Federal Bank has seen strong deposit growth and e-transactions post-demonetisation. The bank’s Managing Director and CEO, Shyam Srinivasan, shares with BusinessLine how demonetisation is shaping out for the bank and strategies adopted by it to counter the after-effects. Excerpts:
How has demonetisation impacted the bank?
Following demonetisation, deposit inflow has been significant. Maybe, our deposits have grown by 30 per cent. It is positive for us and also it has put a lot of stress/strain on the front-end of the bank.
Our employees are working close to 12-13 hours per day, virtually everyday. That is a great tribute to our bank staff, and they are not doing this with anger. They are doing it with a passion to serve, that’s remarkable.
We are also seeing an increase in operational costs and efforts by banks, but the demand for new credit is relatively low.
Whether these factors will remain forever or will change, only time will tell.
How has the bank’s digital channel roll-out been?
We were witnessing good growth in e-transactions. Every quarter our digital and mobile banking transactions have been doubling. But this time round, they have doubled in a month’s time.
So, what was happening in one quarter has happened in one month. The learning for us here is that the increase in digital transactions is not in absolute value but in volume, that is, more customers are using the digital channel — it’s not like the same person is using more.
Given the shift to digital channels, how has the bank benefited?
Ever since demonetisation, for the bank, per ticket transaction costs have come down, which was the main aim for going digital. What that means financially will be known based on how December month shapes up.
There is nothing dramatically adverse, other than the costs that will go up — you are paying more to people, your are spending longer hours, you are transporting money at high cost, you increase your security, you are opening new accounts.
We were doing 2,500 accounts a day, now we are doing 9,000 accounts a day, that’s almost four times.
How has changing the CRR impacted your bank? With the huge amount of deposits, do you see the interest rate coming down?
On the CRR side, our view is that the regulator will look at some fair kind of compensation, because it is an event driven by external factors, not necessarily by banks. I don’t have an answer on what the regulators will look at.
But we are seeking some kind of regulatory support on that, to make sure that there is a fair amount of compensation for banks. In December, we expected the bank rate to come down. It did not happen. Before that I already cut my base rate (MCLR), which has come down to 8.95 per cent from 9.15 per cent.
Has demonetisation impacted the bank’s treasury yield rate?
No. Treasury rates are still holding at 6.25-6.30 per cent. Due to the CRR impact, within a few hours they corrected. On that day markets managed it very well. It’s not a wild swing. So at the bank level, there was nothing significant for us.
Post-demonetisation, what has been the level of recoveries by the MSMEs and SMEs?
With regard to SMEs (small and medium enterprises), repayments have improved. New demand is something we will have to see. Anyway, in the last few quarters, demand in the country for credit was relatively lower.
In this current environment, people are looking at how things are going to shape up before venturing out. As for the bank’s credit to SMEs/MSMEs, our growth is about 16-17 per cent; it will continue to happen.
In terms of recovery, has it improved? How much has the bank got?
What we call the special mention accounts, that is, before an account becomes an NPA (non-performing asset),which means they have missed one or two pre-payments — repayment from these accounts have improved for us. We will know only by end of December.