Federal Bank plans to buy microfinance company to expand business – Times of India

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MUMBAI: Federal Bank MD & CEO Shyam Srinivasan has said that the private bank sees an opportunity to grow both organically and through acquisition. The bank is interested in acquiring a microfinance business as part of its focus on growing the retail high-margin category.
Speaking to TOI, Srinivasan said that Federal Bank is now on a par with any new-generation bank in terms of digital capability and operations and had sound asset quality due to its focus on retail. “Financially we have done very well. There are some metrics around return on asset (RoA) expansion that we are targeting. This essentially means a change in margin profile,” said Srinivasan.
Federal Bank had said that its RoA would grow from 0.76 to 1.25 in five years and were on course to achieve it, but Covid has delayed it by one year to FY23. The bank will also be launching its credit cards shortly and expanding personal loans.
According to Srinivasan, in the banking sector, half the market is concentrated among the top 7-8 lenders. The remaining 50% is highly fragmented with 17-18 banks having a 1% to 3% market share, which throws up consolidation opportunities. “In Kerala, we have a 17% share, but the state is only 3% of the market. Outside Kerala, we are 1%. In the long term, I see a huge opportunity for growth and consolidation,” he said.
Srinivasan said that Federal Bank has invested a lot in its platform and people, and now it was time to leverage the investment and capability. He said that to explore acquisition opportunities in microfinance, the bank would wait for a quarter as the current stand-still on the classification of loans as non-performing assets (NPAs) did not give a clear picture of asset quality.
Srinivasan, who was hired from StanChart Bank in 2010, adopted a strategy of ‘digital at the fore, human at the core’, which meant upscaling technology, going slow on branch expansion but expanding their footprint by having more customer-facing employees. Federal Bank has also many fintech partnerships. It is about to launch two neobank partnerships that will enable it to get access to a new segment of customers for its personal loans and credit card products.
In the last decade, the bank has raised capital only once through a Rs 2,500-crore qualified institutional placement in 2017. “We have been meeting our capital adequacy largely through internal accruals. This has led to a level of trust in the bank and, if Federal Bank comes to the market, there is good reason to believe that we will be able to raise the money,” said Srinivasan.

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NPAs likely to rise in first half of 2021: FICCI-IBA

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Asset quality of banks, which saw some improvement in the second half of 2020, is likely to worsen during the first six months of 2021, a survey showed.

The findings are part of the 12th round of bankers’ survey carried out by FICCI-IBA between July and December 2020.

The survey was conducted on 20 banks, including public sector, private sector and foreign banks.

In the current round of the survey, half of the respondent banks reported a decline in NPAs during the second half of 2020. About 78% of participating state-run banks cited a reduction in NPA levels. “However, in terms of outlook, nearly 68% of respondent bankers expect the NPA levels to be above 10% in the first half of 2021,” the survey showed.

Close to 37% of respondents expect NPA levels to be upwards of 12%.

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