Fedbank Financial Services or Fedfina, a wholly-owned subsidiary of Federal Bank, has seen a healthy growth in its gold loan portfolio after it got non-banking finance company (NBFC) licence in 2010. Along with consolidating its gold loan loan book, it now plans to offer loan against property. P K Mohapatra, chief operating officer, Fedfina shares the firm's business plans with Malvika Joshi. Edited excerpts :
Several banks have been trying to set up non-banking finance companies but not received RBI’s approved. Any particular reason you got lucky?
Six banks in total including South Indian Bank, Bank of India and HDFC Bank wanted to set up non-banking financial companies (NBFCs). The requests were turned down by RBI. Federal Bank had applied for this NBFC licence in 2009 and we were given the licence on August 24, 2010 . However, by September they (RBI) had a change in policy.
Do you think there is a possibility of the NBFC licence being cancelled by the central bank?
We have nearly 700 people on board and 129 branches at the moment. By this year end, we expect to have more than 155 branches. Our book size is also growing at a robust rate. We started our gold loan business in February 2011, and the current book size is Rs 300 crore. We are targeting it to be at Rs 550 crore by year end. Hence, a rollback of this entity is unlikely.
What was the need to set up gold loan vertical when the parent bank already has a gold loan book?
It is an opportunity where we can leverage this subsidiary in many ways. The bank is unable to penetrate in lot of segments. Fedfina being a non-banking finance company, it can set up branches, freely unlike banks. Banks have a problem dealing with multiple products, simultaneously. Right now, we are dealing with a single product — gold loan. But, the parent bank also wants to create more business verticals for the NBFC — one for loans against property, one for commercial vehicle and another for infrastructure. The plans are under discussion.
How has the business been doing?
Our per-branch business is around Rs 2.3 crore as compared to our competitors, who have an average book size of around Rs 5 crore per branch after so many years of operation.
By next year, we are planning to have 600 branches and a Rs 1,500-crore loan book.
What are your sources of funds and what is Federal Bank's exposure in Fedfina?
Our capital is Rs 190 crore and we have a line of credit of Rs 300 crore from Federal Bank. We just got a sanction of Rs 50 crore as line of credit from IDBI Bank. We have also applied to ICICI Bank and approached State Bank of India. We should have readily available line of credit.
A parent bank can take an exposure of 10 percent of its net owned funds on its subsidiary, which includes line of credit. The bank's direct exposure to Fedfina stands at Rs 490 crore as against their net worth of about Rs 5,900 crore.
Which are the regions you are keen to expand in?
Right now our business is concentrated in urban and semi-urban areas. We will gradually enter the rural areas as well. There is a plan to have 75 branches in three states that is Karnataka, Andhra Pradesh and Tamilnadu, along with 30 branches in Maharashtra and Gujarat.
Any plans to tap the local bond market?
We plan to start loans against property by the second half of next financial year. The loan will be for a longer term. Then we may tap bonds to match the tenor of those loans.
What is your capital adequacy ratio?
Our capital adequacy is 15 per cent, we are well capitalised.
