‘The RBI has started normalising its extraordinary injection of liquidity in a calibrated manner’, said Chaudhry
Amitabh Chaudhry, managing director and chief executive officer, Axis Bank
Just days ahead of declaring its second-quarter earnings, Amitabh Chaudhry, managing director and chief executive officer, Axis Bank, speaks to Subrata Panda and Abhijit Lele on business growth in July-September as well as asset quality pressures. He also touches upon the Reserve Bank of India’s (RBI’s) action against the Srei group, to which the bank has an exposure. Edited excerpts:
How was Q2 in terms of business?
Growth remains muted on the wholesale side of the business, the same as others in the industry. Although growth is available, it is coming at a price (because of excess liquidity) that does not make sense for us. At the same time, we are trying to build a decent-sized trade finance book. On small and medium enterprises (SMEs) and retail, we are hoping our growth will be better than the industry. On the large corporate side, we have seen a huge amount of deleveraging (in excess of Rs 2 trillion). The capex cycle has bottomed out. People are talking about incremental capex but that has not taken shape yet. We hope in 12-18 months the cycle will come back and hopefully that will lead to better credit growth. But we will be cautious.
Any asset quality surprises you are expecting in this quarter?
The first quarter was hit unexpectedly by the second wave of the pandemic. But after June, things have improved dramatically. The second quarter, hopefully, will reflect a more than decent improvement in credit quality for most of the players. We have seen slippages drop, collections improve, and many asset classes are witnessing their pre-Covid levels. As far as the SME portfolio is concerned, Axis Bank has not relied on the Emergency Credit Line Guarantee Scheme much. Our portfolio quality on the SME side has continued to improve over many quarters as we have pivoted towards better-quality customers. The large corporate segment continues to show improvement and I do not expect any surprises there.
Lenders are engaged in a price war in the home loan portfolio. What is Axis Bank’s strategy as far as the home loans segment is concerned?
This is a festive season trend. In the past, public sector banks and housing finance companies used to lead to this intense competition, but now private sector banks have become aggressive because of the excess liquidity, and low corporate credit demand. We have faced such competition in the past and we will face this competition as well. If a customer is important to us, we do not let go of that customer easily. Our flagship home loan products continue to do well.
What does the action on Srei mean for banks like you that have an exposure to the group?
We do have an exposure to this group but over a period we have reduced it to more than manageable levels. The RBI action will not have an impact on the system because the exposure is not large enough and it is not an unexpected event as lenders have already made provisions.
Does the DHFL resolution give confidence to lenders that Srei can be resolved under the Insolvency and Bankruptcy Code?
DHFL had an advantage in that its retail book was decent and that is what the bidders went for. But this particular firm (Srei) is more of a wholesale non-banking financial company and was also into equipment financing. But we have to understand that the lending was done against tangible assets and recovery is very much possible. But it could take a bit of time and patience.
When do you think the RBI should start normalising its monetary policy?
The RBI has started normalising its extraordinary injection of liquidity in a calibrated manner. It does not want to surprise the markets, which seem to have priced in a small reverse repo hike in the October policy.
What are your plans for the credit card segment, given that new players have entered and the existing ones have become more aggressive?
We are the fourth-largest in this segment. We had some asset quality pressures during the first Covid wave but that is behind us. As far as Q2 is concerned, we have seen very positive traction in acquisition, cards in force, and spends. We see this trend continuing through both the organic acquisition channels as well as the partnerships which we have with Flipkart and Google and others. It is an important business for us, and the growth momentum is back in this segment.
Which are the areas where you will focus on as far as sustainable financing is concerned?
Bharat Bank is an important initiative in this regard. We are also working with some of the international firms and institutions, which have developed risk models around sustainable finance. We hope to complete our models by the end of the financial year and have announced some targets by 2025.
We have also tied up with some of the global institutions in setting up lines to allow us to co-lend with them for sustainable finance.
We were a large lender to the project finance space and we have financed thermal power projects the most. But incremental lending has stopped and we are reducing our exposure.
How much is Axis Bank looking to hold in IDRCL?
Yes, we are taking a stake in NARCL, a small one. And, we are taking a much larger stake in IDRCL. The stake size is equal for ICICI Bank, HDFC Bank, and Axis Bank. The exact stake will be subject to RBI approval.