Growing at closer to 18% per annum very possible for Federal Bank: Shyam Srinivasan

Shyam Srinivasan, MD & CEO, Federal Bank, says the bank has been growing 18-20% per annum roughly for the last few years. Economy is expected to grow between 7% and 7.5% for the next few years. Normally banking credit grows 2x of economic growth. It is quite possible that India's credit will grow between 13% and 15%. Federal Bank usually grow faster than the market and so it is natural to expect the bank to grow anything between 15% and 18%. Srinivasan says: “We have to continuously watch if there are any air pockets in the market, we have to be careful, otherwise growing at 15-18%, closer to 18% per annum is very possible for the bank.”

Congratulations on the 250 branches in Tamil Nadu and Pondicherry. What is your plan overall in terms of expanding the physical presence for FY25? How do we see the growth there?
Shyam Srinivasan: The good news is in FY24 which ends three-four days from now, we would have had close to 140 branches, which is a 10% expansion. We started the year at about 1,350 or 1,360 and we will end the year with 1,500 branches. It has been a mega blockbuster year in terms of new branch addition. I think a similar momentum will continue into FY25, whether it is another 100 branches or 150 branches a matter of timing and opportunity, but in terms of growth, it will be yet another strong year for expansion of our footprint.

We have a reasonable presence now in the south. We are looking at increasing our presence in the west, in particular the bigger metros like Mumbai and adjacent cities.

Will you be able to maintain the lending growth momentum that we have seen in the past in the next financial year as well.
Shyam Srinivasan: As you probably have noticed, we have been growing roughly in the 18-20% per annum for the last few years. Economy is expected to grow anything between 7% and 7.5% for the next few years. Normally banking credit grows 2x of economy growth. It is quite possible that India's credit will grow between 13% and 15%. We usually grow faster than the market and so it is natural to expect us to grow anything between 15% and 18%.

Having said that, we have to continuously watch if there are any air pockets in the market, we have to be careful, otherwise growing at 15-18%, closer to 18% per annum is very possible for the bank. The expansion we are doing both digitally and physically gives us the right to keep growing. Our belief is that our growth has been quite decent in quality and most importantly, it is all around and we do not focus only on one area of the business, we look at multiple areas whether it is commercial banking, corporate banking or retail and that will continue.

Areas like microfinance, gold, commercial vehicles, retail credit have grown faster because we have a small base. I hope that momentum will continue into FY25 as well.

Do you see an improvement in the NIMs as well going forward?
Shyam Srinivasan: I think that for a bank of our size both are important. We have to get the margin right and the growth right. So, it is always going to be a mix and match. Certainly, we would like to ensure that in a falling rate environment we do not encounter a situation of NIMs falling. We have been managing that reasonably well. We expect in FY25 also to keep that momentum growing.

We would look to see some uptick in our margins despite the environment being tougher on the margin side, the mix of business, some of our better products that are higher yield are growing quite well. So, we believe margin expansion to an extent is possible.

You have been able to maintain a decent double digit deposit growth, which is unlike what your peers have seen. How do you see that in the coming quarters? Do you expect to maintain a similar kind of growth rate?
Shyam Srinivasan: One of the reasons for this material expansion in our footprint as in the branch expansion, particularly in relatively underserved underbanked areas in Tamil Nadu where we are opening 26 branches today, almost 20 plus are in URCs. These are all geographies where certainly there is under penetration and an opportunity to grow deposits, our growth is like I said even paced and a lot of the deposit growth are coming from geographies where we have relatively modest presence, so ability to grow deposits in those areas given the product and service levels that we have, looks quite possible and that is why we are growing at a reasonable pace in branch expansion.

Lastly, since the monetary policy is a few days away, how do you see interest rates moving this year. Does deposit repricing remain for your bank or is it already passed on?
Shyam Srinivasan: I think deposit repricing is almost at par with the rate increase that happened say four quarters back, more or less moderated. Coming to the monetary policy, as the governor often says, they are quite keen on keeping the inflation within that 4% plus or minus 2% range and very often the message is they prefer 4% more than anything else. So, with that as the benchmark, inflation being somewhere around 5%, probably the rate cuts are one or two quarters away. The MPC can surprise the market one way or the other but I would believe given everything, it may be more status quo at this point in time, but the message, the tone we will know based on what they see as inflation outcomes.