Mumbai: Axis Bank Ltd is not at fault in the recent controversy that resulted in the Unique Identification Authority of India (UIDAI) suspending it from doing Aadhaar-based transactions, two senior executives at the lender said.
The bank has also realigned its lending strategy to reduce risk and is coping with the challenges involved in being cyber secure in an open environment, they added.
Executive director Rajiv Anand explained that Suvidhaa Infoserve (one of the other firms suspended by UIDAI) does not have the rights to conduct e-KYC (electronic know your customer) procedures to validate anyone using its infrastructure for payments, which is where Axis Bank comes into the picture. In this case, an employee of Suvidhaa who was testing the infrastructure used his own Aadhaar number to perform the tests.
“The infringement is really at that level in Suvidhaa. It has clearly said that the error is on its part,” Anand said. The lender has already shut access to various lines of business to Suvidhaa, he added.
The bank is confident UIDAI will “see the merit in the argument”, added Jairam Sridharan, chief financial officer of Axis Bank.
Talking about cyber security in general, Sridharan said that India has chosen a fully open infrastructure of digital transactions, where anyone with an account with any bank can use any network to transact with anyone else with an account with any bank. “In a completely open environment where the participants are literally in the hundreds, it is a little bit harder to have full control on the entire architecture,” Sridharan said.
Dealing with NPAs
Axis has seen a significant jump in the accumulation of bad loans, which has actually led to the bank having to revise its guidance on asset quality for the current financial year. Gross non-performing assets (NPAs), rose by five times to Rs20,467 crore as on 31 December 2016, from around Rs4,000 crore on 30 September 2015. The rise was mainly due to a deep asset quality review and an eventual slipping of many large corporate assets into the bad loan category.
“Over the last six quarters our gross NPA ratio would have gone up by about 350 basis points. Every large bank in the country which is in the corporate lending segment has also seen their ratios go up by about 300-350 basis points. If you see the rank ordering among all the large banks, it is still the same. It is just that everyone has re-baselined to a new level,” Sridharan said.
According to the CFO, about six or seven years ago, Axis Bank placed its bet on four themes that would drive growth: infrastructure, small business, growth in consumption and payments. In retrospect, Sridharan says, one of the four (infrastructure) has not panned out as planned at all.
To derisk, the bank has also realigned its lending strategy.
While incremental lending to the corporate sector has been greatly reduced, Axis Bank is largely lending to firms rated A or above. About 80% of incremental lending has been to such companies, Sridharan clarified. In the current macroeconomic environment, if a firm is rated A or above, there is a great chance that it will turn around rapidly as the economy turns, he added.