Money & Banking

Rupee depreciation, a test for economy's resilience: Federal Bank chief

Anjana Chandramouly Bangalore | Updated on June 01, 2012

Mr Shyam Srinivasan

The impact of rupee depreciation is a test for the Indian economy and its resilience. Imports have to come down, and sentiments have to alter, says Mr Shyam Srinivasan, Managing Director and CEO, Federal Bank, in an interview with Business Line. Excerpts:

What has been the growth in NRI deposits in Federal Bank? What has been the contribution of the rupee depreciation?

Being a large NR-led bank, we have seen a substantial growth in NR deposits. Last year, our NR deposits grew 35 per cent, and we see that momentum continuing. NR deposit growth is because of many things — recent regulatory changes in interest rate, the rupee weakening, plus the reason that it is repatriable and no tax on the hands of the NR which is a big boost for such a customer.

In NR too, there are segments, that have not been impacted by the rupee, because they need to remit in any case for family needs. When the rupee starts fluctuating, even the few local currencies that they are saving there get converted because of the fantastic opportunity. That will continue. It has been good for the exporter community.

But certainly there is an overall stress in the system because of where the rupee is and the sentiments are changing. That is going to be more a longer haul, and I don't see it suddenly correcting to Rs 45. It's going to be at least 10-12 months for the rupee to reach the late-40s early 50s level.

What is the way out of the rupee depreciation impact? In the late-1990s when the US imposed economic sanctions on India, the government came out with bonds like Resurgent India bonds to shore up funds. Do you think such measures are necessary now?

There is no one way out. There is talk of a Millennium Bond equivalent and the Government is toying with it. These are not material in number, and could be $1 billion or $3 billion. There can't be one event which will change things. Certainly, there is a likelihood of bonds coming in.

I think the pressure on gold imports will only increase further. To that extent, there will be reduced import.

Third, a large part of the impact has been driven by the sentiment. That has to start altering.

The domestic economy's resilience is also being tested. So import has to come down, and the monsoon will play a big impact. And above all, policy decisions have to come through for some projects to get energised.

The Cabinet gave a go-ahead for 26 per cent voting rights in private banks. What will be the impact for banks like yours?

For us, it has no direct impact at all. It might not have a major play in any other bank, other than those which have holdings differently.

The government is also pushing for white-label ATMs. What will be your stance?

At this point in time, we have not focused on new ATMs per se. We are opening branches quite significantly, and all our new branches, we are putting ATMs. We opened 207 branches last year. We are not big into off-site standalone ATMs. One of the reasons is that we have opened up Federal Bank ATM customers' free usage of any ATM in the country. That naturally obviates the need for going into (ATM network) expansion. For expansionary requirements, white-labelling is a good opportunity because you can cut away a lot of everybody neighbouring one another and spreading the resources better.

What are your branch network expansion plans this year?

Currently we are at 952. We will be 1,000 by July. And we look to repeat a similar one by the end of fiscal. Last year, we opened 207 branches.


Published on June 01, 2012

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