Podcast | Shikha Sharma's term to end on Dec 31: A look at her reign at Axis Bank and what went wrong

Almost like the Biblical Cain and Abel story, the ICICI sisters Chanda Kochhar and Shikha Sharma are in news within weeks of each other. Aside from being among the most powerful Women or in deed leaders in the world of Indian business they are also counted as among the most powerful in the world. The latest piece of news occupying the business world today involves Axis Bank’s MD and CEO Shikha Sharma’s premature exit planned for the end of December 2018. All you need to know about the wise and hows of this development, what was the reason behind it? Why did the Reserve Bank of India ask the board of Axis Bank to reconsider its decision for a full-term renewal of Shikha Sharma? What are Axis Bank’s current problems? How did Axis Bank evolve under Shikha Sharma and what legacy she leaves behind? All of that and more on this story of the day podcast right here on Moneycontrol with me Rakesh.

Even as news trickles in today that some members in the ICICI bank board may not favour the continuation of MD and CEO Chanda Kochhar of ICICI Bank, we hear this latest development in Axis bank and one time colleague of Chanda Kochhar ICICI, Mz Shikha Sharma. On December 8th 2017 the board of India's third largest private lender that is Axis Bank had informed with decision tore-appoint Shikha Sharma as the MD and CEO for a period of 3 years with effect from June 1st 2018 subject to requisite approvals. But there were also reports soon after that the Reserve Bank of India had asked axis’s board to reconsider Sharma’s re-appointment at the helm for the 4th term on the grounds of the bank’s dwindling financial performance. And that story has seen resolution with MS Sharma herself requesting the board to reconsider the period of her re-appointment. “Kindly note that MZ Shikha Sharma, Managing Director and CEO of the bank is request the board to reconsider the period of a re-appointment as the MD and CEO of the bank be revised from the 1st of June 2018 up to the 31st of December 2018”, said Axis Bank in a filing to the stock exchanges. So what may be the reasons behind all of this? Let's take a look at some of the problems plaguing Axis Bank right now.

In an interview to Bloomberg in December 2017, Shikha Sharma said and I quote, “we have burnt our fingers, we have learnt lessons from concentration risk, structure of the project and risk parcelling and leverage structures. I think we will keep all that in mind in the next cycle”. Well unfortunately for Mz Sharma, that cycle ends in December this year. In her nine years at the bank, Mz Sharma has pushed for growth degrowth unfortunately has also come with the cost of deteriorating asset quality which in the end may well be the cause of her exit.

Reason 1 - Bad Loans. Axis Bank in recent times has posted a sharp rise in bad loans. Analysts they're going to say that Axis Bank’s asset quality review that is AQR in late 2015 led to a rise in bad loans for most lenders including Axis Bank. In many ways, troubles began in late 2015. In quarters that followed, Axis turned out to be among the banks worst hit by the Asset quality review. When Mz Sharma took over as the MD and CEO of Axis Bank back in 2009, Axis was well behind MS Sharma's previous employer ICICI bank. As of March 2009, the bank had advances of 81557 crore rupees. About half of this was loans to corporates and around this time the bank had managed to escape the worst in retail bad loans in the aftermath of the global financial crisis of 2008 and then had a bad loan ratio of just about under 1% and then began the days of great corporate lending and miss Shikha Sharma took a leadership role in this corporate lending. Speculations at that time were rife that this was in a move to close the gap with HDFC bank and ICICI Bank especially ICICI bank because observers within the corporate circles obviously saw this is a competition between her and her erstwhile colleague Mz Chanda Kochhar who pipped Mz Shikha Sharma to become the head of ICICI bank as Mz Shikha Sharma was also in contention for that post. That slightly sexiest speculation aside, the result was a more than two fold increase in the bank’s loan book to 3.73 lakh crore Rupees as of March 2017. Corporate lending initially worked, the share retail loans in Axis Bank total rose to  46% by the end of December 2017 from 21% in June 2009 which was when Sharma took over. Profits also rose steadily during this period on the corporate side infrastructural ending also continued given the opportunites is provided for most banks including Axis Bank. But even during this time when Axis’s quality was considered healthy with gross bad loan ratio well below 2%, net NPA well below 1%, they were concerns because it, peers like HDFC and ICICI with similar infrastructure focus were reporting higher loan ratios and Axis’s numbers were divergent on the sectoral trend that we were seeing otherwise. Which would be our number 2 point but let’s concentrate on the bad loans aspect right now. Like I said earlier, things were fine  until 2015 which was when RBI announced an asset quality review. Gross NPA ratio which was. 0.94 to 1.6% between June 2009 and March 2016 jumped to over 2% for the first time since Shikha Sharma took over. In the quarters that followed it grew to be even worse. It rose to high of 5.28% by the end of 2017. During Mz Shikha Sharma’s Tenure gross bad loans of Axis Bank grew from 915 cross back in 2009 to 25000 crore Rupees by the end of 2017.

Number 2 -  Divergence. The Bank’s image was also probably hurt due to the divergence in the quantum of bad loans reported by it and what the regulator that is RBI judged bad loans to be. At the end of the fiscal year of 2017 the bank classified loans worth 21280 Rupees as bad loans. The RBI on the other hand pegged that number to be 26913. The difference, that is the divergence, was 5633 crore. For financial year 2016 the bank reported an even higher divergence of 9480 crores which was 156% more than the reported amount. So, within the past year and a half alone, the bank has been penalised by the RBI for underreporting of bad loans. In addition to all of these troubles there was WhatsApp. Where doesn't WhatsApp popup these days? UTI face the wrath of SEBI which  ordered Axis Bank to strengthen it systems and conduct an internal probe to fix responsibility as the initial investigation showed the leakage of price sensitive financial information was due to inadequacy of processes at the bank in a WhatsApp leak case relating to its quarterly results of April to June 2017. So on top of bad loans and the underreporting of bad loans that was the WhatsApp leak in 2017.

Number 3 - The bottom line. In addition to the gross NPA ratio rising to as high as 5.28% compared to 0.96% in March 2009 when Sharma to charge the pressure of bad loans has also dented its net profit. At the end of December last year it was it 726 crore rupees against 562 crore rupees when she became the MD of the bank back in 2009. The profit growth has reduced from 69.5% in F5 2009 to negative 55.2% in 2017. Worse, its shareholder returns of 252% is less than the bankex index at 270%. The stock price has remained dormant over the past year and in March alone it stumbled by over 3%.

Meanwhile number 4 - The RBI had also dropped Axis Bank from a list of banks it has cleared to import bullion that is gold and silver in the current financial year that began April the 1^st. It was unclear back then why Axis, one of India's leading importers of bullion did not feature in the list, but now may answer some questions.
And number 5 -  People who have been observing Axis Bank knew something was afoot because Axis Bank had appointed Egon Zehnder which is a consultancy firm to identify the next CEO which conducted preliminary search before the board decided on Sharma's reappointment. But of course the announcement of the reappointment was not without speculations which had been rife that it was time that Axis Bank chose a new successor.  Being as MZ Sharma was a lateral mover in that she was hired from ICICI Bank speculation is rife that the next successive would be someone from within. But of course, casting a wide net to choose an external candidate has also not been ruled out as an option. A senior management level rejig is likely in the aftermath of Sharma’s exit an appointment of a new chief. Some of the names doing the rounds as Mz Sharma’s successors include Deputy MD V Srinivasan and Executive Director Rajiv Anand.

Number 6 - The problems that Axis Bank currently faces are not merely restricted to poor management of credit risks, there been other incidents as well. In 2013 Axis Bank along with ICICI bank and HDFC bank had been penalised for ‘Know Your Customer’ norm violations after the website Cobra post.com caught bank employees advising clients on how to legitimize unaccounted money that is black money and more recently 2 bank managers from Axis were arrested during demonetisation on allegations of money laundering via accounts of Bullion traders. That incidence could well have contributed to why Axis Bank did not receive the RBI licence to import bullion for this financial year. So all these slings and arrows and frankly cannonballs, have led to the departure of Mz Shikha Sharma almost as if the 1812 Overture was playing in the background, Cannonball Run all. The next challenge is of course with the board and the bank to find a new successor. Having listed all of these troubles, the bank under Mz Sharma has for the last 2 years been trying to correct some of the mistakes. It has reduced loans given to specific groups in industries, it has focused on loans given to higher rated companies in order to cut down the bad loan ratio, the bank is going to provide data that its exposure to the top 20 borrowers as a percentage of Tier 1 capital has come down to 118% compared to 287% in March 2011 and banker has also provide the data that 85% of the bank’s incremental sanctions are now going to corporate rated A or above compared to 68% back and financial year 2012. But perhaps it was a case of ‘too little too late’. For now though, it continues to be the bronze medal holder while below HDFC and ICICI and investors continue to value it well below its peers including smaller ones like Kotak Mahindra Bank which by the way was also rumoured to be eying a merger with Axis bank as recently as last year.

But the final note on all of this is of course the fact that we will now be seeing the exit of Mz Shikha Sharma, one of  the highest ranked bankers and certainly one of the top women bankers the country has ever seen. We will of course be remised if we did not end this podcast without also acknowledging the successes and achievements of Mz Shikha Sharma.

Sharing her birthday, that is November 19th with no less than Indira Gandhi, Shikha Sharma has gone to be one of the biggest names in corporate India. With a career of more than 38 years in banking, she joined ICICI in 1980 ahere she went on to lay the foundations of ICICI Bank’s personal financial services. In December 2000 she went on to head the insurance business of ICICI and took charge of ICICI Prudential Life Insurance and repeated her success with retail banking. Investment on to be extremely successful crossing the 200,000 policies landmark within 2 years of its start with the premium income of 280 crore rupees. Because of all her successes within ICICI she became a contender for the top post at ICICI bank which eventually went to Mz Chanda Kochhar and Shikha Sharma left to become the head of Axis bank. But her entry into Axis Bank was just as stormy as her impending exit. She was the successor to PJ Nayak who had headed the erstwhile UTI bank which later became renamed as Axis bank and Naik was keen on promoting an insider to take over from him as CEO. The board of course had other plans and approached Shikha Sharma. Business journalists from that time and people who follow the news back then remember what are widely reported conflict that was and eventually the board won and Shikha Sharma was appointed to head the bank. She took over like I said earlier in 2009 June. Her entry into Axis was far from easy, it witnessed a flurry of senior management exists upon the appointment to whom they so as an outsider as the bank’s CEO. Sharma almost completely changed the old guard and picked her own deputies. Under Shikha Sharma Axis became a truly universal bank with an enviable investment banking team. Axis still regularly features in the top three of every League table in debt and equity fund raising. One of her first moves upon moving to Axis was to acquire Enam securities with that specific aim in mind. But of course, this deal valuation also came under criticism back then in April 2012, the deal size was cut by almost a 3^rd to 1396 crore rupees from 2070 crore rupees. Eventually the deal did pay off as Axis  Capital which was carved out of Enam business grew to feature in League Tables are like I said just earlier. Getting more retail business also became a Priority even as the bank continued to focus on corporate lending which may well have been the beginning of the end as well and some ways and focusing on retail business as per share of retail loans in Axis banks total book rose to 46% at the end of December 2017 from 21% in June 2009 when Sharma took over. On the liability side also Axis Bank grew on to have a name under Shikha Sharma because it's now recognised as a lender with a strong franchise of low cost current and savings account deposits. Profits grew steadily during those periods from 2009 onwards until of course 2015.

Under Shikha Sharma's leadership Axis Bank also saw a different way of thinking. Under her predecessor P J Naik decision making was largely top down at the bank had been growing in a different environment and then took on a new corporate identity. But Sharma who was more used to participative processes realized that as the organisation scaled up and became more and more complex and markets grew larger, it would need more layers of decision making which was where her personal leadership style of delegation paid off and it was during this time that she planned her first major strategic planning exercise for Axis calling it Vision 2015 with the entire top team participating and not merely her dictating her vision. The first task was to sort out the retail business. When Axis identified retail lending as one of its main focus areas in the vision 2015 plan analytics was an area the bank knew it would have to concentrate on. NPAs in the personal loans business for unacceptably high and the problem could be addressed only through analytics and retail behaviour. It was also important to identify the right customers for the bank and that was when Mz Sharma decided to hire Jairam Sridharan whom she had worked with at ICICI Bank from Capital One in the US to head the bank’s retail business. The bank then put in place a detailed risk management system and overtime they saw a reduction in retail NPAs and that was showing on the balance sheet. So slowly her Vision 2015 was gaining momentum and Sharma kept benchmarking herself against her own targets, making sure that she was neither to quick nor to slow in implementing the changes. In some ways a very sure footed leadership. Well where they were highs there were lows as well. For such a flying achiever, Sharma has been consistently described by many people who have met and interacted with her as disarmingly modest. All too willing discuss her own failures and drawbacks. A the start of her career as she went on to say at an interview was not particularly propitious during the placement period the Indian Institute of Management in Ahmadabad or IMA where she is a graduate and where she also met her husband to be she was unable to land a job until day 8 or day 9. She went on to say that foreign banks had rejected her and that she was losing confidence in herself but was able to take it in his stride. And it was then that ICICI gave her the break that defined her career path which would eventually lead her to Fortune’s most powerful women in business list as recently as 2017. In interview with Forbes India in 2014 she was asked the question - What Legacy would she want to leave behind at Axis bank? She said, “I'll say what I told investors in 2009. I took over a good business, I want to leave behind a great institution”. As the dust settles how Shikha Sharma as contributions will be evaluated, only time will tell, but it is a matter of absolutely no doubt that Mz Shikha Sharma through her storied career has influenced and inspired countless women and men alike in the becoming one of the most successful bankers the country has ever seen.

This has been everything you wanted to know about Shikha Sharma and her impending exit from Axis Bank. Until the next time I see you, this is me Rakesh saying thank you for joining us and stay with us on Moneycontrol.