Drawing a cricket analogy, Shyam Srinivasan, MD and CEO, Federal Bank, believes that in the current situation of economic uncertainty brought about by the pandemic and the lockdown, one has to “play it session by session”. “The number of googlies coming our way everyday is so different that the ability to predict the next googly is difficult. You have to react to the near term, go through the tough overs and then be ready for the slog at the end of it,” he told BusinessLine.
In an interview, the veteran banker said the bank is willing to lend and believes that customers will try and start repaying after the moratorium on term loan lifts. Excerpts:
What is Federal bank’s strategy in the post-Covid world?
We have to look at it in two parts — the first is more near term, which is the rest of the calendar year. We have to ensure that all the elements are in place and examine the likely implications of Covid on the credit quality and how we come out of that without too much stress. The longer term plans don’t change in terms of building out the business.
I will break the near-term also into now and September and the last quarter of the year. The real client engagement and behaviour will be post moratorium and how quickly the economy comes back. As we get out of the moratorium, we will have a better sense of how businesses are coming back. We want to ensure we open calender 2021 a lot more confidently.
Is the bank open to lending? Will the government schemes help provide liquidity support?
We are very much in the business but the question is to lend to whom and for what. One has to be confident of the client’s requirement and repayment capability. In an environment like this, people will be quite cautious of new investments and most will focus on continuing with regular and normal business. As a bank, we are very much open to lending. We are very active in businesses like gold loans and we are also tailoring specific cross-sell programmes to existing customers who have established track records. It all depends on how fast the economy recovers and where the opportunities come.
What part of your book is under moratorium? Are you concerned about stress once it lifts?
About 35 per cent of the loan book is under moratorium. From April, it has come down slightly. We have to remember that nobody wants to default. Some customers may have lost the capability (to repay) and they are either going to default or seek an extension because their intent is still there. We should not worry about getting into a tailspin but banks will have to work with every customer. I don't carry such a dim view of the future. This is like the middle overs, you have to play carefully.
What is your view on the amendments to the IBC Act?
There is a good reason why it had been done but it does cause inability to exercise some of our authority that had come through IBC. We have to believe that in the not-too-far future, this will come down. It is an extraordinary time and so an extraordinary decision was taken.
Do you agree with the view that there is undue pressure on banks to lend?
Banks are not under pressure to lend but have avenues to lend under the government schemes. It says to use the regular credit judgment to lend. The credit guarantee scheme is a good way to support MSME clients. The fiscal side is a different story — how much fiscal space is available and what can be done is always up for debate. I hope more will come. These are two independent decisions. As bankers we are on the supply side, waiting for the demand side to ask
What kind of digital initiatives is the bank working on?
The current event (Covid-19 and lockdown) has accelerated the digital transformation of every company. We have launched a spate of digital capabilities, our new mobile version is already in the beta launch and customers will start to get it soon. Self service in the new contactless world is going to increase.
What is the timeline for the stake increase in IDBI Federal Life Insurance?
We have received in-principle approval from the board to take our stake from 26 per cent to 30 per cent. Now we have to initiate a process where there is a price agreement between the three parties for which IDBI Bank has to first finish its transaction. After that we will enter (into a deal) and we will need regulatory approval.
Will the bank be making more Covid-19 related provisions?
The situation is evolving. We will take a call in the second quarter. Whether we take it as Covid or credit provision, when the account slips, we have to provide (for it). For example, in the first quarter, because of the moratorium, there may not be much due to new slippages but you have to make provisions based on the understanding of your portfolio. Provisioning is an ongoing exercise.
What is your expectation on economic recovery?
In the near term, three to four months of the year, things have gone slow, so to that extent one third of the year has gone. There will be some kind of flattening or de-growth. The bigger question is whether the impairment is temporary or a deeper gash. That only time can answer because it depends on when demand comes back, what kind of economic schemes will come in and how the global situation will pan out. If the spread and absenteeism increase, then people have productivity challenges. I would say best is to take it by getting the basics in place and keep scouting for opportunities.