Federal Bank investors fear losses from three accounts

IL&FS, Reliance Home Finance, DHFL account for Rs465 cr

KOCHI: The market doesn’t seem to be convinced about the level of provisioning Federal Bank has made against the ‘troubled-but-standard’ assets linked to the exposures to IL&FS, Reliance Home Finance, DHFL and Indiabulls Housing Finance.

Ostensibly, reflecting this uneasiness among the investors, the market didn’t cheer the good performance of the bank that showcased the highest ever quarterly profit at Rs416.70 crore for Q2.

On the contrary, the Federal Bank share price declined from the level of around Rs86 since the announcement of the financials last week because the analysts smell something ominous about the troubled assets valued at around Rs475 crore even as only Rs72 crore has been kept aside as provisions against this portfolio – at 15 per cent.

While exposure to IL&FS is Rs190 crore, that to Reliance Home finance is Rs99 crore, whereas the loan to DHFL is to the tune of Rs175 crore.

The investors, who have sensed troubles in these exposures, albeit still being ‘standard’, believe the provisions against these loans are meagre and are not commensurate with the potential risk they may be carrying for the future.

But, responding to a query from this portal, Ashutosh Khajuria, ED nd CFO of Federal Bank, said, “The bank has provided much more than what is required as per Income Recognition and Asset Classification (IRAC) norms.”

Allaying fears about the Indiabulls exposure, the Federal Bank managing director and CEO Shyam Srinivasan, said Indiabulls currently looks okay since it has paid down Rs100 crore against an exposure of a little over Rs300 crore.

“We are not commenting on Indiabulls as of now,” said Srinivasan, who has got RBI approval for one-year extension to the current term after serving 3 three-year terms that helped pave the way for the bank to attain the present size and profile.

The quarter has been one of the best in many ways. Total business has reached Rs2.55 lakh crore, total advances have grown to Rs1.16 lakh crore and  deposits have increased by more than 18 per cent to Rs1.40 lakh crore as the quarter drew to a close on September 30, 2019.

Shyam Srinivasan also said the IL&FS account was fully performing, fully serviced and was likely to be sold and taken out this quarter. The management also added that the bank was not experiencing new stress from any other pockets.

According to sources, the current quarter fresh slippages valued at Rs540 crore included one of the Anil Dhirubhai Ambani Group (ADAG) company for an amount of about Rs180 crore.

Branch Expansion

The bank has embarked on an ambitious branch expansion plan. The bank CEO said Federal that has already opened four branches during the current year could take the total tally to about 24 during the year.

The bank that embraced T Bill as the external benchmark initially on instructions from the RBI, decided to switch to repo rate as the decline in T Bill rate during the past one year was much more than anticipated leading to lower pricing of the loans.

Responding to a query from an analyst, a top official acknowledged that the fall in T Bill rate was deeper than repo that was cut to the tune of 135 basis points so far in the year.

The bank’s cost to income (CI) ratio, a key measure of efficiency, rose by a substantial 532 basis points year on year to 53.47 per cent – highest at least in the recent past, mainly due to a rise in employees cost.


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