Federal Bank Changes Loan Mix As High Yielding Products In Focus, Says Executive Director

Federal Bank is changing its loan book mix by focusing more on high yielding products, Executive Director, Harsh Dugar, told NDTV Profit in an interview.

"Reasonably confident that we will continue with our asset mix. The high yield margin business which was 25-26% a year back is now 28% of our book. We are clearly focusing on that and growing that piece," he said.

The high yielding margin business accounts for 28-29% of the bank's net interest income, according to him.

This has come as the private sector bank has been focusing more on its bottom line and the right mix on both assets and liabilities, Dugar said.

The bank is consciously slowing its housing loan segment because of thin margins. As these are long tenure loans, the bank is focusing more on segments that are more profitable, he said. While in auto loans, Federal Bank has moved from floating rate to fixed rate, in business banking, it has nudged the interest rates higher.

Gold loans will continue to remain the bank's focus area as it is secured with reasonable high return on assets and return on equities with minimal slippages. The lender will grow the gold loan book to around current levels of 35% on year, Dugar said.

While the industry has been recalibrating towards gold loans after the regulatory guidelines, lenders are in discussion with the Reserve Bank of India to have minimum impact on the customers, as many of them are at the bottom end of the strata, he said.

Another area of focus for the bank will be commercial banking, which it will continue to grow at 24-25% on year, business banking at 13-15% and commercial vehicle loans at 39%.

Growth in commercial vehicle loans may be moderated because of high base, but the private sector lender will continue to grow this segment, he said.

Further, focus on credit cards shall also remain as microfinance institutions and personal loan book growth has plateaued.

"On a sequential basis, our growth in MFI space has been just 1%. We have tightened filters in MFI loan space and we are conscious on the growth and in the next 2-3 quarters when growth emerges we will focus on that part," he said.

Unsecured loans account for 5% of the bank's total loan book, which is reasonably lower than other private sector banks, he added.

On deposits, the bank is focusing on granular liabilities. As a result, it had brought down fixed deposits and deposits from wholesale depositors by about Rs 5,000 crore, Dugar said.

For financial entities, which are LCR decretive, it was a conscious effort as it had bearing both on liquidity and cost, that is why the idea was to focus more on granular deposits.

"In the medium-term, we have guided that we will grow 1.4-1.5 times than the system on both loans and deposits. It will take a couple of quarters and we reach that in FY26," he said.

For the quarter ended December, Federal Bank reported over 7% on year increase in net profit at Rs 3,022 crore. NII grew 16% on year to Rs 7,091 crore. Net interest margin of the bank remained largely stable at 3.11% as of December end, as against 3.12% a quarter ago.

While net advances rose nearly 16% on year to Rs 2.30 lakh crore, total deposits increased by over 11% on year to Rs 2.66 lakh crore.