See credit growth improving in next 2 quarters: Axis Bank

A: First of all through my career I always had to build teams at least in the last 10-15 years so I have actually very often had to work with people who came in from outside and became part of the team. So that is something I have been comfortable with doing.

Having said that, this is the first time I have actually taken over a large high performing team and I have to admit a bit of reputation as I enter in terms of how it will all work out. But it has been a dream, it's been fantastic to come into this bank. I have to honestly say that there are wonderful people. The bank has a fantastic culture, they are open, they are competent, they are focused on their job, they are passionate about the bank and there is little more that you can ask for so I love the team and I would do very little to change that.

Q: Will there be any more new appointments- you had one external lady you had one promoted - any more organizational changes that you would contemplate- not just promotion merely in terms of delegation and re-delegation?

A: This has been a high performing team as I said and there's great culture here. So I would not want to change this culture. Having said that, if as part of the strategy there are some missing skills gaps and if I need to hire, that is what I would do. So the hiring of Srinivasan for instance was with the intent to bring a widest set of treasury skills and to actually be able to import some of the risk management capability that somebody like JP Morgan has in great measure and bring that into Axis Bank.

If there are any specific areas like that where I feel skill enhancement is needed I think we would be open to go and have it from our side but this team is highly competent team and therefore I do not see the need for doing too much of hiring.

In terms of the organization structure, yes there would probably be a need for me to change the structure to make it a bit simpler. As organizations evolve and strategies change you do need to tweak the structures a little bit. You might see a bit of restructuring all pretty much at the margin, nothing very dramatic.

Q: You said that you imported or bought talent for risk management that was a key concern. I am sure that investors would have told you when you went out in the roadshows. When we spoke to potential domestic investors here that was a concern, with the entire banking sector there was a concern because of the slow down but with Axis in particularly your exposure to Aban and some other companies which have a leg in real estate. SME there was a concern- how are you looking at the entire NPA and the standard asset portfolio. Are you sure or would you have some numbers as to how you might end the year in terms of Gross NPA in terms of net NPAs more particularly gross?

A: This whole concern about risk in Axis bank is something that I have heard about even when I came in here. I think fundamentally it came from two things. One is the general philosophy that anybody who has had high growth is likely to have a credit problem, especially, if there is a economic downturn. That was what was driving the fear a lot.

Having been here for a while, I think this bank has very experienced bankers so they do understand the assets that they deal with and structure them well and are close to their clients and able to make good risk judgment. I think the business has been built with high quality risk judgment in place. The second thing was the news that the economy is turning around. This bank is primarily a corporate bank in terms of the asset book. Around 80% of the assets are corporate, 20% of which is SME and with the economy turning around most of the assets are good.                

Q: Give us some idea in terms of your gross numbers- Would you say that your gross net performing assets (NPAs) will definitely be lower by this quarter or by the end of the year?

A: Our gross NPA number is about 1%, restructured assets are about 2.7-2.8%. We could potentially see a little bit more restructuring coming through in the next couple of quarters. But as the economy is turning around, the amount of restructuring is going to go down. Secondly, I think restructuring has pretty much peaked in the last two quarters. If there is restructuring, it is going to be of a lower order than what you have seen in the last few quarters. That is one trend that I can tell you.

The second thing is in terms of NPAs, NPAs always follow economic cycles with a little bit of a lag, because it takes 90 days to become an NPA and then you do provisioning over a cycle. So, NPAs and provisioning will come through with a lag, as I said. So, it will be fair to assume that NPAs could creep up a little bit for a while before they settle off. But the good news is we are clearly seeing signs of economic revival. Therefore, I think the peaking on NPAs will happen pretty soon. I don't have any fears around any sudden shocks or anything like that. I think the book is, as I said, well built, with sound judgment so, I am comfortable with the quality of the book.

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Q: Do you see yourself being able to retire some high cost deposits and therefore, what will be your outlook on margins? You did 3.34% in terms of NIMs in the quarter where you have already reported results. What may be a ballpark, will it be lower? What may be your margins?

A: On margins, I think there are three factors that come into play. The first is, all banks including Axis Bank have had an opportunity this year to re-price old high cost deposits. So, to that extent your cost of funds is coming down. On the other hand, there is lots of liquidity in the system, so there is competition on lending, and lending rates are coming down. So, I think most banks will attempt to keep the margins in a stable range rather than trying to increase margins very much. So, a lot of the re-pricing benefit is going to slowly get passed on to customers.

Yes, our capital raised does help the margins a bit. But really it is only on the margin, because it is not hugely dilutive. If you are going from 9.3% to about 11.3% you do get some improvement in margins because it is not a huge amount. So, it is primarily the first two factors: the re-pricing of the deposits and the liquidity situation.

So, net-net, I think it will be fair to assume that for most banks and our bank, the strategy would be to try and sustain the margins rather than let them go up or slip.

Q: So, can we expect that you may have to drop interest rates before you will be able to raise the lending rates?

A: What I am saying is that this is a bank that is focused on delivering growth profitably. If we are getting a benefit of lower cost of funds, we would be comfortable passing on some of that benefit to consumers.

Q: Give me some idea of the kind of credit growth, because in the first quarter your balance sheet contracted a bit, QoQ? YoY of course it was a 24% growth. What will your credit growth be for the full year?

A: I cannot give you a number for the year. What I can definitely tell you is that the first two quarters have been flattish, for the industry and for our bank, in line with the industry. But we do expect credit growth to begin to pick up over the next two quarters. When I am saying flattish, it is QoQ flattish. YoY you would still see positive growth. So, YoY, you would see positive growth for Axis Bank. But I cannot give you an exact number on where that will end up.

Q: One of the things that this huge capital would give you is that you don't have to continue to only give mid-sized companies. Some investors believe that you can start becoming a lender to the big corporates. Will that be a strategy?

A: Let me answer that question slightly differently. In terms of what are the areas of strategic focus for Axis Bank, I've always believed that if you have to build a long-term sustainable, valuable business, then you have to focus on what customers are you choosing to serve and are you able to serve them in a value creating sustainable way. We are talking here about retail customers, SMEs, mid and large corporate. I think it is possible to build a relationship based banking model, with retail customers, with SME customers, with the mid-corporate customers. With large corporate customers, yes, relationships are important. But they do tend to be a lot more transaction focused.

So, as a bank, what we need to build out and be confident of is that we provide the best products and services to all customers, but it becomes the major factor when it comes to large corporates. So, it is not just about having raise capital, it is do we have a competitive suite of products and services to offer to the large corporate, and being primarily an Indian bank. Yes, we would like to serve the large corporate segment but with the entire suite of products and services.

Q: Would you have a global footprint view also in mind? Is some work already underway? What is the plan in that front?

A: As I said, I was very delighted that I went out and had an opportunity to speak to investors globally as part of the equity raised. I came back completely raised that all the excitement in the world is about Indian banking and being in India and doing banking. So, that just tells me that our focus has to be primarily Indian banking. So, international, to the extent that it serves Indian customers, ideally large corporates, yes, but not as an independent strategy.