The bank continues to prefer larger Small and Medium-sized Enterprises (SMEs), even as broader concerns remain around the segment. “Our book is not showing any signs of stress, but many people have called out stress in SMEs… we are more confident about the large SMEs,” Manian said.
He sees commercial vehicles (CVs) as a potential beneficiary of the policy push, though he noted that Federal Bank has limited exposure in the space.
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Federal Bank retained its loan growth guidance of 1.2 to 1.4 times nominal gross domestic product (GDP). Manian said growth will track the lower or higher end of this range, depending on how credit demand evolves.
He said the fall in cost of funds is helping the margins, with the bank having already taken most of the impact of repo-linked repricing. An uptick is expected in both net interest margins (NIMs) and return on assets (ROA) in the coming quarters.
Credit costs remain under control, with the recent increase driven mainly by microfinance. Manian said the peak in microfinance institutions (MFI) slippages is past, and the bank continues with its annual credit cost guidance of 55 basis points (bps).
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Federal Bank is also in the process of raising its stake in its insurance venture from 26% to 30% after receiving regulatory approvals. The bank remains comfortable on capital adequacy at around 16%.
Manian said the bank is targeting a return on assets of around 1.5% and a return on equity of 14–15% over the next two to three years.
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