Axis Bank has traditionally grown at a breathtaking pace, but 
Shikha Sharma believes that pace will need to come off somewhat.
Sharma who took over as the chief executive officer and managing director in June is, however, confident that the bank will continue to beat the industry growth rate and sustain the margins and return ratios.
Preferring to leverage the bank's strengths rather than foray into too many new areas, Sharma tells Sudeep Jain and Shobhana Subramanian that delinquencies may not yet have peaked.
Do you feel the need to tweak Axis Bank's business model?
Axis Bank is a well-run business, a thoughtfully built bank with a very good culture. So there is not a lot I want to change at the bank. As we move to the next level, the idea is to identify our strengths and build on them so as to fill out some of the product portfolios. So there will be some small changes but no dramatic shifts.
Axis Bank has grown aggressively in the past but do you plan to sustain the tempo?
Every organisation goes through stages, in early stages it is easy to grow fast. But as it scales up to the next level, the pace needs to come off. I think we are still a relatively small bank, so we can grow faster than the industry.
Which are the new businesses that you are looking at?
Right now I am focusing on how to grow in areas where we are strong. We have a strong retail liability franchise with among the highest CASA ratios and also a strong SME franchise with more than 10,000 customers. Of course, 80 per cent of the balance sheet is accounted for by corporate banking and we have some experience in the infrastructure sector too.
What does the McKinsey Vision 2015 report say?
Every time I have started a new business, I have found it valuable to work with McKinsey in scoping out a broad opportunity map. Axis Bank too has been using McKinsey for the last three-four years, so it's actually a continuous process.
People believe that since I am from ICICI Prudential, I am going to get into insurance or copy what someone else is doing. But it doesn't make sense because what is right for Axis Bank today may not be right for somebody else and vice versa.
So is life insurance right for Axis Bank?
No, I think manufacturing life insurance products right now is not a smart idea because there is a lot of potential in the areas that Axis Bank is good at.
So why should we get distracted? Life insurance is a fairly crowded market now and it doesn't make sense to set up a greenfield life insurance venture. We may choose to partner someone with a small strategic stake.
What about health insurance and broking?
Health insurance is a more open area. But again, we have to ask if it is the best use of capital and the management's time and is it an opportunity area which can leverage Axis' strengths? I think it does qualify on one of the counts and we have to assess whether it qualifies on the others. So it is a conversation to be had, but we haven't reached a definitive conclusion on health insurance.
Currently, the other lines of business that Axis Bank has are the PE arm and the AMC, which will be launched this month. As for broking, we are still exploring whether it's a space that Axis can get into.
So, the Rs 4000 crore (Rs 40 billion) of capital that you raised recently will be used to grow the loan book?
Yes, that will be used to grow the balance sheet.
Would you like to hold Tier-I at 9 per cent and what kind of return ratios can we expect going forward?
Risk appetite has gone down both globally and in India as well, so people want to see well-capitalised banks.
Our thinking was to raise enough capital so that we are strongly capitalised and ready to participate in growth opportunities. We haven't crystallised any plans yet, but if there is an opportunity we may raise more capital.
As for RoEs, the bank has, in the past, been delivering about 20 per cent. There will be some dilution in RoE because of the recent capital infusion, but as the capital gets utilised we should come back to that level.
What is Axis Bank's USP now and what will it be going forward?
In building any sustainable business, the important thing is to look at adding value to customers.
And because our business is about people, we have to be able to engage people, telling them that this is the best place to work. Strategy can be the same for everybody but ultimately, it's all about execution and discipline.
How are the SME and retail portfolios holding up?
The SME portfolio is holding up quite well and with the economy turning around, the position will get better. Axis is relatively new to retail assets and it did have an unfortunate experience with unsecured loans.
But the good news is only 3 per cent of Axis' total assets comprise retail unsecured loans. And we have been provisioning for it fairly conservatively and will continue to do so.
There is talk that the worst may be over and a recovery is in progress. So is this the end of delinquencies?
I don't think it's the end of delinquencies. Because of accounting policies, there is a 90- day lag in terns of when the NPAs show up. But in the real economy, we are beginning to see the first signs of revival. The peaking of delinquencies should happen over the next few quarters.
What are your thoughts on infrastructure financing, does it really pose an asset-liability mismatch risk?
Infrastructure is going to be one of the large growth opportunities and Axis Bank has so far done advisory work, syndication and has also lent for projects. Fortunately, most of the financing is through floating rates and the good news is that, as the interest rate futures market develops, there is going to be an opportunity to hedge some of the risk for the projects.
A lot of them are toll-based projects which is a natural hedge. So when you go into the details, infrastructure financing appears less frightening.
Both ICICI Bank and HDFC Bank have been expanding their branch networks very aggressively. What are Axis Bank's plans?
The good thing is we have a very strong CASA base of 40 per cent and we are happy to maintain it at that level. Axis Bank has been systematic about its branch build-up, adding 150-170 branches every year and we will continue to add around 200 branches a year.
Apart from changes at the senior management level, are there going to be any changes in the management structure?
First you have to figure out your strategy and the structure has to follow the strategy. We are going through the first phase of getting clearer about the strategy. That will be partly done this month, but it's also partly an ongoing process. I want to do some realignment of roles to make the structure simpler which will get done some time this month.
Has the re-pricing of deposits happened and will net interest margins (NIMs) improve?
NIMs have been going up with deposits being re-priced and most of it has happened. However, most banks will end up passing on the benefit to customers so you can expect NIMs to remain stable.
Do you feel the industry credit growth target of 20 per cent for 2009-2010 will be met?
The year-on-year growth in credit is around 13 per cent currently and growth in the first two quarters has been quite flat. My sense is that credit growth will pick up, but whether we are going to end up with 20 per cent growth, I am not so sure.
The Australian central bank has raised its policy rates. So has the tide turned, is this the end of easy money?
My sense is RBI is going to be watchful of inflation and watchful of growth. So the tricky balance that they will have to strike is don't do it too soon so it hampers growth and don't do it too late so that inflation goes out of control.
They will probably take controlled actions before they take interest rate actions because they don't want to hurt economic growth. I'm sure at some point the tide will turn.
Image: Shikha Sharma
