Would banks at large and Federal Bank in particular cut deposit and base rates post the RBI monetary policy?
Yes. We had a subcommittee meeting almost immediately after the RBI policy announcement and we will be meeting again on Friday to take a decision. But yes, there is action on both accounts forthcoming.
A lot of people said that for the banking space at large in the quarter, there were pressures despite the fact that lending rates were not cut. So, if banks were to cut lending rates over the course of the next six months, those pressures could only intensify. Would that be true for the space at large? If not, would it affect Federal bank?
Cost of funds have fallen at the same rate as the the repo rate. Margins will come under pressure to that extent. But margins are a function of many things. The crosshits happen typically when you start taking high NPA, and slippages also affect your margins. So on balance, each bank's portfolio will determine how they are able to protect money. One is the level of drop. Second is the deposit correction that you do. Third is the volume increase and fourth is the impact that you may have as a consequence of credit slippages. That would be very bankspecific. We believe that our guidance is to be on or around the same margins as it was in FY15, which is a balanced number of 3.25.
Many bankers seem to be unhappy with the marginal cost of funds for base rate calculation. As a banker, what is your view on this?
The marginal cost of funds may not entirely allow banks to protect their margins. That is going to be a challenge. In a floating rate scenario, when there is a rate cut, you need to pass it on to the customers. If that needs to happen, a few other factors can be looked at for relief. There is a very active conversation going on around this. For instance, CRR is a sum cost. Is there an opportunity to link it to some kind of credit performance of the bank? If a bank is showing dramatic improvement in credit quality, you can link your CRR to that. So, we have to figure out various other combinations to both pass on the benefit to the customer as well as keep the banks' interests going, because ultimately it is a market share and a volume gain. That balance has to be strong.
What is your view on the credit and deposit growth that you are likely to clock in FY16? How do you see SME and retail loans growth as well as corporate sector activity pickup postpolicy?
It seems like there is going to be a long pause by the RBI after the recent cut. Shyam Srinivasan: I think the long pause is an interpretation. My view is that if indeed, the monsoons turn out to be even slightly better than what it is projected to be, we can hold a more optimistic view of the rate environment. You may see one or two more cuts if things turn out well. So, let us hope that things play out in favour of all of us. Now, last year there was an almost similar condition but with less of the high. We had more expectations from the government and, therefore, overall sentiment was higher. Now, it is about action on the ground. If those start coming through, we would like to repeat the 18odd per cent credit growth we had. The year has started in a muted fashion, but that is how it is most quarter of most years. I still believe between 18% and 20% credit growth is possible for our kind of bank, and that is our effort. In particular, SME and retail are looking quite positive. Corporate credit is a function of many things and corporates are not necessarily borrowing from banks. They are looking at other relatively lower cost of borrowing. To that extent, corporate credit growth is a function of many other factors. But on balance, I think an 18% to 20% credit growth for us looks possible.
Fund managers bet on the man who is running Federal Bank. They think that he can really take the bank places. What can the growth rates for Federal bank be, because of Shyam Srinivasan running the bank?
Shyam Srinivasan: I would try to make it into the more predictable, higher than the industry average by 600700 bps on a steady basis. Growth was over 600 bps of the industry average in the year that went by. I would like for us to repeat that. Last year was good on all accounts credit growth, NPA as well as portfolio growth profitability, and we would like to improve on it this year.