Private sector lender Axis Bank just concluded its qualified institutional placement (QIP) by raising about Rs 4,726 crore to improve its capital base. Besides, the bank mopped up Rs 811 crore through issuance of preferential shares to five select entities.
Funds garnered through QIP will be sufficient to meet growth plans for the next three years. Also, we will be able to meet the Basel 3 norms with this money, MD & CEO Shikha Sharma said in an exclusive interview to CNBC-TV18.
According to Sharma, the accumulated capital will help the bank meet the Basel III norms, the international standard for maintaining capital adequacy ratio, which was adopted by the Reserve Bank of India. Moreover, the funds will be sufficient to meet growth plans for the next three years.
"This time we have sized the capital to be able to maintain tier one of 9.5 percent. It has meant a dilution of just fewer than 10 percent. So, from an RoE perspective that is the kind of reduction in RoE that one would see," she said.
Meanwhile, she attributed the spike in non-performing loans to the economic downturn. On bad asset front, she does not expect any big relief for banks, at least for the next two-three quarters.
"Our retail and SME book have performed well. It is the large corporate book with the slowdown in growth and leverage in certain categories of companies that we have seen a higher level of nonperforming assets and restructuring in the last 18 months than we have seen in the past and that is not surprising in the context of the economic cycle," she elaborated.
Below is the edited transcript of Shikha Sharma’s interview with CNBC-TV18.
Q: You have raised around Rs 5000 crore through qualified institutional placement (QIP). Can you tell us how long will this suffice, given your current rate of growth what does this take your return on equity (RoE) to and when will you come back to your pre-QIP return on equity?
A: In terms of sizing the capital issue we have attempted to ensure that we have enough capital to fund growth for three year period. So, that is broadly the planning horizon that we have sized the capital for. We have also looked at possible implications of Basel III coming in, in FY18.
When we had raised capital in 2009, we had indicated that we would want to raise capital such that we can maintain a tier one threshold of 9 percent and with Basel III coming in, will require tier one of 9.5 percent including capital conservation buffer. This time we have sized the capital to be able to maintain tier one of 9.5 percent.
It has meant a dilution of just fewer than 10 percent. So, from an RoE perspective that is the kind of reduction in RoE that you would see. Therefore, 18-20 is a range we have normally indicated. It is currently about 21 percent. It could drop by 2 percent odd and then come back as the capital gets leveraged.
Q: That should take couple of years?
A: That is what we have said. We have sized the capital raise to suffice for three years growth.
Q: What will this capital be used in terms of your sectoral thrust?
A: It is fundamentally fungible capital and meant to fund growth for the bank. As we see it right now, as a strategic direction we had said that over a period of time we expect to rebalance our portfolio to have retail grown to about 30 percent of the portfolio. Given the slowness on corporate credit recently the retail proportion is already 27 percent.
So, we hit the 30 percent number little ahead of the FY15 guidance, but it all depends upon where the economy goes and where the demand for credit is. If investment cycle picks up again in couple of quarters, which we all hope will happen, then we may still stay with about 30 percent retail proportion.
But currently the guidance would be about 30 percent retail assets, about 18 percent small and medium enterprises (SME), 10 percent agriculture and the balance large corporate is where our portfolio mix lies.
Q: The asset quality has remained resilient for Axis and a lot of private banks but the market is still scared that after all private banks are lending to the same economy. So is it that sometime in the future there is going to be NPL issues rising again in your balance sheet as well? Why do you think you will perform better than public sector banks or the industry in general?
A: I can't talk about any specific bank or segment of banks, but we have been conscious about the risk return that we get from different segments of our portfolio and we have been managing that pretty consciously. Our retail and SME book have also performed well.
It is the large corporate book with the slowdown in growth and leverage in certain categories of companies that we have seen a higher level of nonperforming assets and restructuring in the last 18 months than we have seen in the past and that is not surprising in the context of the economic cycle.
As the cycle turns we would expect that that should also begin to look better as we go along. We might see the kind of levels that we saw in FY13 in terms of NPA and restructured assets could potentially continue for another couple of quarters.
We have been very transparent in our guidance and our concerns as the economy has gone through different cycles and we have not thrown any surprises. We hope that the market will at some point understand that we have been transparent and we have managed our risk return on the portfolio reasonably well through the cycle.
Axis Bank stock price
On November 27, 2015, Axis Bank closed at Rs 470.90, up Rs 5.70, or 1.23 percent. The 52-week high of the share was Rs 655.35 and the 52-week low was Rs 446.00.
The company's trailing 12-month (TTM) EPS was at Rs 33.53 per share as per the quarter ended September 2015. The stock's price-to-earnings (P/E) ratio was 14.04. The latest book value of the company is Rs 187.85 per share. At current value, the price-to-book value of the company is 2.51.
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