As rescue operations in Kerala entered its final stages, Aluva-based Federal Bank on Monday said that rebuilding Kerala can be massive benefit for the bank as it may see an increase in remittances.
In an interview to CNBC-TV18, Shyam Srinivasan, managing director and chief executive officer, said that 30 percent of the credit book and 65 percent of deposits are from the state.
"As of this morning, 575 branches are up and running. 34 branches are the ones who are beginning to come back that may take till end of the day or worst case tomorrow. Thankfully this week has some holidays, so the comeback is to that extent protected faster," Srinivasan said.
Q: First, if you can just give us a ground check in terms of what exactly is happening in the state right now in terms of the rescue efforts as well as how exactly has Federal Bank been impacted say in terms of a couple of your branches which are situated in the areas that have been impacted the most?
A: Yes, it has been a period of stress for everybody, all residents here. Most of Kerala is now sort of over the worst, and people are resuming or beginning to resume their normal lives and trying to rebuild. As you may have read and seen that there have been extreme cases of people struggling to get out of their homes and ensure that they are safe. I am happy that part is pretty much addressed and now it's really the come back and build back of many areas. Most areas that were low-lying and in and around the river bed, have been the maximum impacted. That is about 4-5 specific locations which will have the build back will take much longer. I think the key point is that there is an enormous amount of resilience. I am reminded of the days when we were in either 9/11 or 26/7 in Mumbai or any of that and how have people come back and this being such a magnitude the comeback has been remarkable. I have had great opportunity to interact with so many people who were struggling and the confidence, the composure and the willingness to come back, is extremely good.
For us in the bank, barring about 30 branches across the state, everybody is back to work, every system is back and those 30 will take maybe like Wednesday to come back. So, largely we are in comeback mode. I don't see loss of continuity of work or business. Yes, people will take a lot of efforts in bringing back livelihoods particularly people upstream who have had challenges in their plantations. So, that is going to be something that has to be assessed. But in short, the worst is over, people are coming back very resiliently. I read somewhere today water recedes; morale rises. So that is the key takeaway I would say at this point. In the bank we are back.
Q: So you are saying except 30 branches all the other branches are working normally? How many branches do you have in Kerala?
A: Even through the worst period, which was Thursday and Friday last week, which is when the maximum downfall, maximum disruption out of our roughly 600 branches in Kerala. Even in that period, half of them were able to do some skeleton work, because people were disrupted. As of this morning, 575 branches are up and running. 34 branches are the ones who are beginning to come back that may take till end of the day or worst case tomorrow. Thankfully this week has some holidays, so the comeback is to that extent protected faster.
Q: Let us just put some more numbers to this. I was reading that you have for about 45 percent of your business comes from Kerala, am I right?
A: The way it works is 30 percent of our credit book is in Kerala and 65 percent of our deposits books is in Kerala. Of the 30-35 percent of credit book, about 1/3rd of that is corporate large ticket government business. Retail and mid-market and small and medium enterprises (SME) is about Rs 20,000-25,000 crore that is about 25 percent of our business. The deposit business is the reverse, it is about Rs 60,000-65,000 crore or something.
Q: So 30 percent of your credit book is in Kerala, which is basically 30 percent of your advances are in Kerala and you broke that down to say 25 percent is retail and SME, right?
A: No, 25 percent is our all India book with retail and SMEs.
Q: Could you break down 30 percent advances in Kerala for us? How much is retail, how much is corporate?
A: Our Rs 6,500 crore of the Rs 32,000 crore which operates, so roughly retail SMEs is about Rs 25,000 crore – Rs 23,000-25,000 give or take around that.
Q: You are probably expecting your SME and agri book to be impacted the most in terms of exposure within the space impacted right in Kerala?
A: It's too early to comment. When the demonetisation happened, we all panicked that life will fall apart. Within weeks, banks were back and we were back in action. I am not diminishing or downplaying the challenge, but I would hesitate to make any guesses at this point with the magnitude of the damage. We know it is very disruptive, but I also believe that each bank and the regulators will deal with it in a very sensible manner. So I am not yet in any kind of judgement and how bad or how deep the problem is. To my mind for sure, the comeback in some of these areas would be very swift.
When we were in the middle of it on Thursday, even I was worried whether we will be able to get back to work. Today, we are all back in full flow and people have to live, right. People have to win back their own live. So I am quite confident that we should not over trumpet the problem and create a situation. I think the maximum impact would be in certain pockets, which has to be dealt with sensitivity just like the way various other crisis have been dealt with, but you will see the comeback is quite significant.
Q: In such a case, in any case the RBI would probably provide some amount of leeway, some kind of special dispensation as they have in past cases, right?
A: Like they have given some relief on the customers based on
Goods and Services Tax (GST), they have given up till December, so through State Level Bankers' Committee (SLBC), through Indian Banks' Association (IBA) and ourselves reaching out to RBI, presenting the case. We may not get an outcome in few days, but I am sure by the end of the month there will be clarity on the regulatory forbearance if there is any that can be brought to customers. We surely need time and that will be the focus, but I cannot say that just now but through SLBC, through IBA and directly we will reach out to RBI and present this. So, we may expect something by end of the month.
Q: Out of the loan book could you give us some idea, I mean waters is still receding so the assessment of the damage will take some time to begin with. But in your experience, which parts of the loan book, the lending book are likely to see stress? I mean if you can just give us some colour in your experience where is the stress like to emerge in?
A: What is going to happen and from your surname, I am sure that you have connections in Kerala, there are pockets where the waters have entered homes and disrupted very materially. So, things like furniture, just rebuild of homes, electrical stuffs all that is going -- including the place I live, so all of us are impacted to some extent in this. The real issue is around rebuild. Physically, houses breaking down, people loosing property is not that significant of the people who had bank borrowed. There maybe people down street or near the river, Idukki area where they have lost physically that is a very a different -- I won’t think that is a natural bank borrowed profile. So, we have to treat this at two level. One is human element, where people are sufferings and second is how do banks treat their customers who have issues.
So, the rebuild of buying more furniture, buying TVs, getting your wiring, getting your bed set is actually consumption positive. Where will they get the money? There has to be some banks and sensible loaning process has to happen on all over the stuff. So, this has to be seen very differently. I just saw this morning, there is an overreaction by every media as if everything is collapsed and life will come to a halt; all of us are back to work.
I think, they should watch out from the point of view of how does the rebuild happen and what is the loss that people have to bring back. The immediate need will be just the simple stuff like getting a bed, chairs, sofas, television, fridge all this either working or buy - that is going to be one set of issue that will be dealt with. Businesses being lost, inventories that people are holding on autos - those will have challenges. Again, the comeback of business whether it is seafood; I do not think they would be impacted, whether people getting back to work, everybody has to live, so that's not going to be impacted. Metro is up and about on day two. So, I do not think those will suffer in any sense. I think what will happen near term is the confidence building, giving immediate support to get back to roads, cleaning up roads, cleaning up the slushy areas, which will happen over the next three-four days; it will help that there are holidays. So disruption to that extent is lower, but if I will speak to you at the end of August, the story will be very different.
Q: Would you have the breakup in terms of advances. How much of these advances in Kerala as a state are concentrated in these particular districts - Aluva, Wayanad, Pathanamthitta – if you could give us some idea? What percentage of book is in these areas?
A: If you take our 590 branches in Kerala, around 75-80 branches are in the territories you mentioned. I moved my office from Aluva to Ernakulam today. Where I am sitting, I wouldn’t even know that there was an event happening only 20 km from here. Ernakulam, mercifully, is not impacted. The big commercial sectors of Thiruvananthapuram or the major towns are less impacted. Tourism destinations like Wayanad, Munnar, Sabarimala, Aluva, Chengannur – these are placed that are impacted. So the impact can be on arrivals. Cochin airport being suspended for a period of ten days. Thankfully, the alternate location is on and the first commercial flight has landed today. So, the resilience has come back and strong. The business impact, I would think, it’s a guess I am hazarding, about 10-15 percent of our branches are in these territories, and I am just taking a proxy of that as the business. So 15 percent of the business credits of our bank and therefore, similar for many part of the other lenders. So you could argue 15 percent of the credit book of the state, which to my mind, is about 3 lakh crore would be the challenge.
Q: In terms of crops being damaged and that kind of thing, would I be wrong in saying that dependence on short crops like paddy etc. over time has reduced and we are talking more about rubber plantation kind of a thing.
A: It’s not that it was vibrant of agri economy, food is largely imported from outside.
Q: Correct. So the latter is less affected because of floods etc., short crops are washed away.
A: The argument is rubber prices may go up, so to some extent, it will offset the laws of plantation.
Q: And also depends on livestock etc. like we have seen in the case of Jammu and Kashmir, where the dependence on livestock rearing etc. is very high. In Kerala that is not the case, right?
A: Yes. I do not want to diminish this as a nonevent, each institution is different. For us for the last six-seven years, our non-Kerala business is 75 percent of our flow. Kerala business is a large remittance business. I see both rupee where it is and the need for money coming in remittance will increase at least 40 percent, which will be a massive benefit. Rebuild will be a massive benefit, demand consumption increase, because of people having to get their life back. Some challenges in geographies that need infra improvement – that’s the commitment of the state. I think that will happen and resources is not going to be the issue; it’s the smartness of utilisation of the resources is the only issue.
Q: You are expecting some amount of special dispensation probably coming in from the Reserve Bank of India. You do not have a clear idea in terms of what the NPA slippage could be from the event as of now and net-net there could be a credit positive come through simply because with the consumption demand which could increase on account of the damage. Is that correct?
A: Last point surely is. On the first point, where the regulator and the dispensing --- it’s a request, I do not know what the outcome will be. The credit may not be very deep for long. If at all, it could be few months and it sort itself out and if the dispensation comes, even that will get sorted out. I think the focus near term is the strong come back and building back and there is this real and I say this not because I live here, it is quite amazing. We used to trump at Mumbai’s resilience; you will be surprised that the resilience and the confidence --- I have not seen even one person complaining about this event and I had a chance of doing many things here in recent few days to just get lives back. It’s just quite remarkable.
First Published: IST