Earlier, you had projected that Rs 3,500-crore loans will need to be restructured but the request has come for only Rs 1,500 crore. It is great news but how did this drastic fall come about?
The big difference between last quarter and this quarter is the reality. People have started seeing businesses doing better and generally the preference is not to be a restructured customer. December end is one milestone as in the retail and corporate customers had a chance to seek restructuring and we have seen experientially people have not opted to. Either they have paid or the situation is too bad for restructuring. I think this has worked out quite well. Customers who have the ability and belief that they will do well and will recover have sought restructuring and that number thankfully for us between December and March 31 will be roughly about 1-1.2% of our portfolio as opposed to our original belief that it might be higher.
We are largely out of recovery mode and are in growth mode now. Credit growth has increased. How do you think retail demand will play out – home loan, personal loan, auto loans? Also how will corporate side fare in comparison?
Retail has done well on a year on year basis. In terms of growth, it has been quite encouraging, particularly some products. If you really anchor January 2020 as one and then December 2020 as the other, in most businesses. it is running at about 100-120% of the January run rate. I believe the run rate will pick up from here as things improve and the economy shapes up more constructively. Thankfully for us, our gold loan business is doing remarkably well and our erstwhile SME business (captured as both commercial banking and business banking) has registered very strong sequential growth and YoY growth is almost nudging early teens.
Other than core large corporates where we saw de-growth, we believe all the other businesses have started seeing a very positive trajectory and that should continue. The corporate will be a little more muted. Also, there is probably an irrational pricing exercise. We are watchful about that.
Do you think a recovery in the corporate growth could be delayed? Will the budget play a vital role? Is it linked to a new capex cycle?
The pick up in corporate growth is probably going to be a little more delayed. We are all hoping the Budget sets the tone. It could give some fillip in certain areas. There may be a more meaningful demonstrative action around the longer tenure infra and nation building activities which typically create downstream exercises as projects go on-stream. I believe that maybe by the second half of this calendar year, a pick up will come through and that will filter through the system.
On the asset quality front, once the SC judgement is lifted, will it bring pain to light or will we have further normalisation of irregular accounts?
I think it is likely and I do not know if the Supreme Court has heard everybody a judgement may be passed sometime in this quarter, this month or next and that will bring to a close the lack of clarity on how to deal with this whole standstill but from a business point of view, we have all ensured that the treatment is to be given exactly the way if the accounts were to slip or otherwise. We all hope that some clarity emerges in the next few days and that overhang goes away so that people know where they stand and how to progress.
But will the environment pick up and things improve? There is vaccine-led optimism and there is a certain sense of comfort that the Budget may provide stimulus. A bunch of stuff is happening and could lead to a more encouraging recovery if not immediately but certainly by the second half of 2021.
Does a low rate environment pose a risk to the bank’s deposit franchise because people will now look to switch to higher yielding assets?
This is a little in the realm of speculation, We do not know which situation plays out but I have seen for many years that these theories come but the market and the banks and the system are mature enough to find that almost everything coexists. There may be minor tweaks here and there, but I do not believe that we will come to a day where banks deposits would not grow but all other categories will grow exponentially. That maybe a little far fetched.
There may be minor shifts in trajectory but not material. The banking system for a country like ours which is relatively unbanked even today is a very deep opportunity. I do not think deposits will evaporate and all gravitate to one asset category which typically tends to be the riskier category, I do not think that is a reality, at least I cannot foresee this for many, many years.
What is the outlook when it comes to digital marketing? What is Federal Bank doing to tap that opportunity?
For the first time we have dedicated five pages to outline the various things that happen digitally, just to point out we are now truly a meaningful player with digital capabilities. Over 86% of our transactions are digital whether it is account opening or transaction banking. Our digitally originated business is now a very material part. Products like personal loans are originated digitally. There is no hand touch, no human involvement, it is all technology driven and is completely automated.
In terms of transaction banking, our range of offerings compete with absolutely the best and we are seeing volume pickup on that count. That is how we have seen sharp growth in CASA and all this is driven by the digital capabilities and that will remain a focus area. We are the first and only bank probably to do facial recognition for our employees to log into our systems and the first and only bank probably. So all our staff show their faces and log into the system.
The RBI stability report says that NPAs could go as high as 14% system wide. However, the results from private banks seem to suggest otherwise. What is your outlook?
I do not think it is a question of who has got it right or wrong. It is actual scenario planning versus what happens on the ground. If every scenario planned were to happen, then that is one outcome but the reality on the ground sometimes tends to be better and sometimes adverse.
In a stressed situation, people may react very differently. When the forecasts were made, some assumptions were made but thankfully we are doing better than the assumptions and all of us hope that it continues to do better. Within this also, there will be a spectrum. Some will be at the better end of the spectrum and some for historic reasons could be on the other side of the spectrum. So you cannot generalise on this.
