Axis Bank aims at 18% RoE riding on stronger economic growth

Rajiv Anand, executive director (wholesale banking) said the bank is already seeing “green shoots” of growth which will translate into higher credit growth lifting it from the present single digits. Anand who is set to be re-designated as deputy managing director subject to Reserve Bank of India approval said the bank’s ambition is to achieve an RoE of 18 per cent. He did not give a timeline for achieving the number.

“All leading indicators indicate that growth is coming back. We expect this momentum to continue in 2022 and even in 2023. We are increasingly having conversations with companies to increase capital expenditure and over the next nine to 12 months these credit plans will become concrete. We have seen a down cycle play out over the last four to five years but we think capex will not pick up and as exports, consumption and government spending increases it will lead to better profitability,” Anand said.

Axis Bank ended fiscal 2021 with an RoE of 6.48 per cent improving from 1.91 per cent it reported in March 2020 mainly as profits were hit due to higher provisions as non-performing assets rose that fiscal. RoE is a financial indicator of a company’s profitability. It is calculated by dividing a company’s net income by shareholders’ profitability.

Anand said the bank’s strategy is to ensure that it gets more out of every customer’s wallet and will look to increase its share in the fee income it can earn besides trying to gain market share on the lending book.

“We have certain measurement parameters which we will track and review. If the customer does not meet those revenue parameters we may also walk away, of course after having a conversation with the customer. As we put on new assets we are confident of our new risk assessment statement which we have developed over the last five to seven years and has served us well so far,” Anand said,

The bank will look at the quality of promoters, profitability of the business, its leverage ratios, securities and collateral together with its credit rating before deciding on the exposure and pricing of the loans. Anand said the bank is looking to ensure that it uses its ancillary businesses like capital markets and treasury functions to make sure it generates fee income together with interest income.

“We are looking at it as a One Axis policy with the whole being greater than the sum of parts We are more confident now and have become much strong over the last three to five years. Credit growth has been rather anemic at 7 per cent but as economic growth picks up it will revert to its mean and grow 2.5 times the growth. So credit growth should be in double digits if not next year then certainly in the next 18 to 24 months,” Anand said.

To be sure, working capital utilization limits are still hovering between 60 per cent to 70 per cent currently. Ganesh Sankaran, head wholesale banking coverage group, said the bank will look to increase exposure to renewables, roads, logistics and new businesses like data centres. “It is true that all conversations about capex will not lead to demand. Companies have also leveraged heavily. But equity raising over the last few months is creating a capacity to increase leverage,” he said.

Latest results show that Axis is slowly regaining some momentum after being hit by increasing NPAs over the last three years. In the quarter ended September, its net profit rose 86 per cent to Rs 3133 crore led by strong growth in retail loans even as provisions for bad loans fell 60 per cent year on year. Gross NPAs were down to 3.53 per cent of total loans from 4.18 per cent a year ago.