Hare you planning to grow your loan book in this environment of rising interest rates? Do you have a focus on any specific sector for the same?
There are two different parts, one is the rise in interest rates and the other is credit growth. Therefore, we have to look at the kind of new initiatives, projects and infrastructure investments that are happening, which usually drive part of credit growth. Another part of credit growth is a function of already established lines for customers, their working capital and certain products, which we may be able to offer more attractively then somebody else like gold loans for instance. So it’s about growth in credit versus new investment. Our focus is to grow steadily by 18-20% this year and given the current pipeline of business we have and the areas we are focusing on, we still believe that we would able to maintain that steady rate this year.

What are the key segments of lending that you will target for this fiscal and what is the targeted credit growth for FY ‘12?
We are working very closely with large corporates who have requirements for working capital. It is not about the particular sector; rather it is more around the risk profile of the customer and credit rating of the customer. But on the retail side, we are doing well on gold loans and home loans. Home loans, in particular, for some ticket sizes, are probably better for the customers even at the higher interest rate because it is a floating rate product and also due to the property prices, which are more attractive right now. EMI may not be too high because property prices are higher & the interest is low.

Many banks are cautious in terms of lending to SMEs, as they fear that slippage may rise in this sector. Do you foresee any stress on your SME loans?
A: We focus on existing customers of the bank who have a well established relationship and history with us. Large corporates are slowing down in terms of investments, so some of the small businesses have to also face near term stress. For example, in textiles & auto sectors, there is some stress and they are all reaching out to their banks to see how they can handle it. I think that every bank, depending upon its customer relationships, will have a plan to handle them because these are the customers who have been associated for long with the bank. SMEs in India are quite resilient. They have faced crisis after crisis in the last ten years, but now they have learned to handle them. I see it as the industry-wise phenomenon but it may not that severe because exporters are hedging themselves and importers are realigning and looking for substitutes like diversification.

What are your targets for credit and deposit growth for the current financial year?
We are targeting roughly 18-20% credit growth. To support that, I would grow deposits. We have done very well in deposit growth. In particular, NRI deposits have grown exceptionally well this year. We are very good when it comes to this part of our portfolio. We bring in almost 7.5-8% of remittance that come in to India from NRIs.

How do you plan to further grow your business in the NRI segment?
We have large catchments in different segments; particularly the Middle East. We have over 600,000 NRI customers. We have introduced just in line products for remittance businesses. We have over sixty odd exchange arrangements in different markets; so we have increased our footprint in NRI markets. NRI growth will be very robust even as the rupee strengthens. It would certainly be an attractive market.

What are the critical challenges afflicting the banking industry that you would like to mention?
There is an internal challenge of retaining talent as there are a large number of retirements coming up and there is policy uncertainty. So there is anxiety over how things would shape up in the economy. These are the major industry challenges. The major challenge in the coming quarters would be towards improving internal efficiency, while the world outside gets better in the long term.

Where do you see Federal Bank in terms of growth in the near term?
Federal Bank in 3-5 years will be much bigger and more visible beyond Kerala, and in doing that, we will have a much larger footprint and focus on two segments, which is SMEs and NRIs. If we take a 4-5 year view, we will be in 5-6 markets in terms of the SME and NRI businesses and we’ll be substantial players in these markets. In terms of rural presence, we have 830 branches now, of which at least 65% are semi-urban & rural. So we have a healthy presence in small towns and that’s where we will expand. By next year we should have over 1000 branches.

Net NPA ratios have come down from 0.68% to 0.58%. How do you expect the bank to perform on this front in the current fiscal?
We would like to keep up with the current trend of improvement. There are certain challenges because the external environment is tough, but if we keep the environment focus and deliver like what we delivered in Q2, we will be a very happy team. But we have to keep a very close watch. That is why internal efficiency and productivity are very important.

How critical is innovation for the Indian banking industry and how is Federal Bank managing it?
Innovation cannot be limited to just products. It has to be there in the process, in the service and in the people. But more important than innovation is aggregation, as ideas are freely available on Google today, but who can aggregate them better at the point where it matters defines success. Innovation is important, but it has to be backed by extraordinary execution.