Federal Bank reported a 36% y-o-y drop in net profit in the first quarter of this fiscal. Shyam Srinivasan, MD & CEO, attributed this fall to provisioning for one large account and treasury losses. The bank, however, expects NPAs to improve going forward and is now concentrating on the personal loan space. Excerpts from an interview:
Federal Bank’s PAT fell 36% y-o-y and NPAs also rose. What led to this?
Largely, two things impacted the quarter that went by. One was the impact of one large account worth R134 crore and, added to this, was the impact of treasury. The treasury provisions were about R49 crore whereas credit provision for the one particular account stood at R70-odd crore. A combination of these two increased the overall provisions by almost R120 crore. For the first quarter, the provisions stood at R153 crore against R22 crore in the same quarter last year.
How soon do you think you could recover your loan from this account?
We are certainly looking at recovery. The percentage of recovery and the duration in which we can make it is a challenge because we are not the sole bankers. There are nine banks and the outstanding is quite significant. The market is working on various options, including SDR. It may take some time.
What would be your outlook on NPAs going forward?
If you see our last seven to eight quarters, sequentially, it (the asset quality) has improved every quarter. I expect it to revert to that momentum. It also depends on how the economy shapes up. I would not like to guide a figure, but certainly the improvement will be seen.
How were the NIMs in Q1? What is your guidance for the same?
NIM for Q1 was 3.12%, while for the same quarter last year, it was 3.25%. NIM for Q4FY15 was 3.31%. The fall in NIMs is a function of the impact of reversal of interest on account of slippage. We have had excellent deposit growth, but deployment has been relatively muted. We are looking at an NIM of 3.2-3.22% for the full year.
What was your cost of funds for Q1?
Our blended cost of funds for Q1 came to 7.12% against 7.29% on a sequential basis. The yield on advances has fallen much more.
Any recoveries or upgrades in the first quarter?
Nothing major, apart from the routine ones. There is one account where we had a recovery of R18 crore.
Where is your growth coming from?
SME is doing well. It grew 17% on a year-on-year basis and we think this growth will continue. Corporate growth has been dented. Retail and agri segments are growing well although gold loan book is flattish. In the retail segment, home loan is doing okay, but we are confidently stepping into the personal loan business.
We have also got the approval from all authorities for launching our IFSC branch in the GIFT City. That will be a big one for us prospectively, more in the medium term. In FY17, we should see big benefits accruing from our ability to compete more formidably on the foreign currency business. By end of this quarter or early next quarter, we will be launching it.
What are your fund raising plans for FY16?
Almost none. We are very well capitalised and we don’t see any requirements in the near term.
