In Focus: Big Business | Value Research Growth in SME segment & retail sector to drive Federal Bank ahead
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In Focus: Big Business

Growth in SME segment & retail sector to drive Federal Bank ahead

Federal Bank is among the oldest private sector banks in India. The bank, which has a network of 524 branches, operates in 24 states. The Kerala-based bank, which has a low operating cost, has a loan book growing at an annualised rate of 19 per cent and for the first nine months of 2006-07, the bank maintained its growth at 30 per cent year on year.

The bank has identified SME segment as its key driver for growth. This segment, along with retail, accounts for almost 70 per cent of the bank's loan book. To enhance the portfolio of its SME business, the bank has inked a pact with SIDBI to target rice mill, coir industry, sea food companies, schools, retail stores etc. The bank's focus on high yielding retail and SME segments has allowed it to maintain a high yield on its earnings assets. In the corporate loans segment, the bank has several Tata and Reliance group companies as its clients. The bank's earnings are expected to grow 23 per cent during FY 07- FY09 on the back of lower NPAs, low cost deposits and high interest income.

The bank's net interest margin is also higher than its peers. The bank's deposits have been growing at a compounded rate of 18 per cent per annum for the last six years. The share of low-cost deposits increased to 25 per cent in FY 06.

Though the bank’s bid for buying out Lord Krishna Bank and United Western Bank did not materialise, the bank is open to grow inorganically.

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