We have won Ranji, now we have to play test matches: Federal Bank MD & CEO

Business Standard

27-05-2025

Federal Bank has to enter the league of big private sector banks in the next 7-10 years, says KVS MANIAN, MD & CEO, Federal Bank. In a face-to-face interview with Manojit Saha and Subrata Panda in Mumbai, he talks about mid-yielding assets being the focus area of the lender, along with boosting fee income and strengthening the current account deposit base. Edited excerpts:
You took charge in September last year. What is the vision you have for the bank?
Federal Bank as an old private sector bank is leagues ahead of most of the banks. It has done the best in this cohort of banks. But it has not reached the cohort of the large private sector banks. We want to be the fifth largest private sector bank, which puts me in the big league of the private sector banks. We have 18–20 per cent market share in Kerala... it has a huge regional strength and now we want it to be a more nationally recognised bank. We are halfway there, but we want to be fully there.
What are the biggest challenges you face?
Declining interest rates are a challenge for all banks. Broadly, if the interest rate was in the upward cycle, many of the initiatives I want to do would have been easier, but in this environment there is a downward pressure on the yields. Secondly, the brand, the team, and the people have to make the transition from playing the league matches to test matches. We have won the Ranji Trophy, but now we have to play the test matches. This is the main job to be done.
Where do you see your total business in the next few years?
Overall, we should be growing in the mid to late teens, depending on the market environment.
Which are the areas where you want to improve?
We are looking at three areas- first we have to get the liability story right, and particularly, the current account story right. Our current account is at 6 per cent of our deposit base. For most banks, it is in the order of 12–15 per cent. So, we would want the 6 per cent to grow to 10 per cent and beyond. If we get this right, it solves our cost of funds problem, changes net interest margin, among other things.
On the asset side, our credit culture is very good. Our cost of credit has been reasonable. There is a DNA of the bank in terms of what risks it takes. I do not want to revolutionise it, but evolution is good. Overall our book currently is low risk, low yield. I would want to shift it to medium risk, medium yield. If I try to do much, it will become revolutionary and I do not want to derail it. It is a strong point of the bank. So, we are focusing more on loan against property (LAP), used commercial vehicle financing such that the risk does not change significantly, but the yield is higher. So, the second thing I am focusing on is moving the bank to a medium risk, medium yield business.
Thirdly, we want to improve our fee income. If you benchmark us, we have a gap from the big players. Fee income largely is trade forex, wealth management, card fees, etc. So, there are opportunities to grow this. We want to grow fee income by 25–30 per cent run rate.
What is the strategy you have adopted for your corporate book?
We will go after the mid corporates. We do not want to go after the really large ones. Given our cost of funds, we can be competitive in the mid-market segment. At the very top end, the pricing gets too fine, and we do not make money, and we do not get any cross sell. But in mid-corporates, we will be relevant, and we will get the current accounts of those companies, trade, forex, etc. Overall also, we are focused on SME and small businesses.
Where do you want your retail corporate mix to be?
Currently, 60 per cent is retail and we want to increase it to 70 per cent in the next 2-3 years.
Your home loan growth has been slow…
I have to overall balance my growth such that my medium yielding assets grow faster, and low yielding assets grow slower and home loans sit in the low yielding assets so I will grow them slightly slower. We will be opportunistic about the high yielding assets if the environment clears. Credit cards will grow, and we will continue to grow that. Personal loans, and microfinance loans we will judge the market and credit quality and take a call. My sense is for another two quarters microfinance will see some pressure.
Are you open for inorganic growth in the microfinance segment?
In general, we are open for inorganic growth. Having said that, we will never have our microfinance more than 5 per cent of our book. I am not a fan of the barbell kind of strategy. Microfinance is a segment we will be in but we will moderate our ambition. Also, our overall unsecured book should not be more than 10–15 per cent of our book in our medium term.
What is your strategy for your credit card portfolio?
We just have a little over 1 per cent market share in credit cards and we want to drive it to 4-5 per cent in 3–5 years. We also want to make sure that our sourcing is balanced. We work with fintechs for sourcing cards, we do co-branded cards, and organic cards. Currently, our organic cards are lower than our fintech sourced cards. We want to have 50 per cent organic cards, and 50 per cent sourced from fintechs. And organic cards will be to our existing customers largely. Cross sell to our existing customers is quite low currently. As we acquire more customers, our opportunity to cross will be more.
What are your plans for wealth business, especially from the NRI side?
Our NRI asset under management (savings accounts + term deposits) is close to ~90,000 crore. But we do not have their wealth business because historically we are not focused on their wealth side of business. So, there is a huge opportunity.
When I talk about wealth business, I am not referring to private banking. I am talking about the mass affluent segment, where products are simpler.
Do you want to get into the AMC business?
In the medium to long term, yes. But not in the short term. Our journey to be a universal bank is perhaps a decade-long journey.
So, the journey to be a large private sector bank is a decade-long?
It's a 7–10 year journey.
What are your branch expansion plans?
Forty per cent of our current branch network is in Kerala. And 60 per cent is outside Kerala. It's not that we are only Kerala centric. We are no more a regional bank. We will follow adjacent states' strategy when it comes to branches. Adjacent states of Kerala are Tamil Nadu, Karnataka, Andhra Pradesh, Maharashtra.. we will grow the brand here. Then we will look at the top 10 GDP states and grow there. Thirdly, we will also focus on the big metro markets. We will follow this strategy for the next 3–5 years. We will get to about 2,000 branches in three years.
What is your gold loan strategy?
The new draft circular on gold loans is quite robust, and it is in line with the practices we follow. The earlier circular was tighter on some of the things and impacted our volumes. Now, we will get back the growth trajectory in our gold loan business.
We are awaiting RBI's final guidelines. From our point of view, we are somewhat unique because both of us are listed. Right now, there is no decision.
We have 26 per cent stake in the company, and we have an RBI approval to take it to 30 per cent. The application to the insurance regulator is in the process.