We want to be the most recognised name from Kerala after Ayurveda, says Federal Bank CEO
Having registered uninterrupted growth, Aluva-based Federal Bank has set higher targets as part of a strategy to make its presence known within and outside Kerala. Shyam Srinivasan, Managing Director and CEO, outlines the bank’s strategies and trends in the banking sector in a free-wheeling interview to The Hindu.
How does Federal Bank want to position itself over the next few years? Do you have growth ambitions outside Kerala?
Among Kerala-headquartered banks, we are the largest, in terms of network, across the country. State Bank of Travancore (SBT) has about 1,000 branches, and the majority of them are in Kerala. Our branches are spread more or less equally in Kerala and outside.
The primary objective of Federal Bank is that we want to be the best entity from Kerala for the outside world. I want Federal Bank to be the biggest name after Ayurveda on everybody’s lips in India. That is the dream we have.
In select geographies, we are able to get good quality growth. We want to be in the consideration zone of everybody, wherever you are, for your financial requirement. That is the aspiration of the bank.
The segments where we have done well are the SME and NRI spaces. It has taken us 67 years to build (a strong base) in the home market.
Do you believe the banking sector has adequately taken care of the credit requirements of the farming segment?
There are two factors. There is credit requirement for building an agricultural-based business, and there is a larger requirement to make it an industry or a larger business.
Both these are business opportunities. But wherever individuals are doing farming as an occupation, establishing credit facility is a perennial challenge.
There is availability of credit for anything that has a business dimension.
The question is how to lend, collect and serve those who do not have established credit records.
That is where the financial inclusion journey becomes very important. Unfortunately, it is going to take time.
Have the recent restrictions on labour, such as Nitaqat in Saudi Arabia, affected the inflow of NRI remittances from Middle East countries?
The flow of NRI remittances is largely dependent on the rupee value. Nitaqat pertains to unskilled labour without recognised work permits.
They are not large remitters because their disposable income is less, but some sort of correction is also taking place. They come back or go to other locations. I think the issue is not financial; it is about rehabilitating them. In the last few weeks, the remittances have gone up substantially only because the rupee is weak.
I used to live in Middle East in the 90s. Even then, there were talks of repatriating people who do not have formal work permits or those who haven’t been meeting certain criteria. That I think is a perennial chain of activity; every now and then it gets amplified.
What progress has Federal Bank made in the field of net banking?
The market in India is not homogeneous. There are people who are extremely technology savvy. The young are progressive; but in some parts of India, people do not want to miss the opportunity to go to the branch. They feel comfortable when they meet the manager and have a conversation.
In terms of people signed up with an ID to use net banking, it is going up by almost half to one per cent every month.
In a year, we are adding 5 to 10 per cent. The question is whether they use only net banking for all their transactions. The answer is ‘no’. Maybe, between two and five per cent of our customers use only net banking. Another 5 per cent use net banking and branch banking. The remaining avail themselves of branch banking. I believe they (net banking and branch banking) will co-exist.
Certain banks have been penalised for failing to wholly comply with KY C norms. What lessons are there to be learned from this?
There are mandated standards to check money laundering. What has come to light is that in some branches, the norms have not been diligently adhered to. It is not a systemic problem.
Individuals in certain branches are either not 100 per cent compliant; or have assumed that they are compliant.
Overall, we have to do an identification of the customer. You need to make sure that there are certain principles. It happens 98 per cent of the time, but there are instances when someone has either overstepped or has been coerced by others.
If it [money laundering] is happening, it is not because people have welcomed it.
That is why the regulator gives punishment. It is not that the banks are encouraging it. There may be individuals who are either innocent or naïve or whatever, who can be pushed into it. If we notice it, we take action. But the regulator is closely watching.
Banks have been urged to slow down on lending to purchase gold coins. What is your assessment of this decision?
The Finance Minister has asked banks not to encourage people to buy gold by lending money. We do lend against gold. It is collateral. It is a very good way of getting money; instead of lying in the cupboard at home, gold could be utilised for productive use. Kerala is the pioneer in it. NBFCs and banks are doing it and it will continue.
Is that not an indirect way of encouraging purchase of gold?
India has been getting 1,000 tonnes of gold every year. Official estimates say that 20,000 to 25,000 tonnes of gold is lying with people. Only 1,000 tonnes have come out. The rest is lying in cupboards. Once that comes into productive use, the economy will be benefited.
The bigger need of the country is investment. Small or big, investment has to happen.
How do you look at the electronic benefit transfer scheme currently being implemented by the government? Will it not create stress on banking?
About three lakh customers have signed up for the Aadhaar card. In the last two weeks, we have seen some LPG subsidy coming in. About Rs. 5-6 lakh is coming to the bank every day in the initial stage. It is routed through Aadhar payment. It will happen; the volume we don’t know.
We have created a payment bridge for those who have signed up under the Aadhaar-enabled scheme. We are encouraging more and more customers to move to link to their Aadhaar card account.
I think the scheme is a very good because electronic transfer is happening. Yes, it may mean that more customers will come to the branches and they may be small ticket customers. I think in our kind of bank, we want those customers to come. Then only the banking habit gets inculcated.
Gold and real estate have been prime attractions for many depositors. Don’t you think investment in bank deposits should be more attractive to be able to compete?
The launch of inflation-indexed bonds, to some extent, is partly an answer to this. Gold has remained very attractive. But it is not true that bank deposits are not attractive. We, as a country and as Indians, have great faith in gold. That is one reason (for the phenomenon).
Quite often, entrepreneurs are not receiving the required support from banks. What is your opinion?
Banks are responsible for public money. If I lend, I should have confidence that I can recover it. Otherwise, the bank is doing injustice. Having said that, banks also want to inspire entrepreneurs. If economy doesn’t grow, banks do not grow. So, there are many alternatives. Simple products like gold loans are available. If you are a small entrepreneur and need Rs.10 lakh working capital, you can get it by pledging gold.
Seed funding is usually done through venture capitalists because the deal is different. Banks are not into equity investment because that is a risk. We can’t take that risk. We have to do according to the (permitted) business model that is viable.