Greenfield & Brownfield investments are being planned; queries are reaching to the bank: Ashutosh Khajuria, Federal Bank

Ashutosh Khajuria, Executive Director and CFO, Federal Bank, talks about asset quality of his bank, exposure to NBFCs and HFCs and budget expectations during an interview with Mansee Dave. Edited Excerpts: 

Q: Your bank has a focus on improving its asset quality, at present. So, update us on the current asset quality situation of the bank and the segment where you are facing problems? 

A: As far as asset quality is concerned, our bank has always tried to keep it in good terms. If you have a look on the top quartile banks of India then Federal Bank is one of those, whose Gross NPA hasn't been more than 3% in last 7-8 years and more than 3.5% in any quarter. This has helped us in diversifying our portfolio. However, sudden shocks and the emergence of 2 or 3 NCLT accounts didn't have any major impact on the asset quality of the bank. Even the regulator hasn't interfered in recognition of NPA accounts, which would have forced the bank to declare divergence either in NPA declaration or under-provisioning. The back has earned the historic benefits in the September quarter and I hope that the tradition will continue in future as well. I can't say anything about the third quarter until the quarter results are not published.

Q: The NBFCs have turned cautious while lending. Do you think that it is an opportunity for you?

A: We are a part of the system and are not separate from it. Any bank can't live like an island, thus, things impacting the system will have an impact on you. But, the pressure/losses will depend solely on the kind of exposure you have. At the start of the year, we shared the name of few accounts with our investors and analysts where stress can be felt and we still maintain our position on them. Apart from this, we haven't seen any surprise name that can be mentioned in terms of big accounts. The recovery has been a good one across these three quarters and it has helped up a lot in cash recovery. Upgradation, which has been a good one has helped us in maintaining the credit cost at a moderate level and I hope that this will continue in the future as well. 

Q: Update us about the kind of exposure that you have in NBFCs and HFCs? 

A: In the case of HFC's, each work in every segment has been segregated in the investors' presentation. We have exposures in top/leading HFCs and NBFCs. We have 80% exposure in HFCs and NBFCs who have a credit rating of AA or more. Plus, there is limited growth in it. So, we have no worries on that front and the names highlighted at the start with the investors and analysts hasn't increased. 

Q: What is your outlook on loan portfolio in coming quarters? Also, inform us about your exposure in different segments?

A: As far as credit or country's growth is concerned then I think that we have bottomed out after which there will be stability and then move northwards in terms of growth and credit growth. We have a good base and last year we saw a 15% credit growth in the system (all scheduled commercial banks) but this year it is in a single digit between 8-8.5% and I think it may touch the double-digit by the end of the year and we will end the year with a credit growth of 10-11%. 

Several new queries are coming and I think the trust in the system is coming back. People have started discussions on greenfield and brownfield investments. But, the actual disbursals takes place after a gap of one to three quarters after the queries are received. I think, the benefits will be felt in the first quarter (April-June 2020) of the next fiscal year, however, slight growth can be seen in the fourth quarter (January-March) of this fiscal. 

Q: The situation of the bank is really strong in Kerala and the bank is expanding further as well, so how much growth can you see those areas?

A: More than two-thirds of our loan book is outside Kerala, and less than one-third of it is in Kerala. This has happened because 97% of the GDP comes from other parts of the country while the remaining 3% comes from Kerala. However, the bank has started functioning from Kerala but today, more than half of its branches are located outside the state. As far as deposits are concerned than 43% deposits of the bank is NRI deposit and maximum of them are linked to NRIs from Kerala, who can be termed as NRKs (non-resident Keralites) who are mainly residing in Gulf region. Maximum of their accounts are parked in Kerala and this is a region that two-third of the deposits come from branches based in Kerala and remaining one-third to rest of India. However, the rate of growth is more in branches that are located outside Kerala. We are expanding ourselves in other geographies beyond Kerala like neighbouring states like Karnataka, Tamil Nadu or Western states like Gujarat and Maharashtra. We are also opening our branches in other states like Delhi, Punjab, Haryana, Chandigarh and western UP. Besides, we have our branches in North-Eastern region as several Malayalis', who are associated with educational and religious institutions, are present in those areas. So, we have prominence in places like Dibrugarh, Shillong and Aizawl. As I said, the prominence of our bank is good in Kerala and we are ranked as the 2nd best bank in Kerala.

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Q: What are your expectations from the Budget that will be announced soon?

A: I think, the focus will be on monetary and fiscal policies to increase the rate of growth. So, in the process, the Reserve Bank of India has deducted 135 basis points in the last year. Similarly, the finance minister in September announced a corporate tax cut to 25% and 15%. Such endeavours make me think that the further steps will be taken to boost investments. Increase in investments will also increase the rate of growth accordingly.