Home / Industry / Banking /  Axis Bank spots liquidity mispricing in corp loans
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MUMBAI : Intense competition among banks to grab a share of the corporate loan pie has led to some amount of mispricing of liquidity, said Rajiv Anand, deputy managing director at Axis Bank.

In the three months through June, the private sector lender witnessed a 5% year-on-year (y-o-y) contraction in net corporate loans to 2.16 trillion. This segment accounts for 31% of the bank’s overall loan book, as on 30 June. Its loans to small and medium enterprises, and retail borrowers grew 27% and 25%, respectively, from the same period last year. 

“On the lending side at this moment, particularly at the short end of the curve, we think that the competition to some degree is mispricing, not of risk but of liquidity. We are not seeing those kind of issues in our targeted segments at this stage," Anand told reporters during the bank’s conference call on Q1 financial performance.

Anand said that the bank is seeing strong growth in its targeted segments of small business banking, SME and mid-corporate, among other and the environment is pretty conducive for corporate growth. 

 “Having said that, what I have always been saying is that particularly on the corporate side it is very important for us to grow profitably. Whenever and wherever we find an opportunity to grow profitably, we certainly will," said Anand. 

Some of Axis Bank’s peers have reported strong growth in their corporate advances in the June quarter. Other large banks, especially those that are state-owned, have been expecting good traction from the corporate sector, led by a push for growth in infrastructure assets. For the banking system, loans to industries – micro, small, medium and large -- stood at 31.6 trillion as on 20 May, up 8.7% from the same period last year, showed data from RBI. The regulator is yet to disclose data on sectoral deployment of loans in June. 

“We are significant lenders and in fact we are significant bankers to corporate India. If you look at the market share that we have gained across various lines of businesses on the corporate side, it is not as if we are not doing business with the large corporates," said Anand. 

On Monday, the bank reported a near-doubling of its June quarter net profit to 4,125 crore, on the back of higher net interest income and lower provisions than the same period last year. The profit was higher than a Bloomberg consensus estimate of 3,658 crore. 

“We continue to move forward with clarity and intent in a quarter where the external signals were mixed; system credit growth picked up with double digit credit growth for the last four months; consumption has continued up; working capital demand is strong and together with refinance requirement, is driving credit growth," said Amitabh Chaudhry, chief executive, Axis Bank.

On the deal to buy Citibank’s consumer portfolio in India, Chaudhry said the bank has applied to the Competition Commission of India (CCI) and expects the approval to come over the next six to eight weeks. The bank, he said, expects to close the transaction by Q4 of FY23. On 30 March, Axis Bank said it has agreed to buy Citibank’s consumer business in India for 12,325 crore ($1.6 billion) in cash, apart from paying another 1,200 crore to Citi to aid the transition.

On Monday, while the management declined to give any specific loan growth targets, it said the bank would continue to grow faster than the market. “We do not really provide guidance or outlook on where we stand. Overall, we have consistently maintained that we will grow faster than the industry average and I guess it would be fair to keep that in mind in terms of our continuing commentary," said Puneet Sharma, chief financial officer, Axis Bank. 

Axis Bank’s net advances grew 14% y-o-y to 7.01 trillion and deposits grew 13% y-o-y to 8.03 trillion as on 30 June. 

Shares of Axis Bank on BSE closed at 728.2 on Monday, down 0.38% from the previous close.

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