Growth is bound to come – Shyam Srinivasan, Federal Bank

Excerpts from an interview of Mr Shyam Srinivasan, MD & CEO, Federal Bank with CNBC TV-18 dated 21-01-2020:

Update on the Indian Equity Market:

On Wednesday, NIFTY closed -0.5% lower. Among sectoral indices NIFTY Metal (-1.5%), NIFTY PVT Bank (-1.0%), NIFTY Auto (-0.9%) closed lower. While Nifty Media (1.7%), NIFTY IT (+1.0%), NIFTY FMCG (+0.02%) closed on a positive note. The biggest gainers were Zeel (+4.9%), Grasim (+2.6%), Nestle (+1.8%) whereas ONGC (-5.3%), Cola India (-5.2%) and NTPC (-3.9%) ended with losses.

• It was a weak third-quarter for Federal Bank as loan growth and net interest margins came in at an all-time low.
• Mr Srinivasan says, there are no significant issues except for the two housing accounts which are under stress. Other granular businesses are showing marked progress and it will continue.
• He says they don’t have a single case above 100 cr which is dodgy and therefore the outlook is positive.
• Speaking about their non-corporate book, he says, their portfolio is significantly secured. Banks that celebrated unsecured success over many quarters had the gains and now have to face some pain.
• As the portfolio is secured, between now and next 3-4 quarters, the bank does not expect any large formation of stress on the secured side unless property prices get crash.
• On loan growth, he says, retail is looking north of 24-25 per cent. The large tickets are okay, so the blended margins as the bank exit FY20 will be between 14%- 15%.
• The gold loan book is expected to grow at 25%. The bank is also gaining share in the auto loan segment, particularly in Mumbai, Kerala and south.
• Agriculture is seeing pain across banks due to waivers announced by various states.
• He says growth is bound to come. It cannot keep the system in paise mode. So, the focus will be on getting credit cost down.

Consensus Estimate (Source: market screener and investing.com website)

• The closing price of Federal Bank was ₹ 93.70/- as of 22-January-20. It traded at 1.2x / 1.1x / 1.0x the consensus Book Value for FY20E / 21E / 22E of ₹ 73.0/81.5/90.6 respectively.
• Consensus target price of ₹ 112/- implies a Price to Book multiple of 1.2x on FY22E Book Value of ₹ 90.6.