'Ambitious With A Stretch, Not Aggressive', Says Federal Bank’s Manian On Growth Strategy
While Manian counts Federal Bank’s dominant market share in Kerala and its gold loan and non-resident businesses as its “significant strengths”, there are areas to develop further, he says.
KVS Manian, who will complete a year as MD & CEO of Federal Bank in September, believes that the lender needs to stay “mass affluent” at its current stage.
“At our stage of growth…we have to play the mass affluent category. We have said that mass affluent is our focus area,” Manian told NDTV Profit in an exclusive chat at the bank’s headquarters in Aluva, Kerala.
“Even our wealth strategy is not going to be a private banking strategy initially,” he said. Manian was responding to a question about large private banks hiking minimum balance requirements for savings accounts in a bid to build a premium customer base.
Over the last few days, ICICI Bank’s dramatic increase in minimum average balance requirements for its customers has led to a social media furore. The lender hiked its monthly minimum average balance to Rs 50,000 from Rs 10,000 for new urban and metro customers starting August 1.
Sources earlier told NDTV Profit that this was part of ICICI Bank’s focus on raising its premium customer base as it looks to further cross-sell insurance, mutual fund and wealth management products to its customers. A higher minimum balance aids in shoring up fee income, as banks can better claim commissions on such sales to high value customers.
“Every bank to their own on what they want to achieve through their strategy,” Manian said without naming any other lender.
Manian took over from long-time Federal Bank CEO Shyam Srinivasan in September 2024. While Federal Bank has been a Kerala-headquartered bank since inception, it has tried to fashion itself as a pan-India bank. In this context, Manian’s job is to further fortify this identity and grow.
“Under my predecessor Shyam (Srinivasan), he did try to take the bank relatively more national compared to what it was when he joined,” Manian said. “I think that journey is half done and we need to do more of it.”
While Manian counts Federal Bank’s dominant market share in Kerala and its gold loan and non-resident businesses as its “significant strengths”, there are areas to develop further, he says.
“Our small business current account franchise is not as strong as what it should be. Our wealth franchise is not as big as it should be. Or our trade and forex offerings are not what they should be,” he said.
To this effect, Federal Bank will focus on three core strategies, which include: building a stronger low-cost liabilities franchise, growing middle-yielding assets for better returns and enhancing fee income through credit cards and wealth management.
But this growth strategy is not aimed to greatly increase risky assets on the bank’s balance sheet. According to Manian, Federal Bank was far too weighted on home and corporate loans on the asset side. This led to constant pressure on net interest margins, as these products generate lower yield.
“We also don’t want to do very high yielding assets. We said 'if we are doing home loans, can we do a bit more of LAP (loans against property)'. We were doing commercial vehicles, can we do a bit more of used commercial vehicles?,” he said. Essentially the bank would focus on small changes to deliver a marginally better risk-return ratio.
“There is a certain DNA the bank has, it has a certain risk appetite. I don’t want to dramatically change that…maybe inch it up a bit,” Manian said.
In the quarter ended June 30, Federal Bank reported a net profit of Rs 862 crore, down 16% sequentially. This was largely owing to higher slippages in the agriculture and microfinance loan books.
Manian believes the bank will take a one or two-quarter cautious pause on microfinance to see some improvement. Over the last year microfinance loans have seen large scale delinquencies owing to excess lending and high interest rates. Certain states have also brought in restrictions on collection efforts, limiting the ability of lenders to shore up recoveries in these loans.
In the April-June quarter Federal Bank reported a net interest margin of 2.94%, down 18 basis points quarter-on-quarter. Manian says that the bank undertook a savings rate cut recently, benefits of which will show up in the second quarter. Moreover, the lender has also undertaken efforts to boost NIM accretive businesses which will aid in retaining its 3-3.20% NIM range soon.
