The top boss at the country’s third largest private lender
Axis Bank believes that the bank can grow 5 percent to 7 percent above industry growth rates, even with its conservative strategy as the market is large, and the bank’s share in it still too small.
Amitabh Chaudhry, in his first television interview since taking over as the chief executive officer (CEO) of Axis Bank in January this year, told CNBC-TV18 that the bank has faced its worst crisis in the last three to four years partly due to asset quality issues, but some recovery work has already begun. However, Chaudhry candidly admitted that the bank needs to walk to the recovery path a little longer before it can confidently say that mistakes of the past will not be repeated.
“We are suffering from the consequences of lending that we did between 2010 and 2012… We made the mistake of backing India’s infrastructure story, and we backed too much of it,” said Chaudhry, adding that the legacy book still needs to be dealt with, even though bad loans have started stabilising.
“I see only six to eight wholesale lenders in future, and we definitely want to be one of them,” Chaudhry said when asked about the strategy on wholesale lending, which has been core to the bank for long.
Insurance remains a missing gap in the bank's portfolio, but Chaudhry said he will not sign on any deal in a hurry. On Max Life, the CEO said, "We can only move forward if we have the support of the regulators. The Reserve Bank of India (RBI) has made it clear that they are not in favour of banks holding a large stake in insurance companies."
Axis remains constrained by regulatory hurdles, and even for setting up a Non-Operative Financial Holding Company (NOFHC) structure to set up an insurance business is a tough task at this point, as there would be tax implications to consider, he added.
"RBI along with the finance ministry is looking at these tax guidelines," said Chaudhry, adding that any acquisition would be possible only once the banking regulator's view changes. "I admire Max Life as a company, I value the business we have with them... But we can't be looking at only one company. The board will have to look at all possible deals before we sign on one," he said.
The word “conservative” features often in his vocabulary, when he talks about the bank’s strategy for growth. He has set some realistic, and some ambitious targets for the bank to achieve, as laid down in his 2022 strategy document. From 10-11 percent Return on Equity (RoE) that the bank is currently delivering, he targets a sustainable 18 percent RoE by 2022.
Chaudhary has said no to infrastructure lending and project financing, and instead wants to focus on retail and working capital loans and get into more unsecured lending to improve margins.
Will Axis Bank also deliver 4 percent plus margins, like Chaudhry’s former employer HDFC Bank? No, is the answer from the CEO. “It is going to be a hard grind getting our margins up, especially when everyone is chasing the same CASA (Current Account and Savings Account), retail book,” he explained, adding that in the process of chasing a high margin figure, he does not want to take risks. Instead, Chaudhry sees margins stabilising at 3.5-3.8 percent, closer to the 3.44 percent that the bank delivered in its March quarter.
He said credit costs to stabilise at the long term average rate of about 100 basis points and expects the trend of majority slippages coming from the bank’s BB (Bulge Bracket) and below-rated book to continue.
One basis point is a hundredth of a percentage point.
In the next 18-24 months, the bank's asset quality, other financial metrics will look more normal, Chaudhry added. He quips that while Non-Banking Financial Companies (NBFCs), residential real estate and auto sectors are going through a painful period, a crisis could start anywhere. “We often talk about how a crisis could even start on the individual side, and then become a full retail cycle. We don’t know where the crisis could start and have to remain watchful,” the CEO said.
The first thing Chaudhry did when he joined the bank was overhauling the management structure, bringing in new talent from other banks including HDFC Bank and Yes Bank to fill key management positions, some of which had fallen vacant.New structures were announced for the wholesale and retail businesses. But in this process, Chaudhry admits that unfortunately, some jobs became redundant. Many mid-level managers were found surplus to the strategy and were made offers to part ways with the bank. “We will never do anything like this again,” Chaudhry said.