Federal Bank NIM has gone up to 3.27% and there is scope for improvement: Shyam Srinivasan

In Q3, your advances have grown quite well with over 4.5% growth coming in sequentially, 12% on a year on year basis. Where are you seeing the most traction?
Yes, Q3 has been a very good quarter. It has been fairly diversified and shown all round improvement. We have not seen any one particular area outshine. It has been something that is fairly broad-based and that is an encouraging sign. That said, there are some businesses that are driven by economic activity and our share gain.

Our corporate business has come back quite strongly this quarter. Retail, which has been trending well, has gathered steam, keeping pace with the developments in the economy. But the overall numbers show not only credit growth, the quality of the book has been remarkable as well. Our credit quality is normally in the top quartile and our credit costs have been well managed across lengths of time because of disciplined lending. We see that all playing through in Q3.

In Q3, we recorded our best ever net profit, our ROA crossed 1%. We crossed the Rs 500-crore quarter mark in net profits. So it has been a fairly well rounded, broad-based, on target kind of performance.

But how much of this growth is sustainable going forward? How do you see the traction that is coming in now, do in the next couple of quarters as well?
Generally our performance has been ahead of whatever the industry growth is by a multiple. As we saw the economy picking up in Q3, our share gain was more amplified and we saw a good pick up. Like I said, because there is no one-off bolstering performance, it is an organic, structural growth and every part of the business is growing.

I see that repeating itself in Q4 and beyond as long as the Third Covid Wave impact is fairly moderate. I do believe that green shoots in the economy should play through and if it does, we will see our share gain even more pronounced. If you take the last two-three years of the incremental credit in the country, we are higher than our normal market share. If our market share is one, our incremental share is about 2%. We are seeing gathering momentum across and I believe as things improve in the economy, our gain should be visible across the spectrum.

Your provisions have fallen sharply, asset quality seems to be improving as well. How would recoveries and collection efficiencies improve? Do you expect the credit cost to continue to fall going forward?
At 22 bps, credit cost cannot be falling from here. A normalised credit cost on an annualised basis of around 50-60 bps will put us in the top quartile or probably top of the pack across the country. It is always a balance between the kind of business we want, the momentum we want and the credit cost we want to carry. On balance, somewhere around 50-60 bps in steady state would be a good place to be in.

Recovery upgrade for this quarter was strong and close to Rs 300 crore. Our slippages last quarter was Rs 330 crore or so and almost matched the slippages of the previous quarter. The incremental recovery upgrades this quarter, keeping aside one transaction that was done to an ARC, so is doing quite handsomely and collection efficiency is strong.

How has your corporate book come through and do you see the capex cycle kicking through now?
We expect that in CY22, maybe around the second half of this calendar year, we will see a pick-up in capex as capacities are getting built out. It is too early to tell but it looks like it will pick up. Our share gain is visible because we do not have the baggage of any adverse credit and as companies are beginning to look at borrowing opportunities for a greater part of CY21, corporates had other borrowing opportunities to meet their credit requirements. Those are turning out to be a little more expensive. So banking and bank credit is looking more attractive and as that happens, we are well positioned to gain share and that is visible.

Sequentially we grew almost 7% in Q3 and that annualised is about 14 odd percent. That will repeat and our strengths and reach out programmes and our appetite remain strong. I do not think corporate pick up will be good even in the current environment. As capex picks up, I expect that to grow even faster.

NIMs have gone up marginally. Profitability is up sharply. Given that we are seeing an increasing interest rate environment, what is your target for the NIMs and how will it play out over the next few quarters?
We have been constantly guiding that our NIMs will be in the range of about 3.2% to 3.3% or so. We are nudging that 3.3%. We are at about 3.27% and I do see room for improvement of another 5 odd basis points. NIMs is never one dimension; it has got many dimensions to itself. Mix of the book, frequency of credit growth, the quantum of credit growth and above all the kind of reversals in slippages happened. If one manages all these elements well and keep a credit well under control, NIM expansion is possible as we have demonstrated.

We have moved up from 3% to 3.27% and there is some scope for improvement as we go into the next few quarters. Typically in a rising interest rate scenario, NIMs tend to expand for banks.