Federal Bank aims to become the fifth-largest private bank in the country. KVS Manian, managing director and CEO of Federal Bank, has outlined that the goal is to join the 'big league' of private banks by significantly advancing in business size, market value, and profitability. KVS Manian is set to take over the reins of Federal Bank in September 2024.
With nearly three decades of experience at Kotak Mahindra Bank, KVS Manian played a pivotal role in transforming Kotak Bank from a non-banking financial institution to one of India’s leading banks. In an interview with Dhanam, he discusses the strategic changes at Federal Bank, the impact of AI on the banking sector, trends in hiring practices, and the bank’s efforts to alleviate the pressures faced by banking professionals.
It has been a year since I took charge at Federal Bank, and I can confidently say that the transition has been smooth. Under Shyam Srinivasan’s leadership, the bank acquired a national character, and the initiatives he began will certainly continue. However, necessary changes will be implemented as we move forward. This is an opportunity to write the next chapter in the bank's history
Federal Bank is a stable institution. Unlike some other banks, it doesn’t face the pressing challenges that need immediate resolution. It boasts a strong team and a solid business foundation. The bank has a significant presence in the Kerala market and is a leader in the gold loan sector among private banks.
Our vision is to elevate Federal Bank to the ranks of the giants in the private banking sector in India, driven by these robust strengths. We are determined to make a breakthrough in terms of business size, market value, and profitability, with the ultimate goal of becoming the fifth-largest private bank in the country.
Out of our 1,589 branches, approximately 600 are located in Kerala, meaning the state accounts for 40% of our total branch network. However, Kerala contributes to 60% of the bank's total business, highlighting the significant influence and strong presence we have in the region.
There are certain challenges in credit growth, particularly in the corporate credit segment. Corporates are increasingly relying on bonds for funding and using their own reserve funds to finance expansion activities. Additionally, many companies are raising capital through the stock market, which has reduced the demand for corporate credit.
On the other hand, retail loans have been the primary driver of credit growth. However, there is noticeable pressure in the microfinance and unsecured retail loan segments. For credit growth to be truly significant, there needs to be growth across all three categories: retail loans with adequate collateral, unsecured retail loans, and corporate loans.
There are some structural changes taking place in the deposit market. Term deposits, such as fixed deposits (FDs), are facing increasing competition from alternative investment avenues. Alongside this, investment preferences are also evolving.
However, in the long run, as India’s per capita income rises from $2,000 to $10,000–12,000, term deposits will likely remain the primary investment product. They continue to offer a safe and reliable return. Even a small share in a large economy can be more rewarding than a large share in a smaller economy. While senior citizens continue to deposit funds in banks, the younger generation's investment in traditional deposits may decline. Nonetheless, there will be overall growth in deposits.
Our strategy is focused on three main areas. First, for Federal Bank, 24% of our total deposits come from savings accounts, while only 6% comes from current accounts. In comparison, many other banks have 10-15% of their deposits from current accounts. As part of our strategy, we aim to target small and medium-sized businesses to acquire their current accounts. This will help increase the EBIT ratio and reduce the cost of funds.
The second strategy focuses on the investment side, where we are targeting the mass affluent segment. While our investment and lending operations are in good shape, there is still room to strengthen our wealth management business. To this end, we have partnered with Equirus Wealth, and we are restructuring this aspect as part of our new strategy.
The third strategy is to focus on midsize corporates. Our aim is to become a comprehensive banking partner for such businesses, supporting their various financial needs.
When we assess the risk-reward profile of certain products, we find limited scope for improvement. Take home loans, for example. While we are happy to offer them as part of a comprehensive banking service, our approach will focus on bringing existing or new customers into a broader banking relationship.
However, we see significant growth potential in other areas. While the microfinance sector currently faces challenges, this is a cyclical issue, and we are confident it will improve. At the same time, sectors such as gold loans, car finance, and land collateral loans present substantial opportunities. The credit card sector also holds great potential for expansion.
Yes, the pattern of our NRI business is indeed evolving. While migration from Kerala has resulted in a decline in the amount of money being sent back to the state compared to the past, migration is still in its early stages in other regions of India, such as Maharashtra, Uttar Pradesh, and Bihar. Consequently, the expatriate communities in these states are sending more money home. As a result, our NRI business performed well last year, with investments rising by 12 percent. Additionally, the weakening rupee has made remittances more attractive, further boosting the flow of funds.
The bank has made significant strides in automation. For instance, the card department is fully digital, and account opening is largely digital or assisted by digital tools. However, banking is fundamentally a relationship-driven business based on trust, so the human touch remains essential.
We are also integrating AI into our operations. For example, the 'Gen AI' chatbot will soon be launched, allowing employees to ask questions about products or processes and receive immediate answers. AI is already being used to address customer queries, and we are also leveraging agentic AI to write credit notes, which has significantly saved time and improved efficiency.
I have great admiration for the new generation. They possess so much more knowledge at their age than we did when we were starting out. Their ability to adapt and learn quickly is truly impressive.
The new generation grows up in a more secure environment, which gives them the confidence to express their preferences and interests. If they are passionate about something, they will pursue it—whether it's choosing a life partner or a career. This passion is a positive trait that drives them to follow their desires.
Their demands, however, are different from previous generations, and we understand that. The investment and spending patterns of the new generation have shifted as well. While the older generation would save money for a goal and then own it, the younger generation tends to achieve the goal first and then repay the obligation in installments. This shift has led to an increase in consumption, with cards and personal loans playing a significant role in boosting it.
Job stress is not unique to the banking sector; it’s a common challenge across many industries. However, if we can find joy in what we do, it can help alleviate stress to some extent. The Federal Bank team takes great pride in being part of this institution, and our low attrition rate reflects that. While the average attrition rate in the private banking sector is 20-30%, ours is just 2-3%.
One of our key initiatives to address stress is 'Operation Udaan,' which aims to streamline branch operations by eliminating repetitive tasks. This allows branch staff to focus more on customer interaction and business development, reducing stress and enhancing job satisfaction.
Not at all. While many of the bank's operations are centred in Mumbai, Kochi remains our home. It’s a beautiful place, and we have no plans to relocate from Kerala. I personally spend about 50 percent of my time here in Kochi, around 20-30 percent in Mumbai, and the rest travelling to various parts of the country.
Kerala is a unique region. Federal Bank, as the bank of Kerala, holds a significant market share here—a remarkable achievement that no other private bank in the country, not even the largest ones, can claim. Although Kerala is considered a medium-sized economy in terms of GDP, it stands out for its high level of banking penetration. There is virtually no rural area in the state. In fact, some of our semi-urban branches in Kerala are larger than urban branches in other parts of the country.
Kerala’s growth trajectory will continue. The contributions of publications like Dhanam to industrial and investment growth are invaluable. The state still holds great potential in areas like technology, the service industry, and tourism. Additionally, the participation of Malayalis in investment avenues, including stock markets, is set to increase significantly.
I am a firm believer in the power of teamwork. I consider teamwork to be far more important than individual intelligence or skill. The key question is: What’s next? What do we need? We need a team that thinks and works together seamlessly.
In any team, there will always be a star—someone who performs well under any circumstance. However, managers should focus on extracting extraordinary output from ordinary individuals. That’s what I encourage my managers to do.
Another crucial aspect of management, especially in the business world, is adopting a 'Triple A' mentality: Agile, Adapt, Alert. We must be flexible enough to seize opportunities as they arise, do the right thing at the right time, and execute quickly. Being constantly alert is essential to staying ahead in today’s dynamic environment.
{This is originally published in Dhanam Magazines' October edition}