You have been at the helm of Axis Bank since January this year. What are the things that the bank has achieved in this period?
We have achieved some things in the last six months and some things necessarily will take more time. Firstly, what is happening in the economy is not helping because some of the signs are quite negative. At the same time, the response from the market, the people in the bank, my colleagues and even people looking at Axis Bank as a career opportunity has been quite positive. We knew it was a long haul.
Given the lacklustre credit environment, how do you plan to grow your loan book at the current pace?
We are trying to pivot ourselves to higher-quality and higher-rated assets. We also announced pretty significant restructurings effective 3 April. Despite that, we have been able to deliver on credit growth.
I do believe very strongly that as we pivot to higher-rated credits, given the long-standing relationship Axis Bank has with most key corporates in India, our ability to reach them and grow our asset pool is quite large. While the economy is slowing down and there are signs where some of the sectors are under stress, the economy is still growing and so our opportunities will continue to be there.
How would you balance risk and growth in assets?
We will not grow at any cost and we have to get the sustainability part of the franchise right. Axis Bank has stopped giving negative surprises to the market in terms of our risk profile—credit, market and compliance risk. We need to become more conservative on how we run our business, including provisions. In that process of change and transition, if it means that we have to sacrifice growth or not do certain transactions, it is fine. This transition is key to creating a different kind of long-term institution.
Have you imposed certain conditions on financing of auto dealers?
Our auto portfolio comprises giving money to consumers to buy vehicles. Axis Bank also has a pretty large supply chain portfolio and a decent part of that is coming from auto dealers. We have looked at that to make sure that the inventory is being turned over. In some cases, we are continuing to expand our franchise with them and, in others, we are also tightening our standards. We are continuously monitoring our portfolio for the last couple of quarters…there is an increased line of stress there, but I don’t think it is alarming and is under control at this stage.
Are there any particular sectors that you will avoid?
We will not take certain kinds of exposures and there are red lines around what kind of project finance we will do, what kind of structures and securities will be acceptable to us. When we look at our portfolio, we try to see the concentration and so we will not focus there but on areas where we are under-penetrated. As part of the restructuring exercise, we announced a separate group for multinational companies, a mid-corporate group or loans between ₹250-700 crore. The mid-corporate group tends to be riskier than some of the others.
However, we believe there is a part of the mid-corporate group where we can put on some very good quality assets.
So, it is about making these portfolio choices as to who you will deal with and what kind of financing you will do. We have already pulled credit underwriting out of our business and it is a separate stream. The chief credit officer of the bank reports to me and so his responsibilities are around ensuring that the credit quality remains intact.
You have reported 16% corporate credit growth in the June quarter. Where is this demand coming from?
Most of the loan growth is coming from refinance and working capital as new investments have definitely slowed down. We are also doing some financing from resolutions under the National Company Law Tribunal (NCLT) process. I do not see these changing in a hurry and there are no signs that would indicate that investments are going to come roaring back. The number of NCLT transactions have also slowed down and hopefully, the new amendment will lead to faster movement and therefore, more resolutions are expected. This could lead to more financing opportunities.
How long do you think the non-banking financial company (NBFC) sector will take to come out of the woods?
Somewhere around the last quarter, I had said it would take 18 months and I will stick to that even now. Lot of the promoters whose NBFCs are in trouble do not have cash balances or their own money lying unutilised which they can pump into their NBFCs. In many cases, even if they were to find external investors, these investors have enough opportunities before them if they want to enter the NBFC space in India right now. Some of the NBFCs have been able to raise money and some of them have been struggling. The difference between these two sets of non-banks exists because people assessing the credit quality are seeing a stark difference between the NBFCs. Some NBFCs will go down, some will be in a situation where no further disbursement will happen and valuation goes for a toss. In some cases, as they get desperate about financing, they sell good parts of the portfolio and what is left is of poorer quality and over a period of time, it could implode.
You have got shareholder approval to raise ₹18,000 crore of capital. Through what instruments do you plan to raise this capital?
Axis Bank did a preferential allotment of shares last time when LIC and Bain Capital invested. Now, there are certain restrictions on what price one can do a preferred allotment and qualified institutional placement (QIP) allows you more flexibility. Our decision will also depend on the timing and the price of the fund raise. We are not in a hurry and will not do it just for the sake of doing it. It has to be done at the right time and price. We have enough capital.
How different are the new set of stressed loans compared to the previous cycle of loans?
This time, there are no sectoral non-performing asset (NPA) issues, if you forget real estate and NBFCs for a moment. Otherwise, it is just business groups that are either leveraged at the operating company level, or promoter level, which seem to be falling into troubled times. And then the economy is not helping. Please understand almost everything of these downgrades we made in our portfolio is part of our historical book. Lot of these assets have been identified for exits sometime back but we cannot exit them because the promoters or the operating companies don’t have the money to repay.
What is your strategy around current account and savings account (CASA) deposits?
If you look at all the other banks which have declared their results, CASA has been a struggle for everyone, except for the banks which are offering very high rate for savings. Our CASA is not comparable to the smaller banks. Both on the retail and corporate side of current accounts, we are putting a lot of emphasis. These things take time and there is no money in the system. I feel CASA is something that will require a real long haul. It will require us pushing gradually. At the same time, our retail term deposits are doing pretty well. The more the current accounts and the savings accounts you get, the better it is for your net interest margins. Axis Bank’s CASA used to be much higher and it has partly come down because our retail term deposits have gone up.
You have people retiring from your board this year. What are the replacement plans?
We had 15 members in the board and three are going to retire this year. Samir Barua and Sanjiv Misra have already retired and we have taken a conscious call that we do not need more than 12 members and therefore, will not replace some of the board members. We will have a 12-member board from now. Meanwhile, Som Mittal is also going to retire in October according to the schedule.
Thirty percent of shareholders voted against the reappointment of Usha Sangwan in your annual general meeting last month. What could be the possible causes?
Axis Bank had more than 115 meetings of the board and its committees last year. Since Usha Sangwan has been doing a full-time job, sometimes attendance gets impacted. Moreover, she has been appointed for a shorter period because she cannot remain a member beyond October. The Life Insurance Corporation of India (LIC) is also not fully-staffed now and it was only fair that Sangwan serves her full term. So, I think LIC does not have enough number of managing directors (MD) to get appointed here. Given the combination of all those factors, we sought her appointment only till October and these two reasons could have been drivers of that kind of voting. LIC has the right to appoint someone and I think and they will take a call closer to October.