Federal Bank hopes to cash in on better credit growth in FY17

MD and CEO Shyam Srinivasan says NPA slippages are coming down and credit is picking up

Federal Bank posted first-quarter numbers above Street estimates, with profits rising 18.4 per cent to 167 crore albeit with some uptick in NPAs. Speaking to Bloomberg TV India, Federal Bank Managing Director and CEO Shyam Srinivasan says NPA slippages are coming down and credit is picking up. The bank aims to sustain credit growth of 19 per cent in FY17, he said. Excerpts:

Federal Bank’s profits have increased quite substantially. What contributed to the robust results?

The quarter began quite well from our stand-point — in terms of the areas where we wanted to see improvement. Operating profit grew close to 16 per cent and overall net profit grew by over 18 per cent.

The important features of the quarter were certainly in the balance-sheet growth — both the credit-deposit ratio and the asset portfolio grew way above the industry averages, and the assets growth was close to 19 per cent. The credit-deposit ratio expansion was close to 73 per cent. So we saw good utilisation.

And in terms of margin expansion, it was driven by few fundamental features such as credit deployment and the lower cost of deposits.

So the margin expansion, lower slippages leading to lower credit cost and good cost management saw improvements in net interest margins, profitability and our cost-income ratio, which showed up in the P&L (profit and loss statement).

Asset quality has not improved much as the NPAs in this quarter have been fairly flat. What is the outlook going forward for FY17?

The crucial part is to look not just at the (NPA) ratio, because the ratio is sometimes flattened if you have any sale to asset reconstruction company (ARC) or a technical write-off or a combination of both.

So the important part is to see the absolute movement in slippages. As against some 1,670 crore slippages in last quarter (Q4), the first quarter of FY17 saw the overall gross NPAs at 1,747, which is roughly about 80 crore increase in the slippages. So we think that trend is the most important one.

Importantly, the slippage for the quarter was almost half of the previous two quarters of FY16 — 280 crore was the slippage during this quarter. That is the improving trend we would like to continue. And if the trend continues, the outcomes are going to be better during FY17. So, what is important is to ensure that the slippages remain in control, and that trend is possible.

What is your outlook on the advances and deposit growth?

Last year (FY16) our credit growth was 19 per cent and we would certainly like to keep that trend. Credit growth has been quite robust during the last three quarters, including Q1 of FY17. A good proportion of that was largely driven by a good pick-up in our corporate lending in last year’s Q4. And we see that opportunity very much in the market on account of some banks being distracted and our own internal strength being enhanced.

So I see the ability to grow credit in and around the region of what we did in the first quarter. That’s quite possible.

What are your expectations on the upcoming credit policy?

I’m not going to second guess what the RBI Governor is intending to do. I think the liquidity is pretty strong.

So the decision to lower rates will be driven by many other factors. From our point of view, it is a very encouraging sign at where the bond yields are now and that would mean the treasury book will see some gain. And the focus is on leveraging the opportunity of good-quality liability profile and ensuring credit growth.