Need to be in the same zone as peers on profitability: Axis Bank CEO 

When we announced the transaction, the reaction from the market was extremely positive. With the passage of time, some questions have evolved — are you overpaying? is the franchise growing at the same pace that it should? and are they seeing some attrition in staff and customers? I would like to tell you that we are satisfied with the business metrics and the data that we see. It’s very much in line with what we used for the valuation of the deal and that remains intact.

The management of Axis has never had any doubt that the deal with Max was the right move. We believe in the growth story of the insurance industry, and are very confident that this will be one of the franchises which will matter in the industry context going forward. Max has been a strategic investment, and we will look at increasing our stake in it at the right time. 

I’m not commenting on GoDigit. Of course, if there is anything to report, we will share with you. We will keep looking at strategic investments, wherever it makes sense and adds value to Axis. It is important that as we continue to expand in the digital space, we look at tapping into that distribution or fintech platforms. There are various ways to participate in that space. One of the ways is to take small stakes to ensure that you get some strategic leverage. If we believe a platform is getting created, which is going to impact the way insurance will be sold in future, we may want to be part of it. We have a small stake in a health insurance platform, and we will continue to take stakes in relevant fintech platforms that expand our distribution or address a customer segment that is unique and fits into our strategy. Even in general insurance, if the right opportunity comes along, we will surely evaluate it.

Our bank level NIM is currently lower by roughly 40 bps compared to peer banks. There are three dimensions to this difference. First, we need to improve the asset mix in favour of higher yielding assets while ensuring that credit costs are well managed. Currently, corporate lending business is seeing intense competition, and lending rates for very large corporates are somewhat depressed. Therefore, we are being selective about the segments with higher returns and better RAROC. We have de-grown our offshore balance sheet, which was largely short term. Second, our deposit franchise needs to be become more granular with more focus on individual and small business deposits. This will help in making our balance sheet more efficient from credit to deposit ratio perspective. Third, the share of low-cost CASA deposits has to continue to increase. If you look at our risk-weighted assets, they have continued to come down in last few years. So, we have improved our NIM on risk adjusted basis. But we need to the get to the same zone as our peers on gross basis as well. In Q1 FY23, we improved our NIM, and hopefully that will continue. It is a multi-year journey and we are well on it.

One of the most important learnings from Infosys was to develop a process mindset. Thereafter, I started viewing everything through a process lens. Second, Infosys had a great way of seeking global benchmarks in every part of their enterprise. That was in the DNA of the organisation…aim for the best and be the best. On the other hand, in Insurance, there I was presented a great opportunity to take the enterprise to market leadership position. We were ranked sixth when I joined, but we used a bit of aggression, sharp focus on profitability, technology and innovative products to go from where we were to become the number one player in the industry in terms of market cap. My technology background did help as I was always comfortable investing in it and knew what impact it can make. This is coming to fruition in Axis as well. We were the first ones to create a digital bank. We are driving technology, process excellence, execution and aspiration. Axis Bank has great talent and a large percentage of internal people are in various leading roles; we also got some talent from outside wherever it was required. 

Well, our stated goal was hitting 18 per cent ROE. In the last two quarters we have come to 15-16 per cent. This year, we should be able to get to 16 per cent and the journey to 18 per cent continues. Now, the 18 per cent captures a lot of things, including growth and market share. You need to become No 1 or No 2 in many businesses and reach a size and scale, where the cost-to-revenue ratio is best in class, your NIM should start expanding and reach market best levels and credit costs should be range bound. Only then can the ROE number be met.

No, we have not changed our numbers. 18 per cent ROE was an aspirational and ambitious target. We reiterated and recalculated, and for us the number remains the same. We aren’t there yet, but we are definitely working towards it and believe that we are on the right track.

We believe the excess liquidity pumped in by the RBI in 2020 will be down to zero soon. Deposit growth has also slowed down, whereas loan growth at the system level has gone up to mid-double-digit levels. The cost of funds had already started going up up since middle of last year, while the yields on the assets was not moving up since they were linked to repo rate. So now with the repo rate hikes which are happening, the resets have also happened quickly and that will help the NIMs to some extent. Credit growth is continuing on the retail and SME sides. On the wholesale side, quite a lot of refinancing is happening. But as the government starts spending and as the private sector capex picks up, hopefully, the credit demand from corporate sector will also start growing. However, six months are almost over, and growth has been low. So, let’s see how the catch-up happens.

There will be some more interest rate hikes — maybe another 50 to 75 bps and it might be upfronted. Most of the customers have gone through two cycles of Covid and survived very well. Yes, this may put an additional strain on them, but doesn’t look like it will make them start defaulting in a big way. I’m not saying there can’t be any problem, but the likelihood of large increases in delinquencies is low, if the rates were to go up by another 50-75 bps. However, we will need to continue to monitor the impact closely. 

We do believe that we need to put up new branches but at a certain pace. Before Covid, if we wanted to open 400 branches this year, our idea now is between 200 and 300 branches a year, which should be sufficient.

No, we are not seeing much impact on our SME book.

At this point, we have excess Covid provisions, which we don’t intend to write back. There’ll be a 50 bps lift in capital if we write this back. In terms of asset quality, we are surely in a much better place compared to three years ago.

Is there any business where you are not present and you would like to get into?

In Bharat (rural and sem-urban), we had a limited presence. We have now set it up as a separate business looking into tractor finance, MFI, Kissan gold card, gold loans. We believe we can grow much faster in this space. Ru-Su (rural and semi-urban) markets are an important growth area for us, and we will focus on it in a big way.

Our Burgundy franchise has done very well with close to ₹1-lakh crore of assets under management. With premiumisation, profitability improves and costs come down, and that has been happening for this segment. It also feeds us into the direction of One Axis. Our burgundy private customers need several solutions – they need mutual fund products, AIFs, they would like to participate in IPOs, and some may even require financing against their assets. So, as a group we are providing them with an array of services across the spectrum. 

At Axis AMC, a Suo-moto investigation was taken up much before the crisis broke out. We have terminated two fund managers during the investigation for violations of securities law (May 2022). The entire fund management and top management team of the fund house remains intact, and are discharging their duties under the leadership of Chandresh Nigam, MD & CEO. We issued a media statement stating that the findings of the investigation report have been submitted to the regulator (July 2022). We have communicated (in our statement) that we have followed all the required regulatory and compliance guidelines at all points in time, and will continue to do so. As a fund house, we will always continue to work in the interest of our investors/ stakeholders, whose trust is of paramount importance to us.