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Axis Bank

BSE: 532215|NSE: AXISBANK|ISIN: INE238A01034|SECTOR: Banks - Private Sector
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Mar 16
Chairman's Speech (Axis Bank) Year : Mar '17

Dear Shareholders,

Unexpected change - It''s the phrase that best captures the essence of the year gone by. Be it the unexpected political changes around the world or the surprise Demonetization drive back home. What did not change is our drive to partner with our customers in their progress - fulfilling and enriching their financial journeys. This indomitable customer-first attitude has helped us in building a formidable banking franchise which has grown from strength to strength over these last 23 years. Our Corporate and SME franchises have worked side by side with Indian corporate and entrepreneurs to build their businesses and further expand in overseas markets. The Retail Banking franchise has been mobilizing and managing savings for citizens, fulfilling dreams and aspirations of many Indians to own their first cars and homes. The traditional financial landscape in India is getting transformed rapidly; there is a visible shift from informal to formal channels. The Bank along with its subsidiaries is very well positioned to participate in this evolving trend and create significant value for all stakeholders.

India''s macroeconomic fundamentals continued to improve last year on the back of a stable monetary policy which has been very well complemented by the Government by taking significant policy initiatives. From the banking sector perspective however, last year continued to be challenging. While the asset quality situation remains concentrated in a few sectors, banks had a new situation to contend with - that of high liquidity and very low corporate credit demand.

Despite these challenges, the Bank''s strong operating profit engine helped us to tide over one of our toughest years in recent times. The Bank delivered steady operating profit growth of 9% with healthy operating revenue growth of 14%. The underlying strength of the franchise was visible in the last quarter of fiscal 201 7 with all operating metrics bouncing off the lows we had seen in the earlier part of the year. We continued to grow faster than the banking system and gained market share in both advances and deposits. The Bank''s retail and SME book continued to grow with risk parameters well under control. The corporate loan book witnessed significant asset quality challenges during the year. Earnings declined by 55% and the return ratios moderated on account of higher provisions for non-performing assets. Given the inherent improvement in the underlying strength of the Bank''s franchise over these years, it is only a matter of time that the Bank''s return ratios improve again, as the benefits of lower slippages and credit costs begin to reflect. The Bank remains well capitalized with a Tier-I ratio of 11.87% and maintained its dividend per share of ''5 similar to the previous year.

Our corporate asset quality challenges have predominantly emerged from the watch list that was disclosed last year. While the Government and the regulator came up with several reforms and measures to support and resolve the stressed assets problem, the pace of resolutions during fiscal 2017 was slower than envisaged earlier. We expect resolution processes to pick up in fiscal 2018 aided by the Government''s recent ordinance to amend Banking Regulation Act along with RBI''s revised guidelines on timely resolution of stressed assets which are likely to expedite decision-making.

The Bank has always played an active part in nation building and continues to be an integral part of the key measures that drive our country forward. In the early part of this decade, the Bank saw an opportunity and wholeheartedly supported the country''s focus on infrastructure, building steel plants, power plants and the like. Some of the corporate credit that we took on in these sectors did not turn out well, though India continues to remain a nation starved of both infrastructure and energy. We believe that the Government''s ambitious infrastructure development programme supported by a fast-track, investment friendly and predictable public-private-partnership mechanism will help our nation to overcome these impediments in the near future. Our learning’s from the last cycle have helped us to calibrate our portfolio concentration a lot more tightly than in the previous years.

In the last few years, we have significantly strengthened credit underwriting and risk management practices at the Bank. We have diversified our loan book materially and now have 45% of our loans in the Retail segment. We have reduced concentration risk in our corporate book significantly. We have tightened incremental sanctions and are actively targeting the pool of better rated corporate. We continue to drive the transition of our corporate franchise towards a more flow led, transaction banking oriented business.

On most operational parameters, the Bank performed in line with the direction I laid out in my letter last year. Aligned with our strategy to deepen our low cost deposit franchise, we were able to increase the share of low cost CASA deposits to overall deposits by nearly 400 bps in fiscal 2017, aided by Demonetization. Retail Assets remained the main growth engine for the Bank and we continued to further diversify and made the portfolio more granular. The Bank''s cross-sell metrics too have been steadily improving, aided by big data led analytics of the retail customer base. This was substantiated by strong retail assets growth from existing deposit customers and healthy growth in retail fee income from distribution of investment and insurance products. During the year, the Bank also tied up with the nation''s largest insurer, Life Insurance Corporation of India, to broad base insurance coverage of its customers.

The Bank''s SME business not only continues to focus on lending to priority sector and select important industrial clusters, but is also engaged in taking forward the Government of India''s initiatives like ''Make in India'' and ''Skill India''.

The Transaction Banking business of the Bank continues to leverage on the existing client and customer relationships to cross-sell a large suite of products. In the Treasury and Debt Capital Markets segment, the Bank continues to remain a leading player. During the year, the Bank became the first Indian entity to issue internationally listed climate bond initiative certified dollar denominated Green Bonds in June 2016 and also acted as the lead manager in the very first Masala Bond issued by one of the leading housing finance companies.

We made significant progress in the digital payments space boosted by the Government''s demonetization drive towards a ''less cash'' economy that helped leapfrog digital adoption among customers by a few years. We continue to lead the digital wave and simplify banking for our customers by offering simple products, secure payments and improved processes through effective use of technology. The Bank was among the first to launch a Unified Payment Interface (UPI) app ''Axis Pay'' and also launched Axis OK - an app that works on feature phones without the need for an internet connection. The mobile banking channel witnessed over 100% growth in both value and volume terms while electronic channels continued to form 87% of overall customer induced transactions. During the year, the Bank was adjudged runner-up in the ''Best use of Digital and Channels Technology'' amongst large banks by the IBA Banking Technology Awards 2017.

In line with our financial inclusion agenda, we not only focused on mainstreaming the unbanked and under-banked people by opening the basic savings account, but have also been quite active in promoting the Government''s various social security schemes. We have opened 400 branches during the last fiscal and will continue to open a similar number of branches in fiscal 2018. However, the format of branches continues to evolve - we are moving towards much smaller branches as lot of back office operations are now centralized providing the flexibility to have branches with smaller size but enhanced productivity.

To remain relevant in the financial services industry of the future, banks need to embrace Customer Experience design as a core component of their business model. Customers compare you not with other banks, but with the most powerful experiences they have with any service provider across industries.

For us, customer centricity remains at the core of banking, and the Bank has recently created a central Customer Experience group that will work alongside business units to improve the way we serve and deal with customers. Here it is worth mentioning the extraordinary spirit, collaboration and resilience of our 56,000 employees, most of whom did an outstanding job in shouldering their responsibilities through the year. During the year, the Bank introduced ''Banking on Compliance'' - a training initiative to reinforce compliance and governance standards under which nearly 45,000 employees were certified. The Bank also launched the ''Million stories'' and organized ''Axis Champions Awards'' to celebrate the Axis Bank spirit, recognize the right role models and motivate our employees.

I have always believed that for an organization to succeed in the long term, it is imperative to keep the overall wellbeing of society at the core of its value and purpose. The Axis Bank Foundation (ABF) was founded more than 10 years ago on this very ethos and has been able to meet over 90% of its objective to provide livelihood to one million people by the end of 201 7. During the year, the Bank stepped up its financial inclusion and financial literacy measures through its ''Digiprayas'' programme, in line with the Government''s JAM (Jan Dhan

- Aadhar - Mobile) concept. ABF also planted more than a million trees during the year under its livelihood initiatives. During the year, the Bank was awarded the ''CII Sustainability Domain (Corporate Social Responsibility) Excellence Award'' in recognition of its CSR efforts and impacts created.

Technology is reshaping the world faster than ever. In line with our efforts to promote entrepreneurship, we launched ''Thought Factory'' an innovation lab facility that has been working closely with the start-up community to accelerate the development of innovative technology solutions for the banking sector. During the year, we also launched one of the largest crowd-sourcing competitions, ''Future of Jobs in India'', a platform for youth to ideate on implementable, sustainable and scalable solutions for the future. These efforts formed the basis for the Bank earning the ''Best Digital Bank'' award by Business Today and KPMG.

While we have had a tough year, I believe it has taught us important lessons for the future. We have dedicated a large part of the year to solve bulk of the issues, fortify the balance sheet and refocus the franchise on our core and lasting strengths. As a result, the franchise remains safe and sound with a robust risk management architecture and corporate governance practices which have withstood the test of time in the past and will continue to hold us steady in the future. We are well capitalized, we have got the people and the process capabilities, and we remain focused on building and strengthening the franchise organically.

The external environment is such that it remains a great opportunity for the Bank to gain market share in every business category. Our market share in the last 8 years on the deposit side has gone up from 2.5% to about 4%; in credit cards, we are now the fourth largest with a 11% market share; and in mobile banking, we are at 10% - higher than our deposit market share. Similarly in mutual funds, we are a significant player now despite being a late entrant. With our subsidiaries witnessing strong mobile adoption levels, we expect to gain disproportionate market share going ahead as well.

Fiscal year 201 7 was a good year for our subsidiaries, as witnessed by healthy growth in revenue and earnings of 33% and 26%, respectively. All our subsidiaries contribute significantly towards building a great annuity fee franchise and regular fee base for the parent bank be it in the form equities business, asset management, finance or insurance distribution.

If we take a step back and try to visualize as to how the broader Indian banking sector is likely to shape up in the medium term, we would perhaps see five to six large public sector banks and similar number of large private banks. Further, a handful of specialized small and payments banks will also thrive catering to niche segments. Our vision is to be very much at the top of that list. As shifts in market share happen, we would expect to move up from our current seventh position in terms of assets, to be among the top few banks in the country.

With below stated objectives in mind, we will continue to invest in technology, infrastructure and talent to not only support our business growth but also to ensure improved control and full compliance with regulatory requirements.

I would like to take this opportunity to thank all our external and internal stakeholders for supporting us through one of our most challenging periods last year. We remain focused on our priorities and will continue to build a trusted, compliant and financially strong bank which will remain at the forefront to find new ways to secure the financial future of our customers in this fast changing world of today.

Shikha Sharma

Managing Director & CEO

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