Federal Bank Aims for Top Five Private Sector Rank Under KVS Manian’s Leadership

Strategic Expansion and Digital Innovation Key to Growth Plans

Federal Bank is setting its sights on a bold transformation, aiming to break into India’s top five private sector banks by FY28, under the leadership of KVS Manian, its newly appointed Managing Director and CEO. Currently ranked ninth among private lenders, the bank is aggressively pursuing organic and inorganic growth strategies to enhance its market position.

Shifting Beyond Kerala: A New Growth Playbook

Historically, Federal Bank has been deeply rooted in Kerala, with nearly 65% of its deposits and 64% of its advances originating from the state as of June 2024 (CARE Ratings). However, under Manian’s leadership, the bank is looking to expand beyond its traditional stronghold by:

• Strengthening its deposit franchise in metro and Tier-1 cities.
• Scaling wholesale banking and corporate lending to mid-market players.
• Boosting retail lending in areas such as loan against property (LAP), commercial vehicles (CV), affordable housing, and SME banking.
• Opening 400–450 new branches by FY28, targeting high-growth states such as Maharashtra, Tamil Nadu, Karnataka, and Gujarat.

Digital Transformation and CASA Growth Strategy

A critical part of Federal Bank’s growth strategy is improving its CASA (Current Account Savings Account) ratio, a key metric for lowering the bank’s cost of funds. The bank aims to:

• Increase CASA mix to 36% by FY28 (from an estimated 30% in FY25), aligning with top-tier private banks like HDFC Bank and Kotak Mahindra Bank, which maintain ratios above 40%.
• Expand zero-cost current accounts, aiming to double CA balances from 6% to at least 12%, a benchmark set by larger competitors.
• Leverage fintech partnerships and invest in digital banking solutions to attract new customers and drive cost efficiencies.

Additionally, Federal Bank plans to revamp its mobile banking platform and expand its wealth management services, targeting both domestic and non-resident (NR) customers.

Reshaping the Lending Portfolio for Higher Yields

To increase profitability, Federal Bank is restructuring its lending portfolio by:

• Reducing low-yielding assets from 64% in FY25 to 58% in FY28.
• Scaling up secured, medium-yielding assets, particularly in LAP, auto loans (especially used vehicles), commercial vehicles, and construction equipment finance.
• Expanding its mid-market corporate banking business, leveraging Manian’s investment banking expertise.

Analysts at Motilal Oswal and HDFC Securities highlight that while diversifying into multiple lending segments can drive growth, maintaining strong underwriting standards will be key to managing credit risks.

Fee Income and Capital Markets Strategy

Federal Bank is also working to diversify its revenue streams by focusing on fee-based income, with a strong emphasis on:

• Forex and trading income, leveraging its NR customer base.
• Cash management services, particularly for corporate clients.
• Expanding credit card penetration, aiming to increase in-house credit card sourcing from 30% to 45% by FY28.
• Growing personal loan disbursements through fintech partnerships, increasing the fintech-sourced share from 40% to 50%.

Analysts at Axis Securities project that Federal Bank’s fee income growth will increase gradually, contributing to its overall profitability targets.

Competitive Challenges and Execution Risks

While Federal Bank’s growth roadmap is ambitious, analysts caution that execution risks remain high, particularly in:

• Competing for low-cost deposits in major urban markets against HDFC Bank, ICICI Bank, and Axis Bank.
• Improving its brand perception as a national banking leader, rather than a regional player.
• Expanding its NR deposit base beyond Kerala and the GCC region, as inward remittances from Gulf countries have declined from 50% in FY17 to 18% in 2023.

Despite these challenges, Federal Bank has consistently maintained superior asset quality, with a gross non-performing asset (GNPA) ratio below industry averages, a key advantage over many mid-tier banks.

The Road to Becoming a Top Five Private Bank

Under KVS Manian’s leadership, Federal Bank is on track for robust earnings growth, with projections indicating:

• 19% CAGR in earnings between FY25 and FY27.
• Return on Assets (RoA) rising to 1.3% and Return on Equity (RoE) reaching 14.6% by FY27.

If Federal Bank successfully executes its CASA growth strategy, scales high-yield lending, and strengthens its digital transformation, it has a strong chance of breaking into India’s top-tier private banking space by FY28.

As analysts point out, Manian’s challenge is not just scaling Federal Bank but also transforming it into a pan-India banking powerhouse—a vision his predecessor, Shyam Srinivasan, had laid the foundation for.

Now, the task ahead is to bring that vision to life.