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Informist, Thursday, Oct. 17, 2024

 

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--Axis Bank MD: Opened 150 new branches in Jul-Sept 
--Axis Bank: Domestic policy environment bodes well for banking sector 
--CONTEXT: Comments by Axis Bank's mgmt in a post-earnings concall 
--Axis Bank: Comfortable operating at current credit-deposit ratio 
--Axis Bank: Making efforts to boost deposit growth 
--Axis Bank: Bulk of slippages are incrementally from retail loans 
--Axis Bank: Current credit-deposit ratio aligned with RBI's direction 
--Axis Bank: Signs in auto, e-commerce space encouraging ahead of festivals 
--Axis Bank: Watching microfinance segment very carefully 
--Axis Bank: Festival demand to drive Oct-Dec quarter performance 
--Axis Bank: Have taken precautionary steps for areas that can get over-leveraged 
--Axis Bank: Probability of a rate cut by RBI this year seems low 
--Axis Bank: See signs of stress in some credit card segment
--Axis Bank: Took action in portfolios where we saw signs of early stress 
--Axis Bank: Remain cautious about stressed credit card segments 
--Axis Bank: Will take action against portfolio buildup of unsecured loans 
--Axis Bank: Growing faster than industry in deposit growth 
--Axis Bank: Liquidity buffers adequate 

 

NEW DELHI – With retail credit card spending posting a 15% year-on-year rise, Axis Bank Thursday said it has seen early signs of stress in some credit card segments and will remain cautious about those. Axis Bank's comment, which is a top credit card issuer, comes at a time when credit card spending is expected to pick-up on the back of discretionary spending during the festival season. In Jul-Sept, the total market share of the bank in credit card ecosystem was 14%.

 

Typically, during the festival season-–Sept–Dec--credit card spending peaks as several card-issuing banks offer discounts and cashbacks on e-commerce and other platforms. The senior management of the bank Thursday said it had already taken action against credit card portfolios where signs of stress were seen.

 

During Jul-Sept, Axis Bank's credit card advances grew 22% on year, and it issued 1.06 million new cards, making it one of the highest credit card issuers in the country over the past eleven quarters, the lender said in an investor presentation. 

 

The issue of stress in the credit card segment is closely intertwined with lending to the unsecured sector, something that the Reserve Bank of India has been sounding against since March 2023. Sensing a potential build up of stress, RBI had announced an increase in risk weights on unsecured lending and exposure to non-banking finance companies in November last year, which made banks set aside larger amounts of capital on such assets.

 

Axis Bank's top management, Sameer Shetty, who heads the Digital Business and Transformation vertical, said that the bank will take action against portfolios which have a build-up of unsecured loans. In a post-earnings conference call with media, he said that the large private bank has already taken precautionary steps in areas that can get over-leveraged. Though the overall share of the microfinance segment is small in its loan book, Shetty said the bank is also monitoring this segment carefully, should any risks crop up. 

 

For the bank, fresh slippages during the quarter ended September were INR 44.43 billion, compared to INR 47.93 billion in Apr-Jun and INR 32.54 billion a year ago. Bulk of these were incrementally from retail loans, the bank said. In its portfolio, retail loans make up for 60%, followed by corporate loans at 29% and small and medium enterprises at 11%.

 

The bank's Jul-Sept financials detailed earlier in the day showed net profit for the quarter rose to INR 69.18 billion, up 18% on year. The rise in net profit was due to a rise in income and a marginal improvement in asset quality.

 

Total advances were up 11% on year to INR 9.99 trillion as of Sept. 30 and the deposits were up 14% on year to INR 10.87 trillion.

 

Within total advances, the retail book of the bank was up 15% year to INR 5.98 trillion. Home loans were up 5% on year to INR 1.67 trillion, personal loan book was up 23% on year to INR 754.44 billion and the credit card book was up 22% on year to INR 437.35 billion, as per the bank's investor presentation. 

 

The rise in business operations comes against the domestic policy environment boding well for the banking sector, Amitabh Chaudhry, Managing Director and Chief Executive Officer of the bank, said at the post-earnings call with the media. During Jul-Sept, the private lender opened 150 new branches, he said. 

 

Speaking about the policy environment, the central bank has been flagging how skewed credit-deposit growth could put financial system liquidity at risk, and that credit growth should not outpace deposit growth by miles. Finance Minister Nirmala SItharaman had also said banks needed to establish a healthy balance between the growth rate in their credit disbursal with that of their deposit collections.

 

Chaudhry said the bank was comfortable operating at the current credit-deposit ratio, at around 92%. He said the bank was in touch with the central bank and its credit-deposit ratio was aligned with the RBI's direction. Though Axis Bank's credit-deposit ratio was growing faster than its peers, Chaudhry said the lender was making efforts to boost deposit growth. 

 

In fact, if banks do not manage to raise deposits, RBI's proposed liquidity coverage ratio guidelines will likely dampen credit growth. Banks have to maintain high-quality liquid assets worth 100% of their expected outflows for the next 30 days as part of the current liquidity coverage ratio guidelines. With the tweaks that the RBI has proposed, the calculation of expected outflows will increase, pushing up the requirement for high-quality liquid assets. Banks typically maintain a liquidity coverage ratio that is around 20% in excess of the requirement.

 

Chaudhry said Axis Bank was well capitalised with a self-sustaining capital structure and adequate liquidity buffers. According to the investor presentation, the overall capital adequacy ratio stood at 16.1% as of September-end. 

 

Speaking about the ongoing quarter, the bank's top management said that festival demand and spending during the period will have a cyclically positive impact on Oct-Dec performance. Lending in the automobile and e-commerce sector is seen as encouraging ahead of the festivities, Shetty said. 

 

In adherence to what the bank's treasury, markets and wholesale banking products head Neeraj Gambhir had told Informist in an interview earlier this year, Chaudhry Thursday said the Monetary Policy Committee of the RBI is unlikely to cut interest rates in the current financial year.  End

 

Reported by Priyasmita Dutta

Edited by Deepshikha Bhardwaj

 

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