Under its new MD & CEO Amitabh Chaudhry, Axis Bank hopes to deliver 18 per cent Return on Equity (RoE) by focusing on growth, profitability and sustainability.
To achieve the target, Chaudhry has put in place a medium-to-long term FY20-22 strategy that attempts to strengthen the core business, optimise existing business mix, revise underwriting policies, curtail credit costs, and improve operating efficiency. As part of the strategy, the bank’s verticals including wholesale and retail lending will undergo a paradigm shift.
As for wholesale banking, the past three years saw trying times for corporate loan book even as the overall business flow fared better. The FY20-22 strategy involves segmental focus for strengthened coverage, profitable growth, and continued focus on asset quality. Chaudhry, in an intimation to analysts, explained the bank’s redefined risk appetite to ensure higher business quality, which is reflected in fresh loans predominantly from entities rated A and above and a significant reduction in concentration risk from peak. The way forward includes a four-pronged strategy to strengthen the coverage model focusing on mid-corporate and commercial banking business, deliver higher growth and better profitability and integrated credit, transaction and investment banking via focus on improving working capital to term loan ratio.
Similarly, on retail lending, which has been growing steadily over the last decade, will focus on higher-yielding retail lending products such as personal loans, credit cards, rural, and small business banking. Their proportion already increased from 29 per cent in FY13 to 37 per cent as on December, 2018. Still the bank will continue to maintain steady asset quality by giving retail loans to existing deposit customers, but with low loan-to-value to contain risk.
As for retail deposits, focus will be on CASA and retail term deposits as against only CASA earlier.
Besides, thrust is also on other segments like savings account with focus on priority, NRI and government savings. The bank intends to increase retail term deposits from existing savings account base and cross-sell to non-savings account customers. Besides, the bank will leverage merchant acquiring business relationships, focus on government business, simplify onboarding and drive digital activations; and embed Axis Bank in all digital payments of clients.
In terms of branch expansion, the bank aims to continue to increase branch network (to 5,000-plus from 3,956 at end-Q3FY19) along with improving productivity per branch.
Meanwhile, in order to improve its RoE, underwriting practices that have notably deteriorated Axis’s asset quality over the past three years, affecting return ratios are being finetuned. The management has structurally changed the underwriting process shifting focus on working capital loans from term loans, lending to better-rated corporates and reducing exposure to stressed segments like power and risky assets to lower risk-weighted assets.
The bank has also spun off underwriting from business functions to prevent bias and inculcate focus. Hence, management believes the current improvement in asset quality would sustain.
Strategy and way forward for various Axis businesses
Wholesale banking:
Focus on mid-corporate and commercial banking business
Focus on improving Working Capital to Term Loan ratio
Mid-corporate segment remains a key focus area
Maintain focus on asset quality
Prudent risk taking with conservative policies
Separation of underwriting and other business operations
Retail lending:
Sourcing from existing deposit customers
Analytics driven underwriting Strategies
Launch new businesses to cover product white spaces.
Small Business Banking
Expand cross-sell strategy to cover entire Axis franchise
Retail deposit franchise:
Simplify Branch Banking
Shift focus from CASA to CASA+RTD
Non-SA customers
Focus on float business
Increase share of RTD in existing SA base
Focus on scaling up digital origination of deposits
Focus on Government segment