After 62% rise in NRE fund mop-up, Federal to cut deposit rates

Mumbai: Kochi-based Federal Bank has said that the deposit rates, especially the NRE ones, will decline further going forward.

A major player in the NRE deposits space, with nearly a quarter of its total deposit base coming from remittances, the bank reported 62.30 percent increase in NRE deposit mobilisation in the July-September quarter at Rs 10,748 crore, or 22 percent of its total deposit base of Rs 49,518 crore.

It has been offering higher than average industry pricing to woo money from NRIs since last December after the RBI liberalised the NRE deposits to arrest the steep plunge of the rupee.

The Non-Resident (External) Accounts, can only be opened in the name of NRI individuals, whether single or joint.

"The deposit rates are in general treading down. And it will have to come down further going forward," Federal Bank MD and CEO Shyam Srinivasan said, when asked whether the bank can sustain such high inflow of NRE funds. He was speaking at the earnings conference over the weekend.

This massive spike in NRE deposit comes against the backdrop of a poor 4.77 percent rise in total deposits base to the to 49,518.07 crore and had it not been for this count, probably, the bank would have reported a negative deposit mobilisation during the quarter.

During the reporting period, savings and demand deposits rose 14.98 percent to Rs 14,355 crore, while term deposits rose just 1.1 percent to Rs 35,162 crore, Srinivasan said.

Against this, its net advances grew 8 percent to Rs 36,299 crore with the retail portion rising 17.6 percent to Rs 11,374.54 crore.

Even after a reduction of 50 bps in the second quarter, Federal Bank still offers one of the highest pricing on NRE deposits at 9 percent per annum, while ICICI Bank is a tad better at 9.25 percent.

Following poor uptick in the advances space, almost all major banks such as SBI, ICICI, HDFC and Axis Bank have since August been slashing deposit rates by 50-100 bps, with the SBI's being in the top bracket and HDFC Bank's being in the lower bracket of 8.75 percent.

Over the weekend, Federal Bank, which is the fourth largest private sector lender by branches, had reported a 12.5 percent spike in net profit in the September quarter at Rs 215 crore, driven by retail advances and lower provisioning.

The bank's net profit during the year ago period stood at Rs 191.16 crore.

The total income of the bank increased to Rs 1,665.04 crore in the September quarter from Rs 1,487.70 crore in the same period in 2011-12 fiscal, Srinivasan said.

During the quarter, Federal Bank saw an addition of Rs 145 crore in flesh slippages, which however is much lower than Rs 285 crore it had in the year ago period.

But its CDR book rose massively to Rs 230 crore in the quarter, from Rs 37 crore in the year ago period, primarily because it had to recast a loan worth around Rs 150 crore it had lent to Kerala State Electricity Board as part of the Rs 1.9 lakh crore SEB loan recast approved by the Centre last month.

Federal bank has an overall exposure of Rs 1,200 crore to the SEBs.

Meanwhile, with banks cutting interest rates on deposits, funds mobilised by them dropped during the fortnight ended September 21, according to the latest Reserve Bank data.

Deposits dropped by Rs 30,152 crore while loans went up Rs 16,795 crore in the period under review.

Year-on-year basis, deposits grew 13.66 percent compared to RBI's projection of 16 percent, while annual credit grew 16.4 percent, against RBI projection of 17 percent for the year.



PTI