Exclusive Interview: “Next 3-6 months will tell us how the entire business with Paytm pans out,” says Amitabh Chaudhry

India's economy is doing well backed by government spending and private capex expansion, Chaudhry said

Axis Bank’s Managing Director and Chief Executive Officer Amitabh Chaudhry on 2 April said India’s economy is doing well, backed by strong government spending, even as private sector investments are also showing signs of a pickup.

“Generally the economy is doing quite well, I mean, with the kind of spending which the government is doing and the kind of spending they are talking about, it is quite incredible. Private side has started talking about capex,” Chaudhry said in an interview on 2 April.

Asked about his views on the upcoming general elections, Chaudhry said India’s banking system is pinning hopes on policy stability from the centre, but macro factors and growth trends need to be monitored.

On the bank’s recent partnerships with Paytm, Chaudhry said the bank is working with the fintech company in three areas, including the UPI business and also as a nodal account manager for merchants transactions and will have to wait for the next 3-6 months to see how the business partnership will pan out.

In the past five years at Axis, Chaudhry launched several initiatives, from transforming the tech platforms to changing the way fresh business is acquired. Under Chaudhry’s watch, Axis Bank acquired Citibank’s retail business in India in 2023 in what could be termed as a landmark deal for the bank’s operations in the country.

In a freewheeling chat, Chaudhry said the Axis-Citi retail integration is happening smoothly and touched on a range of important issues, including the bank’s future growth plans and aggressive push to garner deposits through using a mix of physical branches and digital channels.

Edited excerpts:

General elections are around the corner. What impact do you anticipate this will have on the banking sector?

The expectation is that there will be policy stability in terms of how things pan out over a period of time. With that stability in mind, we have to worry more about some of the other things such as deposit growth and credit growth and things like that rather than really worrying about whether things will change at the central government level. Also, there are too many global macro issues that could impact India. I would say that would be more worrisome rather than change at the central government level.

You have a strict banking regulator in RBI…

Yes, the regulator wants us to work in a particular way. That’s the job of the regulator to make us work in a particular direction.

You have now completed 5-1/2 years as CEO. What were your biggest challenges?

When I came in, I kind of learned that there are some things you need fixing. One was we had asset quality issues. Second, we had legacy technology systems. It’s not that our technology was not good. But in quite a few cases, our technology across various platforms and businesses was lagging behind others we wanted to compete with. Third, even in terms of process efficiency, we were lagging behind. Fourth, we were not necessarily a conservative financial institution. It had a lot to do with the culture, how we thought, and how we were organised.

What parts of the earlier business worked and what didn’t?

So we were aggressive in certain areas we should not have been. Some of these things evolve over time. So you may have taken deposits from people who are necessarily not the best people to take deposits from. You do businesses which you necessarily should not be doing, which don’t give you the right return and so on and so forth. So, as a result, we had to change the culture a little bit, and these are the businesses that we will not do. We are not going to be interested in something like this.

And secondly it was also important to raise the aspiration level of the bank that we can become a leader. Why are we feeling good being number three? So this cultural change was in my mind the most important thing and it is still an ongoing process. We’ll do things to become a leader. We’ll also start doing things that matter in the long run.

We have stopped worrying about our quarterly numbers. We have stopped worrying about what will happen in the short term.

Has this approach helped position you ahead of the competition? 

We see some institutions following us and doing what we do, in the sense that earlier, we were just following what others were doing. Now, in some cases, we are ahead of them.

How are you tackling the challenge of deposit mobilisation?

We used to be known as a bank, which was doing very well on the deposit side generally, right? Over time, we lost the crown on deposits. Over the last three years, if you look at the data, our deposit growth on saving accounts, current accounts and term deposits generally compares very well to the two institutions we compare ourselves to. We have not beaten them, but we are very much in the same zone or slightly ahead of them overall. Citibank acquisition has obviously helped us, but I am just comparing like-to-like, and I think we have been in the same zone. The franchise has been built over a period of time, but it still needs some work.

How do you look at this issue from a competition point of view?

For example, our inroads into the corporate salary business overall are lower in comparison to what HDFC Bank and ICICI Bank have achieved over a period of time. We penetrated it late. Maybe we penetrated it in the wrong way, whatever the reasons might be, we need to improve the quality. That is one of the reasons why we bought Citibank. Also, we have been working on a project called Triumph for a long period of time, and we know it is a very, very important project. The project is all about 50 people deployed full time on just this assignment alone, from various levels in the bank handpicked by us.

So, what is different now?

Earlier, our pitch on deposits invariably was a pricing-related pitch. Now, our pitches are around our relationship and services and products rather than price. So, this is a cultural change, and it takes time. So, there’s been a calculated, calibrated effort across the franchise to ensure that we can reduce the cost of deposits, reduce the yield rates, change the pitch, and change the culture. It’s like a moving ship, and you’re trying to change so many things at the same time. So, you have to do it at a certain pace because if you push the pace beyond a point, it can create a bigger problem. Our view has always been that on the lending side, we need to grow 400 to 600 basis points more than the market. To support that growth, our deposit growth also has to be similar.

But why is there a deposit constraint to begin with?

The constraint in the deposit growth has been the tight liquidity by RBI. During Covid, they had released the liquidity quite a bit, but post-Covid they are managing it in a manner that the liquidity will kind of keep getting squeezed out of the market. If RBI keeps tight liquidity, deposits will remain constrained.

How are your digital banking channels doing?

If you look at our mobile app, it is rated 4.8, both on the Apple and Google Play store. We were the first ones to set up a separate digital banking unit. Others are also doing the same now. Most of our platforms are doing much better. We have a new platform for wholesale and SMEs. I’m not saying everything has been fixed, but they are seeing a different version of Axis, and we need to keep at it. A lot of work still needs to be done.

Is it fair to say that your deposit accretion strategy is centred on the 5,200 physical branches?  

We have launched OPEN all-in-one, which is a big part of what we have been working on. Ultimately, all of us want to gain liabilities at scale digitally. When we launched OPEN on the digital side, it was a step in that direction. We want OPEN to be seen as a brand in itself, and we are working towards it. Again, It is a long haul, but we want to increase the scalability of our liability franchise digitally as well. That’s very important for us.

The wholesale side also contributes to deposits. Our SME side contributes to deposits. The branch banking has a big role to play. And we believe that today’s customers, even though they might be quite digitally savvy and access banking services mainly through digital channels, still want a physical presence.

RBI has very clearly given a signal on the unsecured loans. What has changed at Axis after this?

Yes, obviously, RBI has given a signal. That very clearly means that if you attach more capital to any asset class, your returns on that business will go down. So, in a deposit-constrained environment, how we go about it is that we look at the businesses that give us the highest return and then which give us the lowest returns based on the current capital requirements as they exist. And then, we decide who will get the higher share of the deposits to be allocated to the various asset classes.

As far as unsecured is concerned, 77% of the total retail book is secured, and the remaining is unsecured. Most of our lending is still to existing bank customers. We have not changed our risk guardrails to increase the size of the business. The size of our personal loan business has gone up. But it has gone up because we have re-looked at our customer journeys. We have re-looked at our distributor journeys. We have re-looked at how we can attract more customers to come to us rather than going to some other entity. We are watching our data very, very closely.

What kind of loan mix are you looking at?

So, we expect both. See, in a deposit-constrained environment, sometimes some bets are off because we have limited options in terms of what we can do. Is mortgage the right business to do? It may not be. If the only relationship we have with the customer is a mortgage, and we are lending to them at 8.5%, it does not make sense. We should be able to cross-sell. In a healthy deposit-growing environment, you want everything to grow at a certain pace. But, in a deposit-constrained environment, maybe some asset classes will grow faster than others. So, we don’t want to start predicting which will grow by how much. Our expectation is that the retail business will be in the zone of 55% to 60%, and the wholesale will be the balance.

Is there a conscious strategy to grow the retail book?

Again, we are not putting any restraints on any of them. Our restraints are on capital and return dividends. So, if tomorrow wholesale stops making money, we cannot let it grow. If, with a client, the only thing we do is lending, it may not make sense for us in a deposit-constrained environment. So, we need to be careful and get the right kind of yield from a particular customer. That’s how we go about it, and that’s why we don’t put numbers around some of these things.

You have taken over some parts of the Paytm business. How has that been going so far for you?

So, for Paytm, there were a couple of things which they had to manage very quickly. One was to obviously set up a nodal account, which was with the bank. They opened the nodal account with us and I think they opened it with another bank as well because having one bank does not make sense. So, a lot of flows have started in that account.

Second is that they had the Paytm handle, and they had to ensure that they tie up with some bank to be able to operate that. Again, they have tied up with 2 banks. There is one primary bank, we have the second bank. Third, they had to do the same thing with the merchants, because they had a lot of business with the merchants. And there again, I think we are one of the two.

The fourth was the FASTag business, and people have been asked to replace their FASTags. So, that business has shrunk.

So, these are the 4 businesses and we are working on 3 of them. The next 3 to 6 months will tell us as to how the entire business pans out.

What’s your take on the Paytm issue at a larger level?

My view is that the Paytm was a pioneer when COVID hit us. A lot of merchants and customers have been with them. Technology wise, they are quite savvy. So, a lot of customers once they think that the things have settled down might come back. Maybe because they have had good experience and good memories of what Paytm has done, so, let us see how this pans out.

But the relationship is quite strong. If you recall, Paytm used to issue credit cards with HDFC Bank and Citibank. Then they shifted to SBI. They have also signed up with us to issue credit cards. We will do it at the right stage once things settle down. Right now, the focus is more to ensure that the business is well protected and then we will move to that stage.

Has the Paytm episode changed your philosophy towards fintech partnerships?

No, but we already had partnerships. So, we had Flipkart, we had GPay, we had Airtel Payments Bank, and we had started with Vistara. We have had a number of these relationships. We will go live soon with some of the other big players, and most of them have signed up with us. One of the reasons why we could partner with Paytm is because we could give them the scalability they wanted overnight.

How is the acquisition of Citibank’s retail business playing out? 

On the tech migration side, we are working towards it. We are hoping to close it in the first half of this financial year. Already, there is a change in IFSC from Citi to Axis. So, today, Citi customers can also use the Axis access IFSC code to transfer money. So, that change has already happened. We are also trying to ensure that the credit card and the debit card numbers remain the same. We are trying to ensure the account numbers will remain the same. We are trying to ensure that whatever regular payments you have will be picked up from Citi automatically and will be part of your regular payment and Axis Bank account whenever the transition happens. So, a lot of work is being done in the background to ensure that customer inconvenience is reduced to a minimum.

The LCV portfolio and CVCC portfolio have already been migrated. So, that also has been done from Citi. We have taken a part of it and already migrated to the Axis systems. So, in the first half, all the branding will change. We will not replace all the cards on day one. We will not replace all the cards on day one; we will do it in a phased manner. Customers will stop seeing Citi statements and start seeing Axis statements from the LD2 date, as we are calling it.

We are very much on track with our timelines. We said 18 months, which happens in August, end of September. So, we will do it in the timeline we promised. So, I would say net-net, I think the overall acquisition, the absorption of the acquisition has gone quite well, and we are very happy about it.

You had earlier said that Citibank’s call centres were a great value addition.

So, there were 750-odd people who were Citibank employees who used to manage the call centre, and the call centre was known for the kind of services they provided and the kind of conversations you could have at the call centre. Firstly, almost all Citibank people have been trained in Axis Bank products and services. We are also expanding this list of 800 to almost 1,800 people. We are adding two more centres. We were bothered about the attrition rate in the initial stage, but it’s lower than what we see in the outsourced call centres. So, we are managing that well, too.

Is there any data update on fresh business acquisition post-Citi buy?

The number of products which they have sold to the existing Citi customers has gone up manifold. I mean, just to give you some data points, mortgage and fresh disbursals to model customers have gone up by year-on-year growth of 147%. So, there are a number of these data points across various products, and the penetration is much higher now because Citibank did not have those products. Citi’s corporate salaried franchise product was called Suvidha. Axis Bank has renamed its corporate salaried franchise as Suvidha. So, whatever made sense has already been done.

What is your market share in the corporate salaried market?

We don’t publish the data. It’s difficult to shift an existing customer unless the current bank does something that makes them really unhappy or if they’re willing to start a new relationship. So, these changes take time.

There is a view that bank relationship managers are hard-selling products to customers that they don’t really need…

Obviously, there is a huge backend engine which is running it. But it is a work in process. And yes, there is a reputation banks have that we only pitch and try to sell all the time, which does not work with a lot of the customers. We try very hard in our learning and development to train our RMs on how to sell, what to pitch, hear what the customers need and so on. We have a Siddhi App, which we keep talking about quite extensively, and in that Siddhi app, our RMs (relationship managers) are nudged on what they should be pitching. We are in the process of employing someone who will look at this as a science and art and help us with it since we have created a huge nudge library for ourselves. So, if you go to our mobile app, there will be specific and customised nudges only for you.

The RBI is visibly uncomfortable with the high credit-deposit (CD) ratio in the industry. Your views?

Yes, we understand and appreciate that and have a strategy to manage it. RBI has given various signals to the banking industry. One was that the credit growth was too high. It is not aligned with the deposit growth. Second, the unsecured loan portfolio was growing too rapidly. Third, your lending to NBFC also involves lending unsecured. Fourth is the CD ratio - it’s a different way of saying that the credit growth is higher than what it should be and that the deposit growth is not sustaining the credit growth.

What is your thinking within Axis Bank?

As far as our CD ratio is concerned, we have gone back to RBI with a strategy that has been accepted. Obviously, this means that we have to follow the strategy in terms of how this will play out this year and next. We have a plan, and we are sticking to it and watching this very closely.

See, all of us had realigned our balance sheet based on the NCR. So, for example, you may be doing a lot of refinance. So, even though your book is more balanced than before, because you have done a lot of refinance on a CD ratio basis, you might not be looking that good. So, now RBI wants us to monitor some other data point too. We have added it to the list of things which we monitor.

So, you have given your strategy to the regulator as far as the CD ratio is concerned.

As one of the elements which we do, yes. Based on that strategy, it is very clear that our asset growth has to be driven partly based on the deposit growth. And so, there is an allocation that will happen of that deposit growth to various asset classes, and people who are running those businesses have to follow that, and we monitor it very regularly. We have a pretty good idea as to where we will end up with it, and we are good with that.

RBI recently clarified the rules on alternative investment funds (AIFs)…

This conversation was going on with the lenders for quite some time, and obviously, something was driving it. So, they came out with a circular, but maybe there were some areas that needed clarifications, and now it has been done.

Does this mean that you can write back some provisions in Q4, given the clarifications on provisioning?

It will mean some write-back of provisions. We are still trying to get answers to all the queries we had. We follow a very conservative philosophy. So, if we do not have the answers, we will not write back that easily. However, it would mean some writing back because some of the answers are quite obvious.

Does the clarification give you the comfort of further AIF investments?

Obviously, this confirms that we can do lending of some kind. Venture capital funds use various instruments to invest. It is not just equity or debt all the time. It could be a combination also. The reason we had to make a provision was that we have invested in some venture capital funds which are funding the startup community, and we wanted to use that vehicle to ensure that we get to know what is happening in the startup community to some extent. So, we made provisions. Our idea was not to substitute lending of any kind. Our hope was that this would give us the ability to connect with those startups, and if it made sense, we would lend to them. It was not substituting our lending.

There is generally the impression that RBI is unhappy about banks’ lending to NBFCs…

So, couple of things there. One is that in some cases lending through fintechs or NBFCs is happening in a form and a shape where it appears that the banks have outsourced part of their core activity to these entities where models are being shared. So, RBI is very clear that you need to own it. That is why they have come out quite heavily on the digital lending guidelines. RBI wants a much stricter version of the understanding of the circular. All of us are implementing it.

The worry is that if you outsource your core activity and if things were to go wrong, you will not even be aware of it. So, you need to own it. I think it is a fair ask from the regulators.

This is a time when big banks are turning bigger. What is the vision for Axis Bank? Will you consider acquiring a mid-sized bank, such as Yes Bank?

We acquired Citi, and it has taken us 18 months. So, it is not an easy acquisition, right of any kind. Citibank, the reason I mentioned Citibank was, if you look at the number of employees, it is quite small, 3,400 employees. Not a very large balance sheet, Rs 50,000 crore. So, when you have to make an acquisition of this kind, you have to know upfront that it can take anywhere from 2-4 years of your time.

We believe, based on this experience, we would be quite circumspect of going and acquiring a bank just to grow in size, unless a sweetheart deal came along which made so much sense for us that we will do it. Right now, we have enough to do internally to increase the scale and size of our businesses. There is enough opportunity out there. I think if you look at all the investments that have been made in technology, cyber security, regulatory compliance and so on and so forth, I think the big banks will continue to become bigger at the cost of the smaller banks because the cost is not linear. I have been saying this for quite some time. My view is there is enough on our plate. We’ll continue to be focused on what we have to do.

The government may push ahead with PSB privatisation post-election. Would you be keen to bid?

No, too much to take on. They have a liability franchise in many cases and the CD ratio is in 70s for quite a few of them. But it is just a very different institution. They have built institutions based on their own policies, thought process, culture.

What is worrying you the most? Is that the culture? Legacy issues,..

Well, everything is different - culture, legacy issues, the way they think about business.

You recently got IRDAI approval for Max Life. So, what is the bank’s thinking regarding future stake increases?

So we are allowed at the group level up to 20%. At some stage we might go and get the other 1%. We are waiting for a final approval.

Subramanian Swamy made an allegation about the deal.

This is sub judice. We have followed all the rules and have all the approvals. Everything has been disclosed to all the regulators.

How are you tackling staff attrition issues at the bank?

We have done a number of things on this front. We have an internal programme called ‘Thrive’, through which we open up vacancies for our internal people for any position that is created within the Bank. We have been able to provide careers internally instead of employees seeking careers externally. They can start applying at the end of 16 months for a particular job. We also changed our promotion policy and included it in Thrive. If that job is at a higher grade, they can get a promotion at any time of the year if they get selected for the job. There are some criteria around it. But we have started doing that as an initiative. It has had, I would say, a significant impact on our mid and senior-level attrition because a lot of people have applied and benefited. Our attrition, hopefully when we print the numbers, you will see that it has had an impact on attrition also.

You had a serial dealmaker crossing over from JM Finance to Axis.. What is the strategy behind it?

Yes, that’s right. We want Axis Capital to remain one of the premier players in this space. We had some gaps which we have filled up. Our ability to attract talent continues to be showcased through some of these examples.

How are you seeing the economy in general?

Generally the economy is doing quite well, I mean, with the kind of spending which the government is doing and the kind of spending they are talking about, it is quite incredible. Private side has started talking about Capex. So my view is that, lot of right things are happening. If the Indian economy does not do well during this next 10-15 years, then when will it do well? We are quite uniquely placed and this our chance.

Is the private sector capex really picking up?

It still needs to go some distance, but in some specific areas, you are seeing it.

What’s your prediction for rate cuts?

I expect a status quo this time as I think the inflation battle is still not done to the level where the RBI wants it to be.

Are home loan rates likely to go up?

The market is too competitive. And if you want to grow your retail book, it’s the fastest way to grow a retail book, because the average transaction size is larger. So, some people go after mortgage business as a way to grow their business. But the real estate market is doing quite well. So, there are options there.

Anything you could tell us about the succession plans at the bank?

There is succession planning at all levels-- starting from the CEO down to all the key positions in the bank. So, that is very much a part of the exercise which we do all the time.

Are you looking forward to another term in the bank?

Let’s see. That -- I’ll comment only when we come to it.

What is your overall take on the overall asset quality?

All the mistakes in banking are made when the times are good. In bad times, all of us shut shop. We have put all these policies in place, but yes, one of the things all of us as CEOs need to be thinking about all the time is – are we making any mistakes? So, that we can consciously avoid them. Because times are too good, that is something we keep asking ourselves all the time.