Don’t need to raise more capital immediately, says Axis Bank’s CEO Amitabh Chaudhry

• Bank’s capital adequacy ratio levels on account of the recent changes in risk weightage increase on select loans were manageable.
• The bank is focused on building a business that can provide a sustainable improvement in risk-adjusted returns.
• Bank continues to be well funded to continue investing in growth. Loan growth unlikely to be impacted by RBI crackdown on personal loans.
  

Axis Bank will not need to raise more capital after the Reserve Bank of India mandated banks to increase capital buffers for personal loans. Addressing select analysts this week, Axis Bank CEO Amitabh Chaudhry said that the capital adequacy ratio levels on account of the recent changes in risk weightage increase on select loans were manageable and there was no immediate need to raise capital. The bank's senior management conveyed that the bank’s current capital levels were adequate for growth (for next year) and protection (rating agency actions).

However, it did say that loan growth could scale down in a few of these segments. The bank has not been a big source of funds to non banking finance companies, which is the impact of RBI’s actions would be minor on that front as well. The bank’s management conveyed to analysts that some of these unsecured loans would become pricier following the increase in risk weightage on these loans. According to Kotak Institutional Equities, “There are no near-term concerns that need to be flagged off on asset quality or credit costs, but they are likely to gradually increase from the current historically low levels.”

Over the medium-term, the bank will continue to build on its existing GPS (growth, profitability & sustainability) strategy. The bank plans to concentrate on a mix of products and experiences for customers spread across the length and breadth of India. The bank is focused on building a business that can provide a sustainable improvement in risk-adjusted returns. Analysts said that the key takeaway was that the bank has the ability to keep investing in its franchise. Some of these investments have been driven by the tailwind of strong revenue growth and lower credit costs (due to lower bad loan accretion), which can reverse in the next few years. But the probability of the bank reporting a volatile credit cost as seen in the corporate NPL cycle appears to be low at this stage of the cycle, says Kotak.

A key lever of growth for the bank is its higher deposit accretion. The bank has been growing deposits at 300-4000 basis points higher than peers in FY24. The bank expects to continue with this momentum. According to Systamatix Institutional Equities, “Deposit growth has been 4-5% higher than industry with 6% market share in incremental deposits. Deposit growth has been 4-5% higher than industry with 6% market share in incremental deposits. The bank remains focused on profitability and hence deposit pricing is likely to be in line with the NIM and ROE targets going ahead,” says the brokerage.

Within unsecured lending, the bank remains focussed on existing customers of the bank to fuel its growth in advances. Axis Bank has said that it will avoid low ticket loans for growth and yet expects to grow above the sector growth which is likely to be 12-14% in FY25. The bank expects its net interest margin to settle at 3.8% and remain in the region consistently.