Kerala-based The Federal Bank, the largest regional bank in the country, has maintained a healthy balance sheet amid challenging marketing conditions. Its Managing Director and CEO, Shyam Srinivasan , has improved the visibility for the bank at the national level, and is now preparing it for a higher growth. He spoke to The Hindu on the economy, banking system and also about his bank. Excerpts:
Are you still a non-resident Indian (NRI)-driven bank? If you take Kerala, we have 7 lakh NRI customers. They are a big part of our business. But outside Kerala, they are only small portion with strength of about a lakh. So, if you take our total customer base of five million, about 3.5 million customers are in Kerala and the rest outside the State. Thus, only 20 per cent of my business in Kerala is from NRI, and 1/16th of business outside Kerala is from NRIs.
How has the handling of NRI customers helped the bank? Every NRI customer of ours is sending his money to benefit 2 or 3 family members, who are actually my target audience. So, an NRI for us is both a customer and a channel. It is just an added benefit that we understand and serve them better. Outside Kerala, our focus States are Tamil Nadu, Karnataka, Punjab, Gujarat and Maharashtra. These are big States after Kerala in terms of NRI remittances. So, we are carrying the core strength of the bank to other geographies. The strongest area for the bank is the Middle East-Kerala corridor. It has been good, and we hope it will continue to be like that. But we are also seeing many other potential corridors such as North America-Karnataka, Tamil Nadu and Andhra Pradesh corridor.
With lots of talk on NPAs and stress on assets, is Indian banking system still robust? I am of the view that it is robust. But, the level of robustness is getting tested due to the weak economic environment that has tended to stay longer than expected. Some of the larger public sector banks have got hit by multiple factors all at the same time. But our bank is still strong. It is not that money or banking system will disappear. May be 5 or 6 banks are having challenges. That could be due to individual system issues and not due to other problems. So, when you read that NPAs of public sector banks have gone up, it means that they are facing stress at that point in time from large cases. However, if a couple of large projects get revived, they may be back on track. Also, our bank is still well-capitalised. But, the challenge is the incremental growth.
What is actually preventing investment cycle in the country? I think it is due to a combination of two factors. The delay in mega projects and rural demand cooling off … they have had an impact. In any economy, you need one macro set of activities happening so that they fuel the next layer of activities. We keep hearing that Project A or B has been cleared, and we should see some ground level activities. Interestingly, those Rs.1 lakh crore of projects stuck, not many of them are Centre-led. We have heard of a very large steel project that is struck just because of the fact the company has not been able to get a clearance for 2-4 km pipeline. That stretch is inter-State area. So, the project of the size of Rs.23,000-crore is stuck not due to policy issues but practical ground issues. There are many number of projects struck not due to policies but processes. Also, in some large infrastructure projects that have been cleared, contractors to various State governments have not got the payments for two years. Similarly, in Kerala, almost Rs.2,700 crore worth of payments to contractors were stuck. So, many banks, including us, went to the government. They have now lubricated the system, and following which, there is some economic activity happening.
From a banker’s perspective, what are the major measures required to put the economy on a faster growth lane? When we hear from our big project client that as Rs.23,000 crore project is stuck just for 2-3 km of work, it shows something more fundamentally wrong not in the policy but in the process. So, our belief has been that large projects that are being stuck not for policy but for process-related issues need to be cleared first. Centre has to unlock them and make them active. Of course, one by one it is happening. But, it has to be expedited. If that happens, at least 30-35 per cent of the activity of the economy will kick-start. Secondly, active intervention from the Centre in inter-state or specific to state-related issues is vital. With many of the states are being run by BJP governments, some active intervention in clearing up those state-related issues can be done. You cannot say generically clear these projects, but project-specific ones. Rural demand being relatively muted is a function of monsoon or MSP or subsidy-related. But it requires system-level clearances. Thirdly, while we have done well on Jan Dhan as a scheme with 15 crore accounts, activation is relatively muted. Only 35 per cent of them have been activated. Direct Benefit Transfer and activation of Jan Dhan accounts will spur some economic activity.
Also, when we spoke to the people in design for infrastructure, we gather that their order book has been full for 4-6 months. One of them is a large client of us. We heard that 5-6 big projects are going through their scrutiny. If the government approves, then it is only a matter of placing orders, and one can see the downstream benefits. So, if you consider the last 12 months as a gestation period for design happening, scrutiny of design and handing of the same, then I am hopeful in the next six months, we will see much more economic activity, and it will really mean all the aspirations that have been set out will be happening.
How is the bank preparing itself for the new age business environment? We intend to focus on three areas – digital space, geographical expansion, and market share boost. Digital invasion is massive and real. As a bank, we don’t want to miss out on that, and we are a very active on technology side. We have just come out with a first-of-its kind mobile app ‘Scan N Pay’ as part of our mission to revolutionise business payments in the country. Secondly, our credit share is still small in fragmented Indian market. We see a remarkable opportunity to go after business in this environment, as we are better-capitalised and have good credit quality. Thirdly, while we preserve our home market advantage with 13 per cent share in Kerala, we see opportunity to grow in other geographies where we have meaningful presence. Five years ago, there were 40 branches in Tamil Nadu, we had people imported from another state to work in those branches., Today, our branches – be it in Tamil Nadu, Gujarat or Karnataka -- are all manned by the people from the same location.
balachandar.g@thehindu.co.in
