As a Measure to Stretch its Business, Federal Bank Intends to Procure Microfinance Firm

Federal Bank MD & CEO Shyam Srinivasan has said that the private bank sees an opportunity to grow both organically and through acquisition. The bank is interested in acquiring a microfinance business as part of its focus on growing the retail high-margin category.

Shyam Srinivasan, MD & CEO, Federal Bank has stated that the private bank is eyeing opportunities to grow organically as well as through acquisition. Presently, the bank is interested in acquiring a microfinance business as part of its focus on growing the retail high-margin category.

He also said that Federal Bank is now on a par with any new-generation bank in terms of digital capability and operations and had sound asset quality due to its focus on retail.

Furthermore, Shyam says, “Financially we have done very well. There are some metrics around return on asset (RoA) expansion that we are targeting. This essentially means a change in margin profile.”

Federal Bank has also announced that its RoA would grow from 0.76 to 1.25 in five years to FY23. The bank would also be launching its credit cards shortly and expanding personal loans.

According to Shyam, in the banking sector, half the market is concentrated among the top 7-8 lenders. The remaining 50 percent is highly fragmented with 17-18 banks having a one to three percent market share, which throws up consolidation opportunities.

Shyam believes that in the banking sector, half the market would be concentrated among the top 7-8 lenders. The other 50 percent would be highly fragmented with 17-18 banks having a one to three percent market share, that throw up consolidation opportunities.

“In Kerala, we have a 17 percent share, but the state is only three percent of the market. Outside Kerala, we are one percent. In the long term, I see a huge opportunity for growth and consolidation,” he said.

It is also been revealed that Federal Bank has invested a lot in its platform and people. Thus, now it was time to leverage the investment and capability. Shyam further said that to explore acquisition opportunities in microfinance, the bank would wait for a quarter as the current stand-still on the classification of loans as NPAs does not provide a clear idea of asset quality.

In the last decade, the bank has secured the capital only once through a Rs.2, 500-crore qualified institutional placement in 2017.

“We have been meeting our capital adequacy largely through internal accruals. This has led to a level of trust in the bank and, if Federal Bank comes to the market, there is good reason to believe that we will be able to raise the money,” says Srinivasan.