#FederalBank CEO & MD Shyam Srinivasan wants to maintain its reputation of a 'boring bank.'
Listen to his conversation with Vishwanath Nair.
For the latest news and updates, visit: http://ndtvprofit.com
Listen to his conversation with Vishwanath Nair.
For the latest news and updates, visit: http://ndtvprofit.com
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TVTranscript
00:00 [MUSIC PLAYING]
00:03 Hello, and welcome to NDTV Profit.
00:10 You're joining us here.
00:11 We are at Alua, very close to the Kochi airport, of course,
00:15 where we are at the Federal Bank headquarters.
00:19 And I have with me Mr. Shyam Srinivasan, the MD and CEO
00:22 of the bank.
00:23 Mr. Srinivasan, thank you so much for taking time out
00:25 and talking to us.
00:27 Pleasure, honestly, always talking to you.
00:30 I want to start this chat with what
00:34 has now has become about a 14-year-long tenure
00:38 at Federal Bank.
00:40 And obviously, you've seen through cycles and cycles
00:43 within the sector, but you've also
00:45 seen cycles at Federal Bank.
00:47 Tell us a little bit about what these 14 years have looked like.
00:50 Oh, jeez.
00:50 I didn't realize this is going to be like a 14-year story.
00:53 But yeah, it's been, let's say, fascinating.
00:59 If you take it in slices of time, the first five,
01:02 the next, and the next, I think the nature
01:05 of how Indian banking and how regulations in banking
01:09 have evolved have been fascinating.
01:11 And we've seen it.
01:13 Second, we all know technology is driving change.
01:19 The distance between technology and banking
01:21 is narrowing or where one ends, the other begins.
01:23 It's now we're living it.
01:24 I recall in the early part of 2000, the decade starting then,
01:29 we used to say technology will dominate.
01:31 Now I think it's become real.
01:34 So between comparative forces, emergence of new technology,
01:41 and invasion of technology into banking,
01:45 regulatory changes that are at times ahead of some
01:52 of the changes and/or keeping pace, a lot has changed.
01:56 What I can say, and I think the bank has come out well
02:00 through all these phases.
02:02 And if there's one thing we take great pride in
02:04 is we've been fairly scratchless in these years
02:08 and come out without doing things that have--
02:16 change have happened without disturbing the furniture,
02:18 so to say.
02:18 So in some ways, I feel relieved that we
02:21 are recognized for being a bank that's credible, consistent,
02:25 and growing.
02:26 And I believe that this will be our platform
02:29 and our calling card for greater success.
02:32 So yeah, I'd like to believe we've made good progress.
02:34 In an era of some cowboys out there,
02:37 we've been true to the banker name tag.
02:40 I just want to bring the focus on Federal Bank
02:45 as an institution now.
02:46 So what was originally a more old generation regional bank,
02:51 today, of course, is a pan-India lender.
02:53 Most of your business comes from outside of Kerala.
02:56 I wanted to understand from you in terms of the way
03:01 the business has expanded.
03:02 What has been a focus strategy for you,
03:06 at least over the last couple of years,
03:09 where the world has come out of COVID
03:10 and things are starting to look a little better now?
03:14 I think to understand that, we have
03:16 to go back to what our roots are.
03:17 We have been traditionally very strong on NR and SME,
03:24 small business lending.
03:25 Small and medium sized businesses,
03:26 that has been the core.
03:29 And because of that, we've been deposit rich.
03:33 And we've done well.
03:35 So through our expansion phase, we always
03:38 believed that we must preserve this.
03:41 And this inherent skill of the bank,
03:44 we can carry across the country.
03:48 So if you broadly map the world of remittances,
03:51 or world of NR money coming into India,
03:53 principally, it was Middle East Kerala.
03:56 And in that corridor, we dominated a large share.
03:59 That was and hopefully is our strength yet.
04:04 But we realized that the non Middle East, non Kerala,
04:09 Middle East, non Kerala, and any part of that quadrant
04:13 are all growing quite nicely.
04:15 And therefore, we positioned ourselves in our expansion
04:19 into geographies where NR is remittances are
04:23 and deposits are a large part.
04:24 So if you take Tamil Nadu, Maharashtra, Karnataka,
04:27 parts of North, this is where the bulk of the remittances
04:31 ex-Kerala comes into India.
04:33 So we created our catchment in these geographies.
04:37 So the last many years, now we have 1,500 branches.
04:42 About 900 branches are non Kerala.
04:45 And these are all in these geographies.
04:47 Most of these states, Tamil Nadu, we have 250 branches now.
04:50 And the other states have about 150 plus minus.
04:53 So these have become our conduit for getting non-resident.
04:57 So the core strength of Federal Bank
04:59 moved into these geographies.
05:00 But having been present in those areas,
05:02 with our lending skills in small and medium,
05:04 we've been able to capture the commercial banking, business
05:07 banking order.
05:08 Then around 2015, middle, we created the whole corporate
05:11 banking capability, which was not our core strength.
05:14 Then over the last eight, nine years,
05:16 Harsh and team have built a remarkably strong corporate
05:20 franchise.
05:20 So today, thankfully, you mentioned
05:22 that we are a pan-India franchise.
05:26 One thought, and that's been a pervading thought,
05:29 is I never have too much concentration in a geography
05:33 segment or product.
05:35 So if you see our business mix today,
05:38 it's almost 1/3, 1/3, 1/3 between corporate, retail,
05:41 and commercial.
05:42 And depends on where you put the ticket size,
05:44 you could say retail is about 55 and corporate is about 45.
05:47 So we've tried to keep that balance going.
05:49 And in that construct, we've created the franchise
05:54 in such a way that in most geographies,
05:58 we have now physical footprint to get
06:02 retail domestic deposits.
06:04 And over the last 8, 10 years, our non-home market,
06:09 Kerala deposits have grown at a reasonable clip.
06:12 So we are able to fund our credit growth
06:15 through all this.
06:16 And of course, post-COVID, these have been accelerated.
06:19 We, between 2011 and '16, expanded our network by almost,
06:26 we doubled it.
06:28 Then between '16 and '19, we said
06:31 we'll go more digital, less physical footprint.
06:34 Around '20, we started our expansion.
06:36 COVID came, so we halted it for two years.
06:38 So that '22, '23, '24, the last two and a half years,
06:43 we've added almost 250 branches.
06:45 The one that went by, March '24, we added 140 branches.
06:49 That was, I think, our largest single-year expansion
06:52 that happened.
06:53 And we believe between now and the next three, four years,
06:56 between 5% and 7% expansion each year
06:59 is something that's going to happen.
07:01 So footprint expansion, presence in many geographies.
07:05 And I think presence gives us the right
07:07 to be at the discussion table.
07:09 Both physical presence, digital presence, and more importantly,
07:12 our corporate and commercial team are more fit.
07:15 They are out in the market.
07:16 So I think our presence combined by this strategy
07:19 has worked quite well.
07:21 So you mentioned this point that you don't need to be--
07:24 you don't want to be concentrated in area or product,
07:28 any single area or product.
07:31 Does this apply even if it's a home market or whatever,
07:35 a place where you were founded as a lender?
07:38 No, I mean--
07:39 Well, I mean, the local community typically
07:41 expects that a lender that was founded there
07:43 would be there or the majority--
07:45 This is not either/or strategy.
07:47 It's an and strategy.
07:48 Right, right.
07:49 We are very prominent here, hopefully
07:52 will continue to be prominent and have meaningful presence.
07:55 But any one geography has limitations.
07:59 It's not going to be an infinite opportunity.
08:02 If you compare to the India opportunity,
08:04 no one state will give you more than 3% to 5%.
08:06 Correct.
08:06 And which is, therefore, if we take Kerala,
08:08 it's about 3% to 3.5% of India's GDP.
08:11 There's that much you can do.
08:13 And we will play our larger share.
08:15 We have 15%, 16% market share there.
08:18 And we must remember that at 15%,
08:19 16%, the incremental market share gains
08:22 are that much more tougher and that much more challenging.
08:27 Because next bank or next competitor,
08:30 they're not going to let you just--
08:32 Just keep going.
08:33 This is the commercial dynamics work so.
08:37 So I think our presence here remains prominent.
08:40 And there's no reason we should lose our--
08:42 actually, not even prominent, dominant.
08:44 And it will continue to be so.
08:46 But like I said, these are not either this or that.
08:50 It's both.
08:52 There's nothing to suggest that we are under-investing here
08:55 and going somewhere else.
08:56 We will do more.
08:57 Like last year, for the longest period,
08:59 we had not added a footprint.
09:00 Last year, we had about 12 branches in Kerala,
09:02 which was now a requirement because a lot has happened.
09:06 Particularly, North Kerala, our presence
09:08 was relatively lower than, say, Central and South.
09:12 So we said, we'll add more presence.
09:14 And that also happens to be a catchment, which
09:16 is like a lot of non-resident companies.
09:19 So I think it's a continuous evolution.
09:21 But I just want to mention that it's not either or.
09:26 It's an and strategy.
09:27 OK.
09:28 OK, fair enough.
09:29 Now, coming to specifics in the business,
09:32 the strategy with respect to your corporate portfolio,
09:35 something that you started later in the life of the bank,
09:41 how do you see the current environment?
09:43 Because most banks are reporting a significant jump
09:48 in their corporate growth.
09:50 You had the regulator come in with a draft regulation, which
09:53 upset some people.
09:54 At least, they won't admit it on record.
09:56 But offline, they do say that it's
09:59 a little onerous on the project financing draft
10:01 guidelines that they put out.
10:03 What do you see--
10:05 where does this corporate credit go from here?
10:07 Because companies have stopped spending their own money now.
10:11 They are tapping other sources.
10:13 How does this go from here?
10:15 I think, see, there are two parts.
10:16 One is, I think, for us, as it has been in the recent few
10:20 years, corporate credit--
10:22 and when I say corporate, I mean the higher end of commercial
10:24 credit also.
10:24 Yes.
10:26 That is our sweet spot.
10:27 We'll grow.
10:28 And it'll grow well into the teens and maybe even higher
10:31 teens, right?
10:32 Middle and higher teens.
10:33 One, our base is relatively small.
10:35 Between corporate and commercial,
10:36 we still have about 100,000 crores.
10:39 So I think scale and opportunity is there.
10:42 Second, we built a team which is really high end.
10:46 Third, the technology capability we are putting in there
10:49 matches the best.
10:50 In fact, as we speak, the rollouts
10:52 of different phases of our next wave of tech for corporate
10:55 is underway.
10:57 So scale opportunity is there.
10:58 Now, whether these can be at 20% or 18% or 15%,
11:03 actually, it's going to be dependent on your resource
11:06 raising capability as opposed to the opportunity.
11:08 The opportunity is there.
11:09 And also, our market share is sub 2%, right?
11:15 So if India keeps growing at 6% to 7%,
11:18 which is not an unreasonable expectation,
11:22 corporate will grow between 12% and 15%.
11:25 We are a low share player, so we can grow well north of 15%.
11:28 So whether we grow north of 15% or at 15% or slightly below
11:31 is going to be dependent on cost of resources.
11:35 In FY24, our corporate grew somewhere in the teens.
11:41 We let go of some assets which were really
11:45 at the lower end of the pricing curve and booked some new.
11:49 If I had not let go, we would have grown 20%.
11:52 I believe in the year and the years ahead, that is possible.
11:56 And now whether we grow at 15% or 14% or 20%
12:00 depends on our ability to raise resources at the right place.
12:03 What we have told ourselves, and you see our book
12:06 for long periods of time, the A and above rating
12:10 dominates our book.
12:12 There is a conscious trade-off we're making.
12:15 These guys will not pay us big pricing.
12:18 The only way we can get more from them
12:21 is being a banker as opposed to a lender.
12:23 So in the last two years, Harsh and team, what they have done
12:26 is made sure that the corporate relationships that we have,
12:32 we are able to get more from them
12:34 as opposed to just being the fifth or the fourth lender
12:37 to them.
12:38 I think our overall product capabilities have matured
12:41 to a level where they're willing to give us
12:44 a larger share of their wallet.
12:46 So I think corporate will continue just not lending,
12:51 but full banker, including payroll, savings account,
12:56 vendor financing, their whole supply chain.
12:59 And I think as we scale up and improve our capabilities
13:04 on technology, I do believe this will be a large opportunity.
13:07 And goes back to my original point,
13:09 we do want to stay reasonably equally weighted
13:12 across business.
13:13 Because one thing I can say with some confidence
13:15 over the 15 years, cycles will come and go.
13:20 Those who keep honest to their core structure
13:23 have come out better through cycles.
13:26 I believe we've come out better.
13:28 If you take a CAGR of our growth over this period,
13:31 it's 14%, 15% CAGR.
13:34 I can reasonably confidently say no other bank
13:38 has had this over an extended period.
13:40 They may have had 25 fallen off, come up,
13:42 and I think ours has been a fairly sustainable.
13:46 Therefore, my belief is reinforced by the fact
13:48 that we should stay in businesses.
13:50 Yeah, you'll have to dial in, dial out,
13:52 depending on the environment, but not
13:54 like get out of a business.
13:56 Because then you're not a banker.
13:58 Then you are a good fair weather friend.
14:01 Then it doesn't live up to our expectation of rishta
14:03 and perfect banking partner.
14:05 So I think we are trying to live that.
14:09 You have a liabilities base, what now, 2.5,
14:13 a little more than 2.5 lakh crores.
14:15 2.6 lakh crores.
14:17 So I'm curious to understand, one of the few lenders
14:22 at this point in time who has a wider gap between your advances
14:25 and your deposits book, how long can this situation continue
14:30 where banks are growing their deposits,
14:32 but they're not growing it fast and soon enough,
14:35 as much as your credit is growing?
14:36 And then obviously, that's pushing your CD ratio higher,
14:39 and it's making a lot of people uncomfortable.
14:41 How long can this continue?
14:44 Business model, we have told ourselves early '80s
14:49 should be our CD ratio.
14:50 We don't want to violate that.
14:52 And I think we've fairly stayed honest to it
14:54 for long periods of time.
14:57 We are blessed with a remarkably good retail franchise.
15:01 Though it has come down, bulk has gone up,
15:04 but certainly never in the level that many others are.
15:08 And that will not change.
15:10 Yes, we have to calibrate some credit to support.
15:16 If you're growing credit 18%, 20%,
15:17 we must grow deposit 18%, 20%, at least 17%, 18%.
15:22 Even through the toughest period last year and the previous,
15:24 we grew that kind of deposits.
15:28 Term deposits is a pricing,
15:30 and it's relatively elastic to pricing.
15:33 We believe we can grow, and we have.
15:36 The traditional low-cost deposits, CA and SA,
15:40 that has seen some up and down.
15:42 And I think some of the core areas
15:45 of non-resident money coming in,
15:47 some behavioral change of clients have taken place,
15:49 and I think it looks, at this point in time,
15:51 quite irreversible, which means our retail nature
15:56 of our deposits from being 90% will become 80%,
15:58 but that I think we will ensure.
16:01 So I believe growing at our scale between 16% to 20%,
16:06 depending on the year, on both credit and deposits,
16:09 is possible without violating our 80%, 82% CD ratio.
16:12 - What is this change in behavior you're referring to?
16:16 - I think post-COVID, visibly, the NR behavior
16:22 on deposits has changed.
16:24 Probably paying off earlier debt,
16:29 investing in many who are returning
16:31 are probably setting up businesses,
16:33 so the money is going into that,
16:35 paying off debt for family, wedding, education,
16:39 starting new businesses, putting it into the markets.
16:44 These have become more prominent than it ever was.
16:49 So I think the remittance volumes coming into India
16:52 has still remained robust.
16:53 You would have seen $110 billion came in.
16:55 - Not a lot of it is finding way to the banks.
16:57 - We are, no, it comes to the bank.
16:59 We are now, 21% of remittances comes through us.
17:04 So we're a prominent remittance conduit.
17:07 - Correct.
17:08 - But it doesn't go into bank deposits as much as it did.
17:12 Earlier, if 21% came, you could say with reasonable confidence,
17:17 16% to 18% would stay at deposits.
17:18 Now it's coming more like 13%, 14%.
17:21 So some money is going into the instruments I told you,
17:24 either to pay off debt, start a new business,
17:27 going into the market, offer consumption,
17:29 because we are seeing consumption pickup.
17:32 And so while it's not a deposit,
17:35 it's coming through as credit expansion.
17:37 - Got it.
17:38 - So we are seeing that happen.
17:39 New property.
17:40 - Is there a pricing point as well here?
17:43 - On deposits?
17:44 - Yeah, on these NR deposits.
17:45 - No, but it's the same.
17:46 - I mean, anyway, they're higher than what they would get in the domestic markets.
17:49 - No, no, no, no difference.
17:50 NR pricing is the same as domestic pricing.
17:52 - No, no, I'm talking about their domestic.
17:54 - Oh, no, I think that also, I think that arbitrage is coming down
17:58 because interest rates have remained high in many other markets.
18:02 So converted into rupee,
18:04 they may not be seeing much of an opportunity.
18:05 - Much of an opportunity.
18:06 So maybe that's why.
18:07 - That also could be.
18:08 - Got it.
18:10 Let me talk about the retail lending business a little bit.
18:13 We have seen some changes coming in within the entire banking sector.
18:18 The RBI has come out in November with those specific guidelines saying that,
18:21 listen, you need to increase the risk on these loans.
18:25 That has made some banks more cautious.
18:28 Others are saying it doesn't look as bad as one would think.
18:33 What is your viewpoint?
18:34 In the current space, is Unsecured still a lucrative business?
18:38 - If the credit quality doesn't dramatically change,
18:44 at this point, it doesn't look like Unsecured will remain a very good business.
18:48 For us, it's a very small part of our, I mean, of our 2.1 lakh crores
18:52 are cumulative credit card, personal loans,
18:55 and microfinance, assuming these are the three is 10,000 crores.
19:01 So it's still sub 5%, sub 4%.
19:04 - Right.
19:05 - But it's growing at a nice clip.
19:07 And I believe it will grow at the same rate,
19:09 but on a growing denominator from 4%, it may become 5, 6%.
19:14 So I don't see it as a,
19:14 on our windscreen, it's not going to be a big worry.
19:20 But having said that, we should watch for the delinquencies
19:23 and the slippage rates in that.
19:25 I think genuinely with the Bureau and the underwriting skills improving,
19:30 it hasn't deteriorated.
19:32 It's still holding reasonably well.
19:35 If this continues, then there should not be any panic.
19:37 And anyway, we are providing sufficiently for it.
19:40 So if a business has predictable 3% to 4% loss rate is not a worry.
19:46 If a business has 0, 1, 2, 3, 4, 5, 6, 7,
19:51 kind of escalating loss rate, you have to worry.
19:53 My sense is, I think I mentioned to you last time,
19:57 I started my career in Unsecured.
19:59 - Yes.
19:59 - And I've seen Unsecured over the last 30, 35 years.
20:02 I've seen that the predictability of a portfolio depends not in your collection.
20:09 I think that's useful, is when you underwrite.
20:11 Now with underwriting skills of banks and the Bureau quality improving
20:17 and so much third party data being available,
20:19 I think this is now getting to be more predictably good quality.
20:22 That said, if somebody is going to be very sort of cowboyish and say,
20:27 I'm going to ignore all this and lend at any cost,
20:31 yes, you will face some pain.
20:32 But I think the banks have been quite thoughtful about it.
20:35 - Okay.
20:36 I want to bring up sort of an elephant in the room kind of a question
20:41 of that of your tenure and the way the last year,
20:46 you know, the little bit of, I would say,
20:50 at least for me, as somebody who tracks the bank,
20:53 it was a bit of period of confusion.
20:55 And then now some clarity is emerging.
20:58 I wanted to get a sense from you as you look back on everything
21:04 that has happened over the last 14 years.
21:05 And now there is a definitive date that's coming up.
21:10 What would you say was probably the big highlights of your tenure this year?
21:16 - Oh, I certainly have not sat and thought about that.
21:20 - Too much work to do today.
21:23 - Yeah, not only that, I think about this.
21:26 I think it was 2015 in our board,
21:31 we agreed our aspiration is to be the most admired bank.
21:33 And we took that as a very brave call,
21:39 because when you tell yourself you want to be the most admired,
21:41 you are putting yourself on a treadmill,
21:45 because whatever you do is never good enough.
21:47 And I have personally, my philosophy is I'm happily dissatisfied.
21:52 I'm never dissatisfied, but I'm never unhappy.
21:55 And that's a philosophy and I try to build it as a bank culture.
21:58 I don't want complacency, I want us to be happy,
22:00 but I want to be dissatisfied.
22:02 And if you add that back to our most admired bank philosophy,
22:04 we are telling ourselves we are on a treadmill,
22:07 whatever you do is never good enough,
22:09 because admiration is bought and not earned.
22:11 Today, you will like me, one wrong act,
22:13 you'll put me back in the boondocks, right?
22:14 So we are pushing ourselves.
22:16 So if you take that as our philosophy,
22:18 I think over the years, we are struggling to get to the space
22:21 where a federal is the best in course.
22:24 I did point to you CAGR of our bank over many periods of time,
22:28 we've been relatively scratchless,
22:29 we've taken balanced calls,
22:31 but it comes to the cost of being called a boring bank.
22:35 My favorite all time is Rahul Dravid.
22:39 And I've said this very often.
22:41 And I regard him as somebody who's credible, consistent,
22:44 you can look up to and feel reassured
22:46 that you're talking to a man of great credibility.
22:49 And I do believe federalists in that space of being credible,
22:53 consistent, can we do something more?
22:56 Yeah, we could have.
22:57 Will we do more?
22:58 Absolutely, yes.
22:59 But I think that if I look back with some satisfaction,
23:03 the fact that the platform is strong,
23:04 we have built a great team.
23:07 We have, when I joined our banks average age is 47.
23:13 Now the average is 35.
23:15 Every year we get one year younger.
23:17 I don't know how many organizations will get younger each passing year,
23:21 because we're recruiting almost 1500 to 1600 people,
23:25 we are retiring 300-400 people.
23:26 So the number of people in the system is increasing
23:30 and all of them are in their sub 20s, I mean, sub 25s.
23:33 So the average age of the bank is getting younger each passing year.
23:36 Naturally, in a younger digital environment,
23:39 the energy levels are different level.
23:41 So I think we are positioning ourselves for a nice outcome.
23:46 Great.
23:49 Then the related question to that would be then your successor.
23:53 There has been a lot of speculation, some of it, thanks to us.
23:57 But what do you see your successor coming in and doing?
24:03 At least what's your hope that your successor comes in?
24:05 Like I said, I think we are a good platform.
24:09 There are definitely areas of our bank that have to get much better.
24:14 For example, despite all the hard work,
24:16 our NIMS are amongst the lower end of the spectrum.
24:20 It's a choice.
24:21 We decided to keep our NIMS relatively lower,
24:24 but thankfully, our credit costs are way lower.
24:27 So the risk adjusted NIM is amongst the best in class, roughly 3 odd percent.
24:32 But having said that, there is a scope for NIMS going up.
24:36 So certainly, the leadership team of the bank will look at how does NIMS expand.
24:42 And if that NIMS expansion flows to ROA, nothing better.
24:47 So we moved from 0.7% ROA in 2018 to 1.32% in quarter four.
24:57 I don't know if many banks have without a scratch moved ROA by 60 basis points increased
25:04 in a six year period.
25:05 We said every year 10 basis point kind of improvement and we've delivered.
25:09 Now, if that momentum continues, we should be close to 1.6%, 1.7% in the next three years,
25:13 which will put us at the top of the pile.
25:15 So I'm hoping, I remain a shareholder of our bank, right?
25:18 So I will hopefully benefit by the good work done by the team.
25:22 And I think we are in a promising.
25:25 All right.
25:26 The final question I wanted to ask you, anything that's in your agenda when you started out here,
25:35 that's probably still something that you've not left unchecked.
25:39 All are work in progress.
25:40 I'll tell you, it's a conscious call, not that I don't want to be satisfied.
25:45 But I'm telling myself I should not be.
25:48 Long way back, I attended a program in the London Business School, a professor of mine,
25:53 a professor called Don Sull, very good he was.
25:56 So the day your leader is either satisfied or starts building a office with fountains
26:02 and all, quit that organization.
26:04 So I have held that true to myself.
26:06 Anytime the leadership, and I tell my team, if your leader is overly satisfied and or
26:11 starting to do stuff that is looking very page three, quit that organization.
26:15 So I think our bank is, it goes back to boring.
26:19 It's good to be boring.
26:20 Good to be boring.
26:21 All right, Mr. Shivasan, thank you so much for taking time out and talking to us.
26:25 Thank you.
26:25 Pleasure talking to you again.
26:26 Thank you so much.
26:26 Thank you.