Axis Bank Managing Director and CEO, Amitabh Chaudhry on January 16 said Indian banks have learned lessons from the past bad loan cycles and are much better placed today to look at the right borrowers.
"All of us have learned a lesson from previous crises and have paid a price. We will not make the same mistakes again," said Amitabh Chaudhry while speaking exclusively to Moneycontrol on the sidelines of Davos 2023.
The Axis Bank CEO said corporate borrowers, too, have realised they cannot take the banks for a ride. The large-scale loan write-offs have helped banks to clean up their books, enabling fresh lending, said Chaudhry.
"All the write-offs that have been done have put the banking system on a sound footing. The balance sheets are well capitalised. They are clean. The Indian banking system is ready to lend to the right set of people," said Chaudhry.
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"I think even the entrepreneurs have learned a lesson that they cannot take the banking system for a ride. And If you do, there are consequences to it. In that sense, the system is well-prepared," said the chief of India's third-largest private sector bank.
Chaudhry's comments are significant in the wake of around Rs 10 lakh crore of corporate loan write-offs by Indian banks in the last five years. This helped banks to lower their bad loans significantly.
As per the data disclosed in the Reserve Bank of India (RBI) asset quality report, the gross non-performing assets (GPAs) of Indian lenders have declined to a seven-year low of 5 percent in September 2022.
The net non-performing assets (NNPA) dropped to a 10-year low of 1.3 percent in September. On the face of it, this is good news. A lower share of NPAs reflects positively on bank balance sheets.
Chaudhry highlighted that the bankers are now cautious about working towards maintaining their asset quality. "We also have to be cognizant of the fact that we cannot go back to the old days. If you make mistakes today, you will pay 3-5 years down the line for that mistake," Chaudhry said.
"So as bankers, it is critical to ask this question are we creating risks today which could lead to NPLs tomorrow," Chaudhry said.
Rate hike cycle coming to an end
Chaudhry said that the RBI's interest rate hike cycle is likely coming to an end and the central bank's rate actions have helped to keep the inflation under control.
"We are expecting another rate hike may be 25 bps in February. We believe that should be the end of the interest rate hike cycle. But, these are ultimately speculations. The MPC (monetary policy committee) has done a great job," said Chaudhry.
Speaking on deposit rate hikes by banks, Chaudhry said that banks may work on hiking deposit rates as credit growth is ahead of deposit growth. "That ultimately needs to be settled down. So because banks want to grow, deposit rates might continue to rise," Chaudhry said.
India a bright spot
The Axis Bank CEO said India is seen as a bright spot in the global economic landscape but the execution is key to getting more foreign investments.
"India is clearly a bright spot. The government and RBI have managed covid crisis extremely well. The government has created a lot of strategic partnerships. India is a place where the world should be investing more," said Chaudhry.
While there are clear positives in terms of economic fundamentals, execution is key, the Axis Bank chief added.
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