We Are Family

Shortly after Iraq invaded Kuwait in 1990, local Arab and foreign banks froze all investor accounts and sealed the vaults. A significant number of these accounts were held by Indians working in Kuwait. This added to the troubles of K.P. Fabian (then heading the Gulf division in the external affairs ministry), who was entrusted with the task of airlifting 1.76 lakh Indians out of Kuwait to safety. “Many Indians had their life savings sealed in Kuwait-based banks. We had to get these repatriated. I was fortunate to have the cooperation of Indian banks like Federal Bank,” he recounts.

 

When Fabian was busy pulling diplomatic strings, Jose V. Joseph and his colleagues at Federal Bank’s Kochi office were asked to liaise with Arab banks that held the savings of Indians residing in Kuwait. “We managed to bring back a lot of the funds. We had to do it for our customers,” says Jose.

 

It is this commitment that makes Federal Bank a popular financial institution among non-resident Indians, especially those from south Indian states. “We’re not their banker, we’re their extended family. Sometimes we are their personal concierges,” says Shyam Srinivasan, managing director and chief executive officer, Federal Bank.

 

The bank’s strategy to get up, close and personal with clients has paid rich dividends. Over the years, it has expanded its book, beefed up assets, cut non-performing assets (NPA), tapped new revenue streams, widened its geographical reach and augmented the power of technology to stay ahead of the competition. These traits helped it bag the ‘Best Small-sized Bank’ distinction in the BW | Businessworld - PwC Best Banks Survey, 2014.

 

With a client base of 7.5 lakh, the Kochi-headquartered bank is the channel for nearly 35 per cent of the average remittance flow of Rs 90,000 crore every year. It claims to handle 7.5 per cent of India’s remittances.

Remittance management and effective conversion of customers from remitters to savers have helped Federal Bank corner a significant share of low-cost term deposits. For every Rs 100 that comes in as remittance, the bank retains Rs 18-20 as deposits. In five years, its demand deposits have grown compounded 19 per cent from Rs 9,321 crore to Rs 18,541 crore at the end of the last fiscal. Its loan and asset books have logged a 14 per cent compound growth rate since 2009. “NRI savings form 30 per cent of our demand deposits; the rest is domestic. In the last three years, we’ve posted higher incremental savings growth than most other banks,” says Srinivasan.

 

Between 2012 and 2014, the bank’s NPA counter ‘de-grew’ over 8 per cent. “We have not had exposure to any known ‘bad assets’ since 2012. We are not averse to lending; we’re just cautious and our underwriting and monitoring processes are sharper,” says Srinivasan.

 

The bank upped lending to small and medium enterprises (SME). Last year, when Federal Bank’s overall loan book ‘de-grew’, its SME book swelled 36 per cent.

 

Federal Bank has become a coveted mid-cap stock due to its strong growth and appreciable return ratios. Its shares have gained over 66 per cent since January. “The bank commands a premium to its peers on better return ratios and healthy asset quality, which is likely to continue. Asset quality is its strong point,” says Divyanshi Dayanand, a banking analyst at SBICap Securities.

 

The road ahead for Federal Bank seems to be well-paved, at least for a while. The biggest risk factor for the bank could be escalating geopolitical tension in the Persian Gulf. For entirely business reasons, it would not want Gulf-based Indians to return home empty-handed. It would do anything to prevent that eventuality. We just need to rewind 24 years to understand why.

 

(This story was published in BW | Businessworld Issue Dated 29-12-2014)