We never compromise on credit standards just to support growth: Shyam Srinivasan

“We have been talking about deposit growth for the industry being a challenge and overall system deposit growth being in the late nine maybe slightly shy of ten. We are happy that we have been able to grow at 15% and sequentially 6% so that demonstrates the franchise power of garnering deposits,” says Shyam Srinivasan, MD & CEO, Federal Bank.

Net interest margins are 3.5%. You have revised your guidance to 3.3% now. Can we expect you to further revise your guidance going forward on net interest margins?
Yes, Q3 was very good for us on many counts as you have observed and in particular NIMs expansion was very encouraging. We all know that to some extent the NIM expansion has a timing impact of the credit repricing being a little ahead of the deposit repricing so there is some moderation expected. That said, our full year NIMs on a blended basis is higher than somewhere between 3.35 and maybe on the higher side of that and that could be the base line as we go into FY24. For sure, the Q4 numbers will be along the same trajectory from a full year point of view.

What about the other income which is down to 12.5% sequentially? Is there a one-off here?
Our core fee income has grown quite handsomely both sequentially and YoY. The overall other income is slightly lower only because we have made a one-time provision for the entire SR, security receipts book, and we zeroised the security receipts book. So, there is no future provision. Normally, in a quarter we provide about 12 odd crores. We just upfronted it and provided an additional 48 crores. The overall other income shows slight deduction because we upfronted the future provision which is in the case of NSR, it is an offset to other income as opposed to a provision below the operating profit.

Total deposits have come in healthy at a strong growth of 15% on year-on-year basis but still considerably lower than the 20% advances growth. I would say which has actually stayed this way for a couple of quarters now. Is that a concern for you and the timing when you actually see this reverse?
No, I think it is fine. We have been talking about deposit growth for the industry being a challenge and overall system deposit growth being in the late nine maybe slightly shy of ten. We are happy that we have been able to grow at 15% and sequentially 6% so that demonstrates the franchise power of garnering deposits.

A large part of our deposit franchise is retail. So deposit growth is certainly going to be a challenge for the industry. With our own strengths we are able to garner deposits at a CD ratio of about 85% with the credit growth somewhere in the 17-18, deposit growth of 15-16%. I think we are in a good place. So it is a mix and match of all these elements and I think for the aspirations we have, the current deposit momentum will hold well.

What about pricing of deposits because your cost of deposits have run up sharply almost about 25 bps in a sequential basis. How much of the re-rating would you say has already happened on deposit sides and how much more to go and also if you could reiterate your NIMs what is it that you are expecting for the full year?
I think deposit pricing has to be seen in the context of credit pricing and the yields being either intact or improving. The credit reprising as I mentioned happens earlier and the yields have improved maybe 50-60 bps while deposit pricing is beginning to catch up and already half of that has passed through and in the likelihood in the next quarter another 10 odd bps increase will happen and thereby the mix of the business also drives the yield up.

Our NIM guidance is never one dimension, it is cost of deposits, it is the mix of the business, it is the yield expansion of the new credit, the kind of credit we are writing, the slippages and therefore the revenue reversal on account of slippage. I think originally we had thought the year would be about 330 bps of NIMs, we believe that will go closer to 335 or a little higher and that will serve as the base for FY24.

You talked about the pricing as far as deposits is concerned. But talk to us about the pricing when it comes to the corporate portfolio as well because there are indications that the wholesale portfolio is heating up a tad bit. What kind of growth are you expecting and how competitive really is this space now?
We have demonstrated across many segments, quarters and years that we are not growth for growth sake kind of a bank. We have grown at 20% odd, we have grown at 4%, 5%, 6%, we have degrown, we have grown at 16%-17%. It is very dependent on the market. We are comfortable in growth and that is why our credit quality has been for many-many-many years consistently in the gross NPA of three or less. We never had huge volatility on that count so I do not think we will compromise credit standards just to support growth within a certain risk appetite. We will be able to grow and to grow the right segment if we need to be competitive on pricing we are happy to be that. We have to manage between NIM, growth and the segment we want to grow and ensure that the liquidity is there.

Separately you have been one of those banks which have been growing quite fast with respect to the fintech partnerships as well. Could you talk to us about how that has translated actually in customer acquisition and how the entire digital adoption is working out for you?
We very early decided fintech is a good way to expand, collaborate, and ensure that our strengths and their strengths work well. We have four-five very productive volume generating relationships all going well and they have had to be readjusted with every RBI regulation coming in. We have been calibrating it to make sure that we are on the right side of the equation that is going well. Each of them have brought very unique strengths and distribution and reach into different markets. We believe that our client acquisition amongst all our fintech partners is roughly maybe three lakhs a month.

If you take a multi-year view we are probably building ourselves for a great four-five year period. Over a longer period of time with data and capabilities, our ability to cross-sell and increase penetration ownership in this growing segment will be very high. So we take this a multi-year view just like the way bank did 25 years back. The NR business for bank appeared like a waste of time but today that serves us brilliantly. So we have chosen this path to grow this younger segment.

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