Expectations are building up that the Fed has almost reached the end of the rate hiking cycle. Where do you think the RBI is?
We are in for a bit of a long pause. In the next meeting, there is a reasonable chance that the committee (Monetary Policy Committee) could indicate a more neutral stance. The long pause could be anywhere from six to nine months. Our inflation numbers are pretty good and that give confidence to the MPC (Monetary Policy Committee). Also, I think they don’t want to enter into a situation from a government perspective where the elections are coming up. Not that I am suggesting for a second that this government has taken some wrong steps from an election perspective. I think they’ve always done things for the long term. And they obviously need to continue to push the economy in the right direction.
Growth is still not up to the level one would want. What needs to be done?
If you look at the deposit growth rate, it’s still in the 10%-11% range; our economists are predicting credit growth to come down to 13%. But with those kinds of growth rates, how will you support the economy to grow at a much faster pace? Credit and deposit growth need to come back to slightly higher rates. Obviously, the RBI realises it. But at the same time, they’re trying to control inflation, and they don’t want too much liquidity in the system. So it’s a balancing act.
Amid talks of a global recession and slowdown, how is the Indian economy positioned?
Private capex is still not necessarily back. Yes, the PLI (Production Linked Incentive) scheme is helping, but it is not back to the levels we want. I think people are still a bit apprehensive due to global macro. People have suffered in the past, so they don’t want to take huge risks in putting large capex. The capex you are seeing is from infrastructure, government capex is there, there are some specific industries where companies are willing to put in money, but those are not very large numbers. Yes, you’re seeing a lot of global companies look at India as potentially a manufacturing site, and that is helping but a lot of them when they come to India are not necessarily borrowing from the market; they’re funding it themselves. And so it does not reflect in credit growth. But you are seeing China plus one coming through in small phases across the country, and I think it will only increase over a period.
Worries about the US financial system are growing. What about the spillovers and the impact on India?
In the US bank failures have been due to the rapid rise in interest rates. And there was a clear difference, which started emerging between money market rates and deposit rates. We are well capitalised. Our loans are linked to prevalent interest rates and are not fixed. So, the balance sheet is much more resilient. The first big change is that we have become smart about lending. Also, there is a tremendous amount of information available on lending, we have more data to assess. Banks are not going to do the typical project financing that they have done in the past, so they are expecting the sponsors to take more risks. Last time the losses were very wholesale driven, this time my worry is if the cycle was to turn, you will see problems more on the retail side, because the share of unsecured has gone up quite a bit.
So, is it retail banking that’s going to throw a surprise this time? How nasty could it be?
Both on the consumer durables and the personal loan side, you’re seeing a trend that it is slightly negative. Ithink the proportion of people who are not necessarily getting approval is increasing. And you will also see more applications coming from certain less creditworthy borrowers. These are all signs which seem to indicate that you need to be watchful. A lot of banks are operating at the lower end of the risk curve, so companies which are in the higher end of the risk curve like fintechs and NBFC’s should be watching their numbers more closely.
Are we in for a spike in defaults and bad loans?
The upside is the regulator is now analysing data and looking at data much more closely, much more actively than before. They are not waiting for a problem to happen. They are having proactive conversations with every player in the financial system on credit-deposit ratio, or wholesale deposits or funding, growth of personal loans, and what are the risk mitigating tools we are using. So, the engagement with the regulator is at a completely different level.
Risks could be reduced but not eliminated. So, for India where do the risks lie?
For some NBFCs and fintechs for whom things are not looking good they could see their funding dry up pretty quickly. You are already seeing some transactions in the market not going through so it is playing out as we speak. My view is that if liquidity remains tight, it will amplify the impact on some of the NBFCs and fintechs even more. Given the experience during Covid times, you could see the system shut on them pretty rapidly.
The last big NBFC episode was IL&FS…
No, we are nowhere close to that. But if tomorrow the cycle were to turn or the liquidity remains tight or gets tighter, I think the first thing that will happen for some NBFCS is that their growth has to come down. The market is pushing for growth. And when the market starts pushing for growth and growth starts getting rewarded, then people do tend to make mistakes. I as a management team potentially could become under pressure and say growth is what I’m expected to deliver. I might do things today for which I might have to pay a price tomorrow.
Doesn’t Axis look at delivering on growth rates?
We are quite clear. We have worked very hard on our NIMs and got it to a certain level and keeping that in a certain zone is sacrosanct. We believe we can deliver growth that is 400- 600 basis points above the market without taking some of these risks. So, if we believe we can deliver certain RoE within our risk guard rails there is no need to go into something beyond that.
You have exposure to Adani group. What’s going on in your mind?
We have disclosed our exposure and we are constantly monitoring it. We have lent to operating group companies. All of them are very strong in their own right. Part of the exposure is also because Adani has acquired power plants where we had bad loans exposure. So part of the exposure is actually converting a bad exposure to good exposure for us. The profitability is moving in the right direction. So our view is that while we are monitoring it, we do not have any concern.
You are in your second term now. How much of what you wanted to do has been done?
The reason I joined this institution was not to remain where we were but improve our position. That has not happened yet. Our ranking, our market capitalisation, our size and so on. Have you come a long way? Yes, I do believe that. We have changed the culture of Axis, we have taken care of a lot of problems which were there in the system, we have improved in our execution, our aspiration has gone up. When we talked about 18% RoE, people did laugh at us, now we have delivered that.
So the difference between leaders and Axis remains?
Frankly, the difference between us and ICICI is largely on NIMs. There are a number of other parameters where I outscore. I think we have definitely brought down the difference between us and some of the other institutions. It might not be reflected in our market-cap to the extent we would like, but we do believe that in the market, in front of consumers. In some businesses, we have emerged as number one or number two. And with the Citi acquisition, we have just fast paced that journey even more. I am hoping that in the next three to five years, you will see us as an even stronger player than before.
Citi acquisition also brings Tata AIA bancassurance. Will it be sold across like Max?
Tata as a group is an important relationship for Axis Bank. We are very happy to welcome them as another bancassurance partner. I am sure Tata AIA is eyeing the entire Axis Group and our bancassurance partners are eyeing Citi customers. We have tie-ups already (Max LIC), Tata AIA will get added to that list of partners. My only approach to them is, now tell us how you will approach these set of customers and add value to this franchise.
Your nearest competitors HDFC Bank and ICICI Bank have scored better than you in the last quarters. Why didn’t Axis?
I am moving toward a destination. How do I arrive at that? For us, the biggest difference between us and the nearest competitors was NIM (net interest margin). Fundamentally, we had to change what NIMs we work on. If both retail and wholesale NIMs are maintained from here on, we can still be around 4%. Growth will come but you will see the operating profit that we deliver will be way higher than what people expected. If I keep delivering on a consistent basis, trust will only build and our stock will get rerated. Everyone’s journey is different.
Axis MF was in the news for the wrong reasons. What has happened since then?
The Sebi report confirms partly that there was one person who went rogue and did the wrong things. I don’t think the institution or the company should be branded in a certain way. We have institutionalised a lot of practices that will ensure such malpractices are not repeated in the future. We have brought in people with solid reputations that signal that we want to do the right things and be on the right side of regulation.
