will look for the next raise in H2FY21. The reason is, in 2017 June, we did our last capital raising — a very handsome Rs 2,500 crore — and we remain well-capitalised even today. The maximum capital we use in a year is 100 basis points. So, then, we were at 15 per cent CRAR. And our trigger point is 12 per cent CRAR. We need to raise capital every three to four years, and this being a Covid year, the consumption of capital has been vastly lower.
But given the environment we are in, we are thinking of going for a capital raise at a CRAR of 13-13.5 per cent, which, even at a normal run rate, means six to nine months of headroom is available. So, over the next six months, we will explore it.
