Goldman Sachs is confident that Federal Bank is back on growth path. A report by the investment expects loan book to grow 20 percent over FY15-16. It believes the asset quality woes in retail and SME have largely subsidised.
Speaking to CNBC-TV18, Shyam Shrinivasan, MD and CEO, Federal Bank says the quality of the portfolio has improved considerably across many quarters and more recently the stability is visible. "We look forward to similar or better performances in the quarters ahead particularly retail and SME businesses which have trended quite well."
According to Shrinivasan, the costs on account of new branch establishment, which had affected the bank over many quarters, have stabilised. The bank does not hold large portfolios of stress and aims to bring down its non-performing assets (NPAs) and non-performing loans (NPLs) going ahead.
Shrinivasan is confidently looking to achieve a credit growth of around 18-20 percent going ahead.
The private sector lender, which had an exposure of Rs 85 crore to Kingfisher Airlines has been successful in recovering around Rs 10 crore out of total outstanding loans.
The bank is also in a process of declaring KFA a willful defaulter.
Below is verbatim transcript of the interview:
Q: Out of a couple of takeaways from Goldman Sachs report, one of them was that the asset quality woes have largely subsided especially in retail as well as in the SME segment. The previous quarter was quite strong in terms of asset quality. Do you think you will further improve it in Q2?
A: Yes we believe that the quality of the portfolio has improved considerably across many quarters and more recently the stability is visible. We look forward to similar or better performances in the quarters ahead particularly retail and SME businesses which have trended quite well.
Q: Profits will improve because of greater operative efficiency. If you could give us any kind of numbers in terms of what you are targeting?
A: I would hesitate to give a forecast but for many quarters both the incremental footprint, we have increased our network considerably outside Kerala. We now have almost 600 branches outside which resulted in some costs across many quarters. We have now stabilised that and we are looking to get more operating leverage ensuring that the low cost deposit business is growing well in both our markets, as also ensuring the underlying momentum in retail and SME which has been trending well.
The outcome of these two with an improved credit portfolio should start bearing better outcomes. But I look at the inputs more strongly.
Q: If your gross NPAs fell to 2.22 percent in Q1, do you think that you could improve it further in Q2, what would be the guidance? Would it be sub 2 percent at least anytime in FY15?
A: Certainly that is the direction plus minus a few basis points here and there would be driven by if there is any abnormal activity in any quarter. But directionally if you have been tracking us we were in the mid, high threes.
We have trended down to the early two and we look to see that continuing, we don't have any large portfolio of stress that is not been addressed. So with an improving environment, with a lot of the corrective actions beginning to bear fruit, I see it trending in this direction.
Exact number will be an outcome of that particular quarter if there is any event but directionally that is what it will be.
Q: What about credit growth, what is the outlook for that for the rest of the year?
A: We are seeing reasonably good traction. Consider Q1 and Q4 of last year, the two data points have both grown more than 4 percent in that quarter. So annualised, that itself is about 15-16 percent and this is spread across all our businesses, retail, SME and the large corporate.
With an improving environment, with the busy season coming up that is trending a little upwards. So in the 18-20 percent kind of credit growth is something that we are confidently looking forward to.
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