Kochi-based Federal Bank posted a 25 per cent growth in credit in Q2, bucking a slowdown trend being seen across the banking industry. SHYAM SRINIVASAN, its managing director and chief executive, tells Abhijit Lele the growth trajectory would remain. Edited excerpts:
Your net interest income (NII) grew 23.8 per cent in the quarter. What contributed to this growth?
There has been all-round growth. Consistency in credit growth, better credit-to-deposit ratio and lower interest rate reversal (for bad loans) contributed to better NII.
Net interest margin improved in the quarter? Will the bank post better NIMs in the second half of the year?
NIMs in Q2 rose by 18 basis points to 3.31 per cent in Q2 from 3.13 per cent in the first quarter. The margins are expected to be in a similar range in the second half (October 2017-March 2018).
What is your outlook on interest rates?
Policy rates are not likely to see any sharp dip. As for the bank’s interest rate, we want to be competitive. We are now a significant player with about one per cent of the market.
Other income saw a marginal rise in the second quarter. What factors impacted performance?
Treasury income was impacted because of market developments. Fee income and foreign exchange streams have seen robust growth.
Your loan book rose by 25 per cent (year-on-year). The second half of a financial year is usually a busy season. Will there be an acceleration in pace then?
Almost two-thirds of credit demand is seen in the second half. We are confident of maintaining the growth tempo.
The quarter saw a system transiting to the goods and services tax (GST) regime. Did small and medium enterprises log a jump in the working capital limit use, especially during the liquidity crunch?
We have seen a rise in the use of working capital limits in some pockets, like textiles. The full effect of the new tax regime will be seen the third quarter.
The cost-to-income ratio declined to 50 per cent, indicating improvement in efficiency. Will there be a further drop in the ratio?
We are not signalling any dramatic cut in the C\I ratio. The bank has made investments in various areas, including expansion of network, for better growth. So, cost of income is expected to be 50-51 per cent for some time.
One of your peers (IndusInd Bank) has just signed a deal to acquire a microfinance company. Is Federal Bank also looking at such growth opportunities?
We are exploring such opportunities. But nothing is on the cards for now.